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?"

SXSW Panel: using music online

Elise Nordling (IODA and Indie Pop Rocks! on SomaFM) hosted a panel on using music online, and all the steps you have to go through for podcasting; using music synchronized with video; videos and sound recordings of concert footage and of course internet radio royalties. A podcast of the panel will be available next week, but here are some pictures:

Elise Nordling, Brian Zisk, Rich Bengloff, Rusty Hodge, Chris MacDonald"

Rich Bengloff of A2IM and Sound Exchange board member talks with Rusty Hodge from SomaFM"

Rusty Hodge answering questions after the panel"

Here's what we learned from this panel: there is so much confusion in the legal use of using music online. Most people don't even know where to begin. Everyone wants to use music (and license and even pay for it) but it's not being "sold" in a way they can deal with it.

We could have done a whole day on the different sub-topics. People want to know. There are lots of people who want to use music online, and legally can't or don't know how to. So they end up just doing it illegally.

Note to music industry: start selling your product in a way that people want to buy it. Or they won't bother to buy it!

SXSW Panel: The Trials and Tribulations of Using Music Online

Be sure to come by the panel I'm on at SXSW: The Trials and Tribulations of Using Music Online.

This panel will discuss the usage of music for various online formats, including (but not limited to) podcasting, blog MP3 postings, internet radio, and vlogs (or other video). This session will address the different copyrights, licensing, and royalties associated with different types of use. Learn how and why you need to get copyright and/or licensing clearance for the music you use, and which clearances you need for which uses in order to operate legally. We will also discuss copyright royalties, royalty payments, and royalty collectors, including SoundExchange, ASCAP, BMI, and SESAC.

Should be fun. If you've never met Richard Bengloff (who heads up A2IM and is on the SoundExchange board and will be on this panel), he's a great guy who is amazingly knowledgeable about the music business, and genuinely cares about artists and content creators. Rich and I don't always agree, but I learn something every time I talk to him.

I can't wait. The other folks on the panel are all great as well (Brian Zisk and Chris MacDonald) as well as our moderator Elise Nordling (who besides programming and hosting Indie Pop Rocks works for IODA, an online music licensing company).

Room 10
Tuesday, March 11th
3:30 pm - 4:30 pm
South by Southwest, Austin, TX

CRB Update

Just a quick update on the CRB / Royalty issue:

SoundExchange and small (and large) broadcasters continue to hold discussions on the royalty situation. SoundExchange has made an offer to small webcasters that has some problems, but the base rate is acceptable. (What's not acceptable is the proposed limitations on listeners and revenue caps).

We've verbally agreed to continue paying at the 2006 rates while the discussions continue. I don't think SoundExchange wants to shut down most webcasters; and I've been told by several SoundExchange board members that they think highly of what SomaFM is doing.

One other thing: it looks like the Copyright Act is getting a substantial re-write due around 2010 and will treat analog and digital systems the same. We learned this meeting with members of the House and Senate Judiciary committees this summer.

So that's it: not much of an update, but that's what we know now.

CRB denies SoundExchange's request for rehearing for Satellite radio rates

The CRB ruled that Sat Radio would pay 6.0% (increasing to 8.0% by 2012) of their adjusted gross revenues. Apparently, SoundExchange doesn't like the exceptions to the gross revenue that the CRB allowed.

On December 3, 2007, the Copyright Royalty Judges (“Judges”) issued a Determination of Rates and Terms in this matter (“Initial Determination”). Pursuant to 17 U.S.C. § 803(c)(2) and 37 C.F.R. Part 353, SoundExchange, Inc. (“SoundExchange”) filed a motion for rehearing “to reconsider the definition of Gross Revenues set forth at pages 28-31 of the [Initial] Determination; and, in light of recent predictions that approval of the XM/Sirius merger is imminent, reconsider its unwillingness to assess the impact of a merger as part of its [Initial] Determination.” The Judges permitted a response and XM Satellite Radio, Inc. (“XM”) and Sirius Satellite Radio, Inc. (“Sirius”) (collectively, the “SDARS”) filed a timely response, opposing the motion. The Judges now deny this motion. Nevertheless, as discussed below, the Judges have determined that one limited area of the Initial Determination warrants clarification.

