Save Net Radio Press Release

INTERNET RADIO MAKES A COMEBACK IN THE SENATE The Grassroots Movement to Save Internet Radio from Extinction is Reinvigorated by Senate Judiciary Committee – Brownback Offers Industry Saving Legislation

Save Net Radio Press Release

WASHINGTON D.C. – Legislation introduced in the House and the Senate last year to bring parity and equality to the new radio market made a comeback today during a Senate Judiciary mark-up. The Internet Radio Equality Act (IREA), which would establish a flat rate for performance royalty fees paid by cable, satellite and Internet radio providers, was offered as an amendment to the Orphan Works Act of 2008 (S. 2913) by Senator Sam Brownback (R-KS) during a scheduled mark-up of the intellectual property legislation today.

The amendment, which was later withdrawn, signals the renewed efforts of Net radio webcasters to reverse an unprecedented 2007 rate increase by the Copyright Royalty Board (CRB) that threatens to bankrupt the industry. Expressing his “strong support for internet radio,” Chairman Leahy welcomed future consideration of Internet radio royalties.

“It has been more than a year since the CRB raised the cost of webcasting to an untenable amount,” said Jake Ward, spokesperson for the SaveNetRadio campaign, “and all we are is a year older. Last year, more than two million people called on Congress to take action, and 150 Members in the House and Senate heard them and signed on in support of the Internet Radio Equality Act, but we still don’t have a solution. In the past year, rates have been set for net radio’s direct competition, satellite and cable radio providers, at a rate three and four times less than their proposals to Internet radio. It is disappointing and absurd that while Net radio is fighting for its survival, the industry has been put at an even greater disadvantage. This is unacceptable and hardly the good faith negotiations the House Commerce committee directed SoundExchange to participate in more than nine months ago.”

“Senator Brownback has been a staunch ally of small businesses and independent artists whose livelihoods depend on Internet radio since this fight began a year ago,” Ward continued. ”The offering of the amendment today and Senator Brownback’s leadership and dedication to equality should serve as a reminder to other Members that Internet radio and its tens of millions of supporters are not going away quietly. We should all be in this together. This continued battle is perlexing but we are committed to fighting for fairness – fairness for artists, fairness for independent labels, and fairness for webcasters. In the coming weeks and months, SaveNetRadio will be directing our formidable grassroots to support legislation that ensures artists are fairly compensated while leveling the playing field for webcasters.”

Following a March 2, 2007, decision by the Copyright Royalty Board (CRB), a division of the Library of Congress charged with establishing performance royalty rates for “digital radio” broadcasters, to increase rates for webcasters by an unjustified and unprecedented 300 to 1200 percent, a national coalition of webcasters, independent artists and Net radio listeners began petitioning Congress to take action. The Internet Radio Equality Act (S. 1353/H.R. 2060), which would set the rate for all digital radio – cable, satellite and internet radio – at 7.5% of revenue, was introduced in the U.S. Senate by Ron Wyden (D-OR) and Sam Brownback (R-KA) and in the House by Congressman Jay Inslee (D-WA) and Don Manzullo (R-IL).

In November of 2007, SoundExchange formally proposed that cable radio services pay royalties between 7.25% and 7.5% of their revenue to sound recording copyright owners and recording artists. The following month, the Copyright Royalty Board, citing market constraints and a desire not to disrupt the industry, further reduced the royalty rate for satellite radio to 6% of broadcaster revenue –increased incrementally to 8% over the next five years. Cable and satellite radio generated $2 billion in 2006 while Internet radio produced less than $150 million. Under the current CRB ruling webcasters would pay an average 30% of revenue in royalty fees – and as much as 150% in some cases.

Radio And Internet Newsletter reports: SENATE JUDICIARY COMMITTEE TO LOOK AT WEBCASTING ROYALTIES

SENATE JUDICIARY COMMITTEE TO LOOK AT WEBCASTING ROYALTIES:

"At a hearing of the Senate Judiciary committee this morning, Sen. Sam Brownback (R-KS) revived the issue of Internet radio performance royalties by proposing to add the Internet Radio Equality Act as an amendment to an unrelated copyright bill. Committee chairman Sen. Patrick Leahy (D-VT), while expressing his support for webcasters, countered by suggesting that the committee examine the issue in June in the context of broadcast radio performance royalties.

[RAIN will] have more details as they emerge. You can also check the SaveNetRadio website here: http://www.savenetradio.org."

I guess it may be time to go back to Washington DC again. Perhaps this time we can get some traction on that bill.

The Performance Royalty Debate

I'm going to miss this as we'll be setting up for the Bay Area Takeover day party at SXSW, but if you care about the state of radio royalties, go check out this panel.

south by southwest festivals + conferences: "The Performance Royalty Debate
Room 12AB
Thursday, March 13th
11:45 am - 1:00 pm


The United States is the only territory in which terrestrial radio is exempt from paying performance royalties to performers. A coalition of groups is seeking to reverse this anomaly and bring US policy in line with the rest of the world. This legislation faces strong opposition from the broadcast lobby. What are the issues at stake, and what are the chances that Congress will make it law?"

EMI scraps about 20 per cent of CDs produced, at an annual cost of £25m

Financial Times has a crazy factoid in this article about revamping EMI:

The record business - in which 85 per cent of artists are lossmaking and EMI pays £25m a year to scrap unsold CDs - "is stuck with a model designed for a world that has changed and gone forever", he says.

Good to know that they're realizing that digital distribution is going reduce waste and expenses like this.

CRB sets satellite radio royalty rates.

and guess what? They're lower than internet radio!

AP is reporting:

``Satellite Radio will pay a performance license rate of 6 percent of certain revenue this year for sound recordings played over its network, according to Copyright Royalty Board decision`` and ``also will pay a performance license rate of 6 percent of gross revenue subject to the fees for 2008, which will then increase by 0.5 percent annually before reaching 8 percent in 2012.``

Just to put that into context, Net Radio up until 2006 paid 10-12% of their revenue. And of course, unless we get a deal from SoundExchange that's codified by Congress, most net stations are going to pay what amounts to 300-600% of their revenues. That's right: 3-6 TIMES their revenues.

Perhaps it is time to start turning up the heat on Congress again to do something?

USA Today: Internet radio providers "close to settlement"

While I won't publicly comment on any negotiations that may be going on between SomaFM, SoundExchange and the RIAA, I'm happy to say that this article in USA Today sums it up well:

Net radio's future, which looked dismal earlier in the year after new copyright royalties were instituted, is apparently back on track. The proposed fees were so high many stations said they would be forced to go out of business. But Hansen says stations and record labels have been negotiating a settlement and are close to coming to terms.

musicFIRST makes some proposals for over-the-air royalties

Radio Ink: According to the document obtained by Radio Ink, the coalition is proposing changes to the law that would do away with broadcasters' royalties exemption and have small commercial stations -- "small" is not defined -- pay a flat royalty rate of $5,000 per year, while noncoms and college stations pay $1,000 a year.

Inside Radio has an op/ed piece by John Simson that has a lot of the usual rhetoric we hear from SoundExchange, but this part was very interesting:

Most over-the-air radio is owned by big conglomerates that centralize playlists. They build multi-billion dollar businesses around artists’ music. People who create that music should receive a fair portion of those revenues.

We want to be fair to smaller radio stations, too. For some this payment may be the difference between being profitable and having to struggle. This is why we are in favor of accommodations for smaller radio stations, college stations, talk radio and religious broadcasters. Small radio stations may not be able to pay like the big conglomerates, and we want to accommodate them. We hear them. We hope they hear us.

I'm happy to see SoundExchange is realizing that the diversity of independent radio is valuable. While Simson doesn't say that directly, by making a jab at large conglomerates with centralized playlists he's giving a nod to the independent programmers and station operators out there who are exposing listeners to new and interesting music, not just playing the same old proven hits that everyone knows already.

John goes on to say:

Sometimes Washington, D.C. rhetoric trumps the truth; the musicFIRST Coalition isn’t trying to put radio out of business like the NAB would have you believe. We want us all to march to the same drumbeat, one that won’t be easy to achieve, but that we hope is going to be fair.

One thing John doesn't mention is the international reciprocal rights that this would give US sound recording copyright holders. Currently, US rightsholders don't receive any money for airplay in non-US countries (that do charge broadcasters a royalty for sound recording performances). So while non-US stations are paying these royalties, even if they only play US recordings, all their royalty money goes to the pool of non-US rightsholders.

Once the US establishes a performance right, those collected overseas royalties will be distributed to the appropriate US-based rightsholders.

That's really the big issue here, and I'm convinced that it makes sense.

As long as those performance royalties are reasonable, of course!

Washington Post: Web Radio Seeks Resolution

Good article in Washington Post:

SoundExchange has already proposed a fee schedule that is lower than the Copyright Royalty Board's rates for commercial webcasters whose annual revenue is less than $1.25 million, and Ades said about 30 companies have accepted it. SoundExchange and the Digital Media Association also agreed in August to cap the total amount of per-channel fees that a Web service would have to pay, an issue that was of particular concern for webcasters such as Pandora that have millions of channels set up by individual users.

Still, webcasters say that even if there are favorable results to the negotiations, they are hoping for long-term legislation that will force all radio platforms -- including traditional AM/FM radio, which does not currently pay any royalties to SoundExchange -- to pay the same rates.

Read entire article

Senator Clinton "backs webcaster compromise"

Wired is reporting that Sen. Clinton Backs SoundExchange/Webcaster Compromise, although the letter they print from her to her NY constituents isn't that much different from the letters coming from all other senators: namely, "we don't want to legislate, but back a compromise between webcasters and SoundExchange".

Alas the big problem is that if there is no change in legislation, only SoundExchange member artists and labels will be affected; stations will still have to pay the highest CRB rates for non-SX material.

And that's a serious problem because of how few of the artists played by independent webcasters are SX members.

Press Release: Webcasters Stand Firm

(Released in conjunction with SaveNetRadio and the stations listed below)

FOR IMMEDIATE RELEASE:

Webcasters Stand Firm

Deal With Us In Good Faith or No Deal!

Wednesday, September 19, 2007 SAN FRANCISCO, CA. – Thousands of webcasters stand firm by rejecting the most recent Copyright Royalty Rate proposal made by SoundExchange. The latest take it or leave it “offer” made by SoundExchange on behalf of the recording industry has done nothing to further negotiations with webcasters, and a mere 24 small webcasters have felt they had no choice but to give in to the record labels demands.