PDF of full decision here.

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?

The Promotional Value argument

There is a valid argument that todays corporate radio operations (e.g. CBS, Clear Channel) is not providing adequate promotional benefit to record companies to justify their exemption from a performance right royalty (much like internet radio already pays).

But the argument that there is no promotional value for radio is a weak one, and an argument that I wish MusicFirst (the association backed by SoundExchange, RIAA and many independent record labels) would stop using.

In the testimony from Alice Peacock (a singer/songwriter) she said something that bothers me because of the context she uses it in:

Frankly, the promotion argument sounds a little silly. Last week I bought a pair of Nike shoes. I wear them everywhere—well, except to Senate hearings. With the Nike logo on my feet, I am probably promoting their brand wherever I go. Can you imagine if I decided not to pay for the shoes on the grounds that my promoting Nike should excuse me from payment? My refusal to pay would be called "shoplifting." But radio's refusal to pay artists is called "business as usual."

Wearing shoes with a logo around town may not be significant promotional value; but once she brings those logos on stage in front of a large audience, it's a different matter!

You don't think the popular performing artists wearing clothes with the big designer labels are buying all that stuff themselves? No, the designers give them to them to get the promotional publicity for seeing their brand worn by a star.

It's also common for performing musicians to get lots of gear and other goodies in exchange for promotional consideration. Guitars, drums, cymbals, keyboards are commonly given to popular musicians to use, so that aspiring musicians will see them and want to buy that brand as well. Why do you think so many drummers have their drum brand in huge letters on their drums? And it's been going on that way for decades.

Radio has a tremendous amount of promotional value. However, the way many stations do things in this new media-consolidated world detract a lot of value from that promotion. How often do you hear a radio DJ play a new song, and mention the album name or the label it's on?

The other argument against promotional value (the one that no one seems to like to talk about) is that while radio can promote songs, that promotion doesn't always turn into a purchase. This is something that radio needs to help fix: right now, many people hear something on the radio and then go out and download a free copy of it. Promotional value only has value if it brings in money.

What I've done at SomaFM is made sure that we have links to where people can buy CDs and legal downloads when they hear something on our station. It's not a perfect solution yet because we play a lot of stuff that's not available for legal download; or it's out of print or otherwise hard to obtain a copy of.

Another problem that is really a record industry problem and not a radio problem is the fact that there are so many "for promotion only" CDs ending up on Amazon, Half.com and brick and mortar stores like Amoeba Records. If you go to buy a CD and can get a used FPO copy for half the price, you'll buy it - who cares if there is a hole punched in the UPC. This is a case when the value of radio promotion goes to the wrong person - the used CD store and not the sound recording rights holder.

Labels: you need to do some work on this as well. Meet broadcasters halfway. Make sure that when people go to obtain your recordings that they can do it legally and quickly. And broadcasters should be telling people how to buy the music they're playing as well. Then everyone benefits.

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!

SaveNetRadio Press Release on SoundExchange's proposed rates for Cable radio services

WASHINGTON, Nov. 5 /PRNewswire-USNewswire/ -- The SaveNetRadio Campaign today expressed surprise and hope upon learning that SoundExchange has 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. This proposed rate, effective from 2008 to 2012, is virtually identical to rates endorsed by more than 140 cosponsors of the Internet Radio Equality Act, but rejected by SoundExchange and the Recording Industry Association of America.