“The latest proposal made by SoundExchange is extremely disappointing, at a time where we need real progress, not hollow tricks.” SaveNetRadio spokesperson Jake Ward said. “While the clock continues to tick for webcasters, SoundExchange continues to play games with their good faith The resounding rejection of this offer should serve as a reminder to SoundExchange, and to Congress, that the webcasting community is intent on a lasting and fair resolution to this issue, and willing to fight for it”

We, the undersigned have made it very clear to the Sound Exchange exactly why this latest offer is unrealistic and unacceptable. Its terms are not viable for webcasters seeking to run profitable businesses. One such term is the newly added ATH (Aggregate Tuning Hour) cap which immediately makes many mid-level webcasters ineligible for the recently presented agreement. For stations with revenues far below the $1.25 million cap, but with healthy listener bases, this ATH cap forces payments at the CRB rates.

This deal is not feasible for anyone who wants to grow their business. It contains the aforementioned $1.25 million revenue cap, which limits growth and puts in place a dangerously low hard ceiling for revenue generation. The Small Business Administration revenue cap for over-the-air broadcasters to be considered a small business is $6.5 million – this would seem a fair cap, with precedent.

Also, the offer only covers copyright holders that are SoundExchange members, of which there are approximately 20,000. Between us, the undersigned webcasters played far more artists than that in the last year. Under the SoundExchange offer for artists not on that limited roster, webcasters would have to pay at the bankruptcy-level rates, which were set in the fatally flawed Copyright Royalty Board (CRB) ruling in March. Those CRB rates were condemned by webcasters, the press, and members of Congress and deemed as wildly out of line and detrimental to all parties concerned – including the RIAA.

We have asked for a reasonable, long term solution, not one that is subject to increase at the whim of the record industry every five years. 2010 is little more than 2 years away, and it would be difficult for any business owner to accurately forecast profits and build a successful business model with a huge expense variable looming in the future.

Although several of the webcasters listed below are currently involved in direct negotiations with Sound Exchange, the process remains exceedingly slow and increasingly unpromising. In the continuing absence of a genuine offer that would allow internet radio to continue to be the vital medium for new music discovery we implore our listeners and fans of internet radio to continue to urge your legislative representatives to pass the Internet Radio Equality Act (HR2060, S.1353).

For information on how you can contact your representative, please visit http://www.savenetradio.org.

Signed:

Jeff Bachmeier, .977
Val Starr, GotRadio.com, 100hitz.com
Rusty Hodge, SomaFM.com
Rick White, BigR Radio. 1faith.fm
Donnie Mowbray, 181.fm
Kurt Hanson, AccuRadio
Dave Landis, Ultimate 80’s
Bill Goldsmith, Radio Paradise
Ted Leibowitz, BagelRadio
Sal Amato, Dot1media
Brandon Casci, Loud City
Jim & Wanda Atkinson, 3WK
Ari Shopat, Digitally Imported
Mike Roe, Radio IO

Divide and Conquer

The RIAA is working hard to divide and conquer webcasters via SoundExchange. How? They're stalling on the DiMA and Small Commercial Webcasters deal. They're implying to webcaters that the lame deal they're offering webcaters is only good until September 15th, and if they don't take it by then they'll be in big trouble.

But that's not the case.

Stay the course. The deal that SCW gets will apply to all copyright holders, not just SX members. And it will be extended to anyone who wants to participate under the deal.

SoundExchange extends (not very good) offer to small webcasters

Yesterday, SoundExchange emailed a not very good offer to small webcasters. This offer is separate from an offer being negotiated with a group of 6 small webcasters who were parties to the CRB hearings known as the Small Commercial Webcasters group and represented by David Oxenford.

There has been some news coverage about webcasters' reactions to this.

As for my reaction to parts of parts of the offer:

These attached rates only apply toward each webcaster’s first 5,000,000 aggregate tuning hours (“ATH”) of usage each month. For any usage in a single month above 5,000,000 ATH, the webcaster must pay the applicable commercial webcaster rates (currently $0.0011 per performance during 2007.) By way of example, a service would need to have an approximate average of 6,945 simultaneous listeners, each listening for thirty consecutive days, 24 hours a day, in order to exceed 5,000,000 ATH of usage.

It should be pointed out that this number is very low; to put that into context, we're capped at an AQH of under 7000; but for example WBUR, a public radio station in Boston has an AQH of over 40,000. Currently, SomaFM averages a little over this, typically around 7800 average listeners.

Now according to a discussion I had with John Simson, this only applies to listeners in the US. So that reduces our amount of listeners by 40%. But at the rate we're growing, in 2 years we'll be over that limit with our US listeners. So this agreement won't work for us.

If a webcaster’s total annual revenue exceeds $1.25 million, it is no longer eligible for these offered rates and terms. After the conclusion of a six-month “grace period,” during which time it may continue to pay under the offered rates and terms, the webcaster must calculate any subsequent liability using the applicable commercial or noncommercial webcasting rates, as defined in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).

So if we exceed that revenue cap, our royalties would go from $150,000 a year to over $2 million or more a year. In fact, if we extrapolate our current revenue to royalty ratio, our rates would go from $150,000 to $5 million at the point we hit the $1.25 million revenue cap.

So if we can increase the size of our business to over 1.25 million dollars, we'll be forced out of business.

This isn't an offer. This is a restraint of trade.

Please note that SoundExchange is making this offer only on behalf of its copyright owner members and has no authority to make this offer on behalf of non-members of SoundExchange. For transmissions of sound recordings owned by non-members of SoundExchange, webcasters must comply with the rates and terms in the Final Determination of the CRJs, published in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).

This is the real problem here, and why we need congress to act. SoundExchange only represents 20,000 artists, and many artists SomaFM plays are not SoundExchange members (we are playing about 8000 different artists currently). To put the 20,000 number in context: Live365 plays over 250,000 different artists.

Bottom line: this is an unworkable offer, and it is not in any webcaster's interest to accept this offer.

Here's the full text of the letter, or get a PDF of this letter and the actual SWSA Term Sheet 2006:

Dear Small Commercial Webcaster,
 
  I am writing on behalf of SoundExchange, Inc. (“SoundExchange”) and its member copyright owners to offer certain small commercial webcasters an alternative rate structure to that enacted by the Copyright Royalty Judges (CRJs) in the recent webcasting proceedings.  Through this offer, qualified webcasters have the option of utilizing the attached rates and terms for nonsubscription transmissions of SoundExchange member sound recordings under 17 U.S.C. § 112 and § 114. 
 
  At the request of members of Congress and congressional committees, SoundExchange is making the attached offer available to small commercial webcasters which do not exceed an annual revenue threshold or a monthly threshold on aggregate tuning hours.  The attached rates and terms generally track those previously available under the prior agreement negotiated pursuant to the Small Webcaster Settlement Act (SWSA), which allow qualified entities to pay royalties based on a percentage of revenue (10% or 12%) or a percentage of expenses (7%) as long as their total annual revenue (both direct and affiliated revenue) does not exceed $1.25 million.  However, there are certain additional terms:  

           
• These rates and terms are available for eligible nonsubscription transmissions for 2006-10, thus effectively extending the rates and terms negotiated pursuant to SWSA for an additional 5 years.  
           
•           These attached rates only apply toward each webcaster’s first 5,000,000 aggregate tuning hours (“ATH”) of usage each month.  For any usage in a single month above 5,000,000 ATH, the webcaster must pay the applicable commercial webcaster rates (currently $0.0011 per performance during 2007.)  By way of example, a service would need to have an approximate average of 6,945 simultaneous listeners, each listening for thirty consecutive days, 24 hours a day, in order to exceed 5,000,000 ATH of usage.  
           
•           If a webcaster’s total annual revenue exceeds $1.25 million, it is no longer eligible for these offered rates and terms.  After the conclusion of a six-month “grace period,” during which time it may continue to pay under the offered rates and terms, the webcaster must calculate any subsequent liability using the applicable commercial or noncommercial webcasting rates, as defined in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).  
           
•           Webcasters must provide census reporting to SoundExchange and be willing to work with SoundExchange on implementing technology, developed at SoundExchange’s expense, to track transmissions and provide the census reporting required under the agreement.            

            As with SWSA, a condition of this offer is that all parties affirm that this agreement is non-precedential and does not reflect an agreement between willing buyers and willing sellers in the marketplace.  Rather, this agreement reflects the desires of certain members of Congress that certain small commercial webcasters receive a below-market rate and as a compromise motivated by the unique business, economic and political circumstances of small webcasters, copyright owners, and performers.  All parties agree that this agreement (including any rate structure, fees, terms, conditions, or notice and recordkeeping requirements) may not be introduced in any proceeding, including those related to the setting of rates and terms for the licensing of sound recordings.  

              Please note that SoundExchange is making this offer only on behalf of its copyright owner members and has no authority to make this offer on behalf of non-members of SoundExchange.  For transmissions of sound recordings owned by non-members of SoundExchange, webcasters must comply with the rates and terms in the Final Determination of the CRJs, published in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).  SoundExchange is working, however, to implement an industry-wide resolution that would apply rates and terms similar to the attached for all eligible small commercial webcasters and all sound recording copyright owners.  In the event that industry-wide regulations are adopted by the CRJs (or other appropriate authority) with rates and terms substantially similar to those contained in this agreement, this agreement will cease to operate and all parties will be governed by the industry-wide regulations.  Ultimately, an industry-wide resolution will be easier for all parties to administer, so it is our hope that such a resolution can be obtained.  

              If you are interested in accepting these rates and terms offered on behalf of SoundExchange’s members, please sign the attached election form and return the signed form to SoundExchange by September 14, 2007.  

              Should you have any questions about any of the information within, please contact Kyle Funn, Licensing & Enforcement Specialist, at 202.640.5881.  
  
  Respectfully,
  
    John L. Simson
   Executive Director
  SoundExchange, Inc.

 

How the RIAA wants your internet radio experience to work.

The RIAA is proposing mandatory DRM requirements for digital radio. The system they point out to for example is developed by Media Rights Technologies and you can see an example of it on their demo radio site.

To listen to radio protected with this DRM system (the one the RIAA is proposing), you must install the "SeCure X1 Recording Coltron" software.

To make a long store short here's the hoops you have to go through to listen:

1. You must be running Windows. No MacOS, No Linux.
2. You have to download their player which entails restarting your computer which installs special software to interact with your sound card. This may involve "root kit" technology.
4. You can't use a stand-alone hardware player like the Roku or the Squeezebox.
5. Use of the software is not allowed in certain countries due to US Export laws, including Iraq and Cuba. So US Forces cannot listen to internet radio in many overseas locations that they are deployed to.
6. You can't use iTunes or Winamp to listen to streams.
7. The software can't be installed on a "virtual operating system", so Mac/Linux users can't even use it under a virtual machine.
8. The software doesn't work with external (USB) sound devices

I tried to check out their player and report back to see what it does, but my PC is a Mac running Parallels and it won't install. If you are adventurous, and have a PC, try installing their software and see what happens. My understanding on how it works is that it utilizes all the available DSP power of the WIndows sound manager, which keeps you from being able to record the audio with a loop-thru analog trick.