"Perhaps this agreement means that SoundExchange agrees that 7.5% of revenue is a fair rate; they just prefer that the rate not be legislated," Jake Ward, a spokesperson for the SaveNetRadio campaign said. "The Internet radio industry has never asked for more than royalty parity and an opportunity to grow their businesses to the benefit of artists, consumers, and even record labels. Perhaps SoundExchange's agreement that cable radio should pay 7.5% of revenue is a precursor to an equivalent offer for Internet radio services. It is hard to imagine that recording industry interests would continue to reject Congressional legislation and webcasters' efforts to set fair royalty rates while simultaneously agreeing to the same standard for cable radio services."

The Internet Radio Equality Act -- H.R. 2060 and S. 1353 -- would vacate the March 2nd Copyright Royalty Board's decision and set a 2006-2010 royalty rate at a competitive level with royalties paid by cable and satellite radio services (7.5% of revenue.) The bill would also change the royalty rate-setting standard used in royalty arbitrations, so that the standard applied to webcasters would align with that applied to cable and satellite radio.

For more information on the SaveNetRadio coalition visit http://www.savenetradio.org/

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

Radio Royalty Update

Official Internet Radio Royalty Update: both sides still "in discussions". Nothing has changed there. The Internet Radio Equality Act is feeling doomed as congress is more interested in a long term copyright change.

I think what Congress is hoping is that everyone can keep "negotiating" long enough for them to pass the next set of laws. That forces net radio into an uncomfortable position- we're potentially assuming some huge royalty obligations.

I think we still need to put pressure on congress. But I think we've lost their ear.

Can Internet Radio survive under current legislation?

No, it can't legally in the US.

We still have a long way to go to get legislation passed. Congress seems to have lost interest in us, and is satisfied now that a few very small webcasters have taken the so-called "offer" from SoundExchange (that only covers big label and SX-member artists, not useful for independent broadcasters!)

Meanwhile, attention has turned to the new bill which will put a royalty on over-the-air broadcasters as well. Alas, that royalty will be "penies on the dollar", well below the 10-12% paid in the past by webcasters, and way below the rates set by the CRB last March.

Paul Gathard at Daily Tech says it well:

Becoming a pirate internet radio station is no way to run a business or to live in peace and harmony with the law. The risk is far too great for rewards that are elusive at best for even well funded statutorily licensed internet radio stations.

If you have a passion for the medium and the music, the answer is new legislation. If you have an overwhelming desire to build an internet radio empire, the answer is new legislation. If you simply want to listen to your favorite internet radio station any time you want, the answer is new legislation. There will be few options or choices for any internet radio ambitions unless the current CRB ruling is overturned and a new law crafted.

Read the whole article...

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

More Bullshit from RIAA via SoundExchange

RIAA has SoundExchange issue press release to try and trick congress into thinking the royalty situation has been solved. Nice work guys.

The reason many people are signing is because they fear lawsuits from the RIAA. RIAA representatives have been calling webcasters and telling them if they didn't sign by Sep 15th, they would be operating in violation of the law. That's the only reason they signed. It's like a Sporano's episode.

The only way that webcasters can escape the high royalty rates is by signing this current agreement and only playing SX affiliated label music. This means less independent music, and more big label music. Which is exactly what the RIAA wanted.

This agreement is useless to SomaFM because it doesn't even cover half of the music we play.

Here's the release:

Small Webcasters Embrace SoundExchange Offer on Discounted Rate - September 18th, 2007

Individual Agreements Allow Small Internet Operators Subsidized Rates Through 2010

Contact Richard Ades or Gregg Perry 202.640.5894 news@soundexchange.com

WASHINGTON, D.C. - SoundExchange announced today that significant numbers of small commercial webcasters have signed agreements that allows them to continue operating through 2010 with essentially the same terms they have enjoyed under the Small Webcaster Settlement Act (SWSA). These agreements - sent in late August and signed individually with each webcaster - guarantee the same rates through 2010 that qualified small webcasters have received since 1998 for the use of sound recordings owned by SoundExchange members. The agreements are retroactive to January 1, 2006, which is the beginning of the current rate period, and continue through December 31, 2010, at which time new rates will be set either through negotiation or by the Copyright Royalty Board (CRB).

"Giving small webcasters more time to build their businesses with below-market rates is something Members of Congress wanted us to get done, and we have," said John Simson, Executive Director of SoundExchange. "We hope that these small webcasters will continue to provide innovative kinds of programming and a rich diversity of music."

Twenty-four small webcasters have already signed the agreements with others indicating they are in the process of signing. Some opted not to sign the agreements because their business models benefit more from the regular commercial rates (due to their size and the difference in minimum payments). Others did not sign because they operate via webcast aggregators who handle payments on their behalf.

Qualified small commercial webcasters who accepted the offer are now able to stream sound recordings of any and all SoundExchange members at subsidized rates. SoundExchange represents more than 28,000 recording artists and 3,500 record labels, including all the major recording companies. As part of the agreement, small webcasters (defined as those earning $1.25 million or less in total revenues) would pay royalty fees of 10 or 12 percent of revenue. The agreement also includes a usage cap to ensure that this subsidy is used only by webcasters of a certain size who are forming or strengthening their businesses.

"It's a sacrifice our members are willing to make at the request of Members of Congress and in order to give the smallest webcasters below-market rates for an additional limited time," added Simson. "This is a great deal for someone who wants to start or build a webcasting business."

# # #

Gee. 24 webcasters signed this. If you're a webcaster and signed it, I'd like to hear your reasons for signing it.

The usage cap is also a joke: if you average more than about 6900 concurrent listeners- about the audience of a single commercial station in a mid-sied market.

There are thousands of small webcasters. And only 24 have signed on? That tells you just what a huge problem this really is.

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.

 

Ray of Light For Internet Radio?

Jason Thomas at Crawdaddy Magazine has a great article on the state of net radio, here's a snippet:

The original laws were crafted in a time when technology was seen as having a limitless possibility to change everything about our lives, and much of the very things that the DMCA creates rules for were in states of infancy. Given the way the saga has unfolded over the last 12 years, the only way that harmony is going to be reached is either tossing out or amending the DMCA and, in doing so, re-evaluate exactly how the changes in technology have played out in the forms of digital media. There is little chance of fixing the tangle of existing legislation and Copy Right Board rulings, especially given the fact that webcasters have evolved into quite divergent forms with distinct business models, organizations and revenue/profit streams. Treating them the same would make little sense, and would open the door to fighting amongst themselves over a single rule that applies to them all as they have different interests. That is exactly what SoundExchange is hoping for.

I encourage you to ">read the whole article.

"Small Commercial Webcasters" (upper case) as opposed to "small webcasters" (lower case)

I want to take a second to clear up something: There are a group of webcasters who participated in the CRB hearings over the last 2 years. This group is known as the "Small Commercial Webcasters" group, and it is represented by Attorney David Oxenford. The small commercial webcasters include DI.FM, RadioIO, AccuRadio, Radio Paradise, Ultimate 80s and 3WK. Often times, this group is abbreviated in the press as the "Small Webcasters". Note the capital letters. Now I often talk about "small webcasters" in a more generic sense, referring to those who in the past operated under the 2002 Small Webcasters Amendment, of which there are a few hundred if these. I sometimes also refer to them as "small, independent webcasters" or just "independent webcasters". I'll be using the latter term more in the future to reduce the confusion between the SCW group and the generic class of smaller webcasters. The reason for this is that while I support the Small Commercial Webcasters group (and SomaFM has provided some financial contributions to their legal fund in the past), we are not a party to their direct negotiations with SoundExchange. However, any deal that they get will be extended to the whole class of small webcasters. We are fighting the same war, we're just fighting slightly different battles. I'm often outspoken and I say things that some members of the Small Commercial Webcasters don't completely agree with, and I want to make it clear that I don't speak for them. So when you hear me try to rally smaller, independent webcasters, keep in mind that I'm not speaking on behalf of of David Oxenford's Small Commercial Webcasters group. I have a ton of respect for David Oxenford and the parties to the SCW negotiations, but I don't want to see my outspoken views negatively affect something they're doing. I also want to make sure that people understand that I'm not rallying the Small Commercial Webcasters; they have a board who makes their decisions. While I often talk to members of the SCW and am more than free with my suggestions on how they act, I have no direct influence over how the group acts.