Are the CRB rates going to be enforced on July 15th?

John Simson on (APM's) Marketplace just now said that he expects webcasters to be in compliance with the rates that take effect on Monday. This seems counter to what has been reported by others.

It's available as a podcast at Marketplace.org, it's about 10 minutes (or 1/3 of the way) into the July 13th episode.

The critical piece:

Tim Westergren at Pandora asks John Simson, "Are these rates going to be enforced on Sunday?"

To which Mr. Simspon replies, "There is a ongoing business discussion going on between us and the representatives of these companies, but while that discussion going on, we expect them to comply with the law as it is on July 15th and July 16th."

Eliot Van Buskirk at Wired has this to say in his latest post:

Here's the deal, according to SoundExchange. Payments under the new rates are legally due on Monday, but no lawsuits are going to be meted out on that day for webcasters who do not pay, as negotiations continue. Fees that are not negotiated away will still be due retroactively -- plus interest.

We have a truce right now with the RIAA and SoundExchange, but the "Peace Accord" is still to be worked out. We still might get a bomb dropped on us.

Please keep calling your reps. And if you haven't supported SomaFM lately, we could user your financial support right now.

SoundExchange to require DRM in exchange for lower royalties?

Washington Post:

SoundExchange offered an annual fee cap of $50,000, if the broadcaster reports everything that is played and adopts technology that limits the ability of listeners to copy broadcasts. The annual fee can be deducted from the royalties paid to artists and record labels.

I sure hope this doesn't mean true DRM, which currently means we would have to start limiting our streams to Windows Media.

There are other ways to thwart stream ripping, the simplest means we stop sending real time metadata on the MP3 streams with the now playing track info.

Pandora Exec: SoundExchange Will Not Enforce New Royalty Rates on Sunday

Wired's Eliot Van Buskirk is reporting that SoundExchange has promised that there won't be any enforcement of royalty collection on Sunday (or Monday for that matter):

The SoundExchange executive promised -- in front of Congress -- that SoundExchange will not enforce the new royalty rates. Webcasters will stay online, as new rates are hammered out.

This was to be expected. At worse case, SoundExchange would start sending out notices that stations are not in compliance, and that they are subject to the 1.5% late fee. It's a process that doesn't happen overnight. But still, this implies that they are willing to continue negotiations and that's a good thing:

Going forward without the royalties being collected, SoundExchange and webcasters will negotiate a new royalty rate with Congress looking over their shoulder -- "and last but not least, the public looking over Congress's shoulder." Alternatively, Congress now has time to consider the Internet Radio Equality Act, which would set webcaster royalties at 7.5 percent of revenue and allow them to continue operating pretty much as they have been.

Read the whole article here.

Online Radio: It was nice while it lasted

Eliot Van Buskirk at Wired writes:

Congress's attempt today to broker a deal between webcasters and record labels will amount to nothing, according to a SoundExchange representative, because Wednesday's decision by a federal court of appeals made the new online radio royalty rates "etched in stone."
Overall, the person I talked to seemed certain that the rates are going into effect -- regardless of what's going on in Washington today.

The RIAA has a very powerful lobby. They almost always get their way when it comes to Washington DC.

As it stands now, the only fiscally prudent path now for webcasters is direct licensing, which reduces sound recording performance royalty payments legally by cutting out the artist's 50% share of the royalties. Labels can offer broadcasters discounted, direct-license deals at up to a 50% discount over crb rates and still make the same amount of money. Or by offering just a 40% discount, webcasters would pay the same as they've paid in the past, and RIAA labels would earn a 10% premium by bypassing the revenue share with artists. It's just a simple money-grab from the artists by the big labels.

But the other problem with direct licensing is that it is almost impossible to do with all the different artists and labels we play on SomaFM. 10% of the music we play is rare, out-of-print tracks. There isn't even a label to contact to get permission to play it from anymore.

Note to the RIAA: smooth move, forcing a legal music service out of business due to your greed, and it will server you right when those people all turn to the illegal file sharing networks to get the music they want.

Notes from the Hill

Misc notes from DC on the status of the IREA and any settlements:

Today, at 4pm Eastern, Rep. Ed Markey has called for a roundtable about the web radio royalty issue.

The IREA has 128 co-sponsors now, and 5 in the senate. Finally starting to see some progress in the senate.

I've heard that there are lots of negotiations going on right now with the RIAA. Technically, they're negotiating with SoundExchange, but all the negotiators have RIAA business cards. SoundExchange is effectively the RIAA's puppet, since their board is controlled by RIAA and AFM (Musicians Union, who works closely with the RIAA).

There are separate negotiations with NAB, NPR, IBS and CBI (college broadcasters). Rumor is that nothing came out of NPR's meeting. The Small Commercial Webstasters are also talking to SX and are represented by David Oxenford. (I had previously reported erroneously that David Oxenford was not at the negotiations.)

DiMA, representing SaveNetRadio as well as AOL, Yahoo, Real, Live365 and others, is reported to not getting anywhere with the RIAA. Apparently the RIAA is refusing to compromise (gee, imagine that).