Defending Issa (and other politicians)

Will Wheaton comments on the Issa/HD radio issues I wrote about recently:

I would like to know why complete idiots like Issa, who clearly have such problems understanding technology, are given the responsibility of crafting legislation that affects technology, and those of us who use it.

I met with Jason Scism, Issa's Counsel on issues of copyright and new media, and I must say that Scism is extremely bright and totally up to speed with these technologies and the state of these copyright issues. I'm drafting a letter to Scism now about the HD radio "issue", as he asked me to stay in touch with him on the things we discussed.

What I've learned from the time I've spent in DC is that you have to be smart to get there. But being smart does not mean being "clueful" about all the issues. Congressmen have to deal with so many different issues that frankly it's amazing they don't come off far worse than they do.

I've also learned that in these hearings, you need to listen to not the exact words that are said, but try to figure out what's behind those words. While Issa used HD radio as his example, he would have been better served by talking about digital audio delivery mechanisms in general. Because he does have a point; as more devices come onto the market, the technology may improve to the point that recording from the radio will be as good as buying the CD/digital download.

But the counter-point is that there are already barriers to making copies from radio that would be as good as a CD. And if you want a bad copy, you've been able to do that since the days of tape recorders. Stream-ripping in most cases is a trojan horse.

But why do they keep bringing this up?

Because XM and Sirius sell devices like the Stiletto, SKYFi and Inno which all feature the ability to record and access individual songs.

When XM uses the tagline, "Hear it. Click it. Save it.", then they are obviously touting their devices as a music-purchasing replacement.

Now people think that these type of devices will come out for HD Radio. And they might (although with the current lack of adoption of HD radio, it's hard to imagine that).

So there are legitimate fears, but in the case of terrestrial radio are these fears warranted?

Most terrestrial broadcasters "production values" are such that they put ads or promo announcements over the beginnings and ends of songs. They also tightly segue songs, unlike Satellite radio. And in the specific of HD radio, the "metadata" or PAD as broadcasters call it is not sent frequently enough to reliably separate songs. Having a copy of the song with the first 5 seconds cut off, or talking over the last 10 seconds of it is not the same as having the real song.

Notes from the Platform Equality hearing

Rep. Howard Berman, Chairman of the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property, held a hearing on "Platform Equality", which would end the decades long royalty exemption for terrestrial broadcasts.

Howard Coble (R-NC), Steve Cohen, (D-TN), Lamar Smith (R-TX) and Darrell Issa (R-CA) were among those voicing support for the proposal to end the terrestrial broadcast sound recording performance royalty exemption.

The three main arguments for this according to Berman:

The exemption was never justified under copyright law

Calbe, Satellite and Internet have to pay these royalties. There should be no discrimination based on platform.

US us the only major country that doesn't have a sound recording performance right.

Terrestrial broadcasters currently only pay royalties to the composers of the music; the "musical work". They do not pay for the use of the sound recording. In 2005, broadcasters paid $450 million in muscical work performance royalties.

Issa stated that congress is preparing to reorganize section 114 of the copyright act. (This is the sections that covers royalties for internet, satellite and cable services and provides exemptions for some other uses, such as use of music in business environments.)

Issa spoke a lot about HD radio, and the threat it makes to sale of CDs. He is under the impression that the 64kb or lower compressed digital audio sounds as good as CD. HD does not stand for High Definition. It stands for "Hybrid Digital". Unlike HDTV, which improved the signal quality delivered to consumers, HD radio is not a marked improvement. Signal to noise ratios are improved, but there are audible compression artifacts in the audio.