It is all about control, control via money. RIAA wants more control over what NPR stations like KCRW are playing, as more and more NPR stations in major metro areas are hosting influential music programs. And of course they want more control over the bigger internet stations. The RIAA doesn't like the fact that their (often inferior) product isn't being promoted as heavily as independent (and superior) music on these channels.

We basically have one more day to keep the rates from going into effect. so please call your senators and congressmen now and ask them to support the IREA, the internet radio equality act.

U.S. Court of Appeals denies webcasters' "Motion to Stay"

RAIN is reporting the U.S. Court of Appeals for the D.C. Circuit has denied webcasters' "Motion to Stay" the new webcast royalty rates. This means that the new rates go into effect on July 15th, 2007 (which is a Sunday, so it will actually be that following Monday).

Our only hope now is that we can get a vote on HR.2060 before Friday. That basically means today, Thursday, July 12th, 2007.

Naked Corporate Greed

Flint Journal quoting John Simson:

"I don't see any other way to characterize this as anything other than naked corporate greed," said John Simson, executive director of SoundExchange.

When I first read this, I assumed he was talking about the RIAA and the Big 4 record labels they represent. Actually, he was talking about internet broadcasters!

The complete quote, from an RIAA press released issued by SoundExchange:

"This legislation is a money grab by big corporations like Clear Channel and AOL at the expense of artists and labels," SoundExchange Executive Director John Simson said in a press release issued last month. I don't see any other way to characterize this as anything other than naked corporate greed. It's just not fair to artists."

This is where the RIAA is trying to mislead the public into thinking that only a few big webcasters are going to be affected by the new royalties. In reality, the big corporations who are going to be affected most are AOL and Yahoo. But they'll end up just cutting direct licensing deals with the Big 4 and the only difference will be that they play less independent artists.

Other "large webcasters" who aren't so large and will be adversely affected are Live365 and Pandora, both who qualify as small businesses under US SBA guidelines.

But he never talks about who is really going to get screwed: the small independents like SomaFM.

Thanks John. When I hear you talking about naked corporate greed, I know who you're really talking about.

Representative Jay Inslee addresses Congress

Congressman Jay Inslee (WA-01), original cosponsor of the Internet Radio Equality Act, spoke on the floor of the U.S. House of Representatives in support of his bill. The following is the complete text of Congressman Inslee’s statement:

Mr. Speaker, I come to the floor of the House this evening to discuss the potential loss of Internet radio by Americans, a tremendous service that, because of Internet software and musical geniuses, 70 million Americans now enjoy the ability to listen to music by Web broadcasters over the Internet.

It is a tremendous service. It is as ingrained in a lot of Americans' daily lives as a cup of coffee and the morning newspaper.

Unfortunately, I have to inform the House that that service may be gone in a matter of a few weeks if we don't reach a resolution of a, frankly, wrong decision decided by the Copyright Royalty Board. What I am disturbed to report to my colleagues is that some time ago, March 2, 2007, we had a decision by a Federal agency, the ramifications of which would be to shut down the ability of Americans, on a realistic basis, to continue to enjoy Internet-based radio.

The reason this happened is that this board was given the authority to set the royalty that should be paid by Webcasters who stream out this great music, by the way, tremendously diverse music. One of the great things Americans love about Internet radio is you have such eclectic, different types of music, not just top 40. You know, I haven't progressed past the Beach Boys in the 1960s, but there are a lot of kinds of other music. Internet radio has been tremendous by allowing people to enjoy thousands of different genres and types of music.

But now this Copyright Royalty Board has issued a decision which will explode the royalty that these Webcasters are forced to pay to those who generated the music, to the extent that it will make it totally economically impossible for these businesses and these Webcasters to continue to stream music to the 70 million Americans who now enjoy it.

We need to fix this problem. We need to fix it urgently, because the decision will, this guillotine will come down on July 15 if either Congress doesn't act or an agreement is not reached between the parties to adjust this copyright fee that will have to be paid by the Webcasters.

So we need to fix this problem, and, in doing so, we need to do it in a way that is fair to the musicians and artists who create the music that 70 million Americans enjoy over the Internet. These artists work hard in producing this music. They share their genius. It's an artistic gift they have, and they share it with Americans. They need to be compensated fairly to allow them to maintain their business model as well.

Unfortunately, this was a wildly disproportionate decision by this board that is grossly unfair to the distributors of music and simply will allow them not to continue in business. And to give folks a feeling of how distorted this decision will be, I would like to refer to this graph which shows Internet radio per-song royalty rates under preexisting law starting in 2005, that started at $.00008 dollars in 2005, and by 2010, we will have foisted on us 149 percent increase in these royalty rates.

I am not sure any business model can tolerate a three-fold increase just in the per-song royalty rates that these folks are having to undergo. Unfortunately, this royalty rate means about a 300 percent increase for big Webcasters. But because of the particular rules here, it's a 1,200 percent increase for small Webcasters, so the small Webcasters, which are the vast majority of Webcasters will be hit potentially by 1,200 percent increases.

Now, this board, this Copyright Royalty Board has refused to reconsider their decision. What it means in the real world is the Internet going silent. Many of the stations a few days ago went silent to demonstrate and to protest its decision. I know Americans are disturbed by this, and they are now talking to my colleagues. I know thousands of them have communicated with my colleagues as a result of this, so we need to fix this problem.