Issa also talked about a flood of HD radio recording devices that automatically split tracks coming out soon. (I think he's extremely wrong on this, there is so little uptake on HD hardware, there are only 2 or 3 HD radios on the market right now, and they're selling very poorly. I've heard a statistic several times that say an American is more likely to be run over by a bus than they are to listen to HD radio in the last year.)

Steve Cohen, who represents Memphis, TN,

San Jose, CA representative Zoe Lofgren was the only rep to speak out on the importance of small, independent internet (and non-internet) braodcasters. While she's not necessarily opposing the rate, she wants a rate that won't hurt small and non-commercial broadcasters.

(more later)

UMG Prez: Indie labels enemies aren't big labels, they're webcasters

Larry Kenswil, President, Universal Music Group/eLabs on why indie labels are missing the future:

Any indie (and I mean a sound recording company, not an artist who chooses to give away music to make money other ways) who thinks webcasting should be used as promotion rather than a revenue source is missing what the future is about. All music use is substitutional for other uses. Everything you do in life substitutes for doing something else. Every bit of evidence we've seen shows that new media reduces sales in old media. Obviously, sales in new media haven't made up for it. On average, heavy satellite radio users spend less money on music (other than their subscription fees) than they did prior to subscribing. Likewise with internet radio. There's just less of a need to own. Promotion is fine, but if you need to get money in from the sound recording, I'll take payment any time. Indie labels are realizing that majors aren't their enemies. Their enemies are corporations who want to make money by performing music and not pay the performers for the privilege.

I understand the big labels' position: they've got all this legacy content they need to monetize. But most indie labels don't have a bunch of legacy content; all their content is newer and they want to get exposure for it.

Performance Right and Platform Parity webcast

Tuesday, 31-Jul-07, Elise and I will be attending the hearing of the Subcommittee on Courts, the Internet, and Intellectual Property Hearing on Ensuring Artists Fair Compensation: Updating the Performance Right and Platform Parity for the 21st Century hearings will be webcast live(RealVideo)

I'll post an archive link as soon as I get it.

Hearing on Ensuring Artists Fair Compensation: Updating thePerformance Right and Platform Parity for the 21st Century

The Copyright Office is having a hearing tomorrow to discuss expanding the sound recording performance royalty to analog broadcasters. The good news is that this will entail a rewrite of Section 114 and there is a good chance that this rewrite would put internet radio, satellite radio and over the air radio on the same basis for royalties. Currently, Internet Radio pays the highest royalty rates of any medium.

Tuesday 07/31/2007 - 10:00 AM; 2141 Rayburn House Office Building
Subcommittee on Courts, the Internet, and Intellectual Property
Hearing on Ensuring Artists Fair Compensation: Updating the Performance Right and Platform Parity for the 21st Century

Tell your congressman there is no settlement in process.

I've learned that people calling Majority Leader Hoyer's (D-MD) office are being told when they mentioned HR.2060 that there is a settlement going on, and implying HR.2060 is no longer necessary.

This is completely incorrect! As expected, the RIAA and SoundExchange are using the guise of a settlement to derail the passage of the Internet Radio Equality Act.

We need to let Hoyer's office know there is no settlement going on. The RIAA and SoundExchange have not proposed a settlement, and they haven't even acknowledged SomaFM settlement offer, and they haven't acknowledged the NAB's settlement offer, and DiMA (who represents larger webcasters and Pandora and Live365) isn't even close to settling with them; as the heads of DiMA and SoundExchange (which has a board of directors majority controlled by the RIAA or RIAA member labels) are publicly calling each other liars in the press right now. Not much of a settlement in the works.

One other point: even if there is a settlement, it's only good through 2009 and then the CRB process starts over again. HR2060 fixes this broken process.

SoundExchange: if there is a settlement being offered, make it public. And don't make it a settlement offer you know webcasters can't accept.

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.