I know in my district, I am from an area just north of Seattle, First District in the State of Washington, we have a Webcaster called Big R Radio. They stream to over 15,000 listeners who enjoy their product. But because of this decision, their rates are going to go up to a level, and you have got to understand how bad this is, the rates they would have to pay just for their royalties, not for their overhead, their rent, their salaries, the royalties they would have to pay for this exceed by 150 percent the revenues that this business is getting in.

Well, obviously, that's untenable, and this company will have to either go offshore or simply shut down if some change is not made. That is bad for Big R Radio, the company, and it's bad for the 15,000 people that enjoy their music right now. We need to fix this problem.

So the first damage that was done is this per-song radio royalty, but there was another, perhaps even more odious thing that this board did, the preexisting rule required a $500 charge, or, excuse me, a per-station minimum fee. This new ruling required a $500 charge for each streaming station that they offered. Webcasters, of course, stream under certain channels. But under this decision, there was no limit on the amount total in this per streaming channel that would be placed. Many, if not most Webcasters, have multiple channels.

So, if you look at what it will cost, just three of these Webcasters, Pandora, RealNetworks and Yahoo, because they are getting socked with this $500 per channel, and they broadcast literally thousands of channels with no limit, just those three Webcasters would have to pay $1.15 billion, with a B. These rates will dwarf the radio- related revenues by substantially more than $1 billion.

In other words, it will charge these businesses more than $1 billion more than the revenues they generate from this business. That's absurd. It's ridiculous. It has no relationship to economic reality, and it is a government glitch, a foul-up of the highest order that needs to get repaired.

This would result in 64 times more the total royalties collected by the group called SoundExchange that collects these royalties in 2006, an increase of more than, this is a pretty amazing number to me, 10 million percent over the minimum fee of $2,500 per licensee. Clearly, this is beyond the realm of economic reality.

Finally, this royalty board, the third thing that they did, they eliminated the percentage of revenue fees that many small Webcasters use to determine their performance royalty, which would be severely damaging to small Webcasters. So, to put this in perspective, in a global sense, I want to refer to what this will mean in total royalties.

If you look at this chart, you show total royalties in 2004 of $10 million. The estimated fee under the old royalty rule in 2006 would be $18 million. But under this decision, this flawed decision, it will actually be $1.150 million. So if you want to see the difference graphically of what the old royalty would be in 2006, this bubble would go to this supernova, I would call it, in 2006. This is untenable. It needs to be fixed.

Now, in order to fix this, Representative Manzullo and myself have introduced the Internet Radio Equality Act, it's H.R. 2060, and this bill would fix this problem by doing something that appears eminently fair to me, which would simply have the same rate to be paid by Internet-based Webcasters as broadcasters now pay over satellite radio, over cable radio and over juke boxes.

What we are simply saying is that we ought to have equality, fairness, that is why we named it the Radio Equality Act, by having parity, the same level, which is 7.5 percent of revenue, a transition rate, in 2010. This is something that is fair, equal, and economically realistic to allow 70 million Americans to continue to enjoy their radio over the Internet. And now, 128 Members of the U.S. House of Representatives have cosponsored this bill just in a matter of a month or two; and the reason they have done so is I think they have heard from their constituents who want to keep their service going and realize how ridiculously out of whack this particular decision was.

Now, I know it may surprise some Americans to know that government agencies can make mistakes, but certainly one was made here and we need to fix it, and we need to fix it quickly. On July 15, this decision will go into effect. I encourage my colleagues to look at this bill, H.R. 2060, the Internet Radio Internet Equality Act, and cosponsor it to add their voices to the choir to demand action by the legislature to fix this bureaucratic foul- up.

Obviously, this is supported by a large number of people, not just broadcasters. National Public Radio certainly has an interest in this. I know that many of my constituents enjoy it, and it is in great jeopardy tonight if we don't act. I know one station has already gone off the air because of this bureaucratic snafu. The NPR affiliate Rock Island Illinois- based WVIK served hundreds of thousands of citizens. They have switched off their Web stream because this is an economically untenable situation for them if it is not fixed. So what their constituents and their customers are now hearing over the Internet is silence. Silence may be better than some of the music my kids have listened to over the years, but it is not better than the thousands of stations and access that people have over the Internet. We want to keep that available for Americans.

I also want to say that why I think this is so important is diversity. One of the best things about the Internet is it gives you what you want, not what the broadcaster wants you to listen to. And, frankly, because of the consolidation of the industry and the radio over- the-air industry, we are hearing a lot more of the same thing over and over and over again. And some of it is great music. We are still stuck in the 1960s, many of us, and we enjoy it, but diversity and having access to Appalachian bluegrass or music from the subcontinent of India; I heard of a genre, it was basically heavy metal, hip-hop, country at the same time, and that is quite a genre. But this provides diversity for people, and they ought to have their multiple tastes enjoyed and that is really in jeopardy tonight.

Now, the other thing I want to say is that this decision will go into effect July 15, and these stations will be in great economic jeopardy beginning just in a week or so; and, unfortunately, some of them as of July 15 might shut off their streaming. Others are going to start to consider what to do. Some may consider going offshore, which is not a healthy situation for us for a variety of reasons.

But I want to assure the parties who might be involved in discussions in this that after July 15 it will not be the end of this discussion. If Congress is unable to act before July 15 and if the parties don't reach some resolution of this, July 15 will not be the end of this effort. It will not be the beginning of the end of this effort; it might be the end of the beginning of this effort, because as these stations start to shut down, Congress will be deluged more than they have already been deluged with voices of protestation exercising their right to petition their government for redress of grievances, and one of the biggest grievances people are going to have is they can't hear their radios over the Internet anymore. The 128 cosponsors we have today even before the sword of Damocles has fallen on the music is going to grow, and we are going to be back here to continue to grow this until we get relief.

So I am hopeful that the parties are talking to one another to try to reach an economically viable and fair resolution of this so that artists, performers, songwriters can continue to have a meaningful economic model, so they can continue to do their work and they will be compensated for it; that Web casters can have an economic model to allow them to stream it over the Web, and 70 million Americans can continue to enjoy the pursuit of happiness over the Internet listening to this great music. If that does not happen by July 15, we are going to be back here until it gets resolved and this chorus, this drumbeat will continue. We do not intend to let, in the words of Don McLean's song, not allow the music to die. It is, too, a part of the American culture, and I will encourage my colleagues to help out by cosponsoring this bill.

RIAA Myths and Lies about Internet Radio

Kurt Hanson has published a table of Myths and Lies about Internet Radio, which counters the arguments put forward by the RIAA for drastically increasing net radio royalties. Next time you read a RIAA or SoundExchange press release, check it out for accuracy here.

Sales of digital tracks up 49% in first half of 2007

According to Nielsen SoundScan, sales of digital tracks are up 49 percent for the first half of 2007 compared to the same period in 2006.

I guess all the promotional benefit of internet radio is really paying off - people can listen to a track on SomaFM and then click to buy the track instantly online at iTunes.

Oh, wait. The RIAA says "Internet Radio confers little promotional benefit to most performers" and that's why net radio has to pay really high royalties.

Listener Questions: Will this really affect SomaFM?

A listener writes:

The question I have though is how badly are "ambient" stations like Soma going to be hurt? The music labels that put out this kind of music are not the big boys. I think most of them would realize that this type of broadcast is their best bet for getting heard. Aren't the royalties up to them? As for playing top 40 on the internet. Who cares. Let them have it.

This law covers any and all copyright works, not just recordings owned by the big labels. The RIAA and big labels had a great influence over this law, but it applies to all copyrighted works. In order to play them without royalties, we need to get waivers from the copyright holders. So far many of the copyright holders are reluctant to grant us waivers.

So, we would have to go back and execute licenses directly with every copyright holder whose music we play. That would be a few thousand licenses we'd have to do. Many of the copyright holders won't sign these licenses without having a lawyer look at them, and many of them don't want to pay a lawyer to look it over. Some have already said they won't grant a waiver, even though they like us to play their music.

The reason the statutory law exists is so that radio stations won't have to enter into distinct legal agreements with the hundreds (or in our case thousands) or copyright owners of the material they play. We could easily keep one or more full time paralegals busy managing all the music licensing. It would also put large delays in the time from when we pick a song to play and when we're legally allowed to play it over the air.

Ironically, direct licensing works best for people playing the Top 40. You can enter into blanket direct licenses with the Big 4 labels pretty easily. But their license terms encourage you to play the music they're pushing heavily and discouraging you from playing the songs they're not pushing.

I believe that it is best for the listeners when we choose music based solely on its artistic merit, and not on any financial concerns. If we're playing a song just because it costs us less to play it than another song, isn't that the same as us taking payola to play a song?

Music First: Radio does not sell records

According to a study by Stan Liebowitz for the Center for the Analysis of Property Rights and Innovation linked (but apparently now removed) from the Music First coalition website's FAQ states:

Radio does not have the positive impact on record sales normally attributed to it. Instead, it appears to have an economically important negative impact, implying that overall radio listening is more of a substitute for the purchase of sound recordings than it is a compliment.

A more detailed abstract of the study:

This paper undertakes an econometric investigation of the impact of radio play on sales of sound recordings using a sample of American cities. The results indicate that radio play appears to have an economically important negative economic impact, implying that overall radio listening is more of a substitute for the purchase of sound recordings than it is a complement. This research exposes an important fallacy of composition in applying to the entire market a conclusion based upon the positive relationship between radio broadcasts of particular sound recordings and the sales of those particular sound recordings. This finding imposes a more complete view of the implications of economic suggestions to allow the radio/record market to function unhindered by government regulations.

Unfortunately, I didn't get to read the full study before they took it down. (Maybe they took it down because they didn't have the proper copyright clearances to publish it on their site, oh the irony.) But radio Consultant Mark Ramsey, who did read the whole thing, makes this comment:

Even if we accept the conclusion that some radio listeners don't buy music and further accept that radio satisfies whatever need they have, the author of the study doesn't acknowledge the tangible difference between the stealing of music via P2P and the fact that radio stations do indeed already pay considerable license fees to play the music industry's content on the public airwaves. This notion that radio is getting something for nothing is downright offensive.

After a bit of searching, I tracked down an online preliminary version of this report (PDF) if you want to read it yourself.

Stan Liebowitz has flip-flopped about similar issues in the past, writing a paper for the CATO institute that said MP3s were killing music, then saying in 2002 the decline in music sales was in sync with the overall decline in the economy, but then in 2003 blaming MP3s for declining music sales again, based on data supplied by the RIAA.

I guess I'm just curious about how the record industry thinks people find out about new music, if it's not over the radio, or from file sharing, or what. How many people are going to want to buy something t