Performance Rights Act (HR 848) Approved, on way to passing

The House Judiciary Committee approved the Performance Rights Act (HR 848) today, with 21 in favor, 9 not in favor.

It includes these rates that apply only to over the air broadcasts:

Any station that makes less than $100,000 annually will pay only $500 annually for unlimited use of music.

Any station that makes less than $500,000 but more than $100,000 annually will pay only $2500 (half of the amount in the original version of the bill) annually for unlimited use of music.

Any station that makes less than $1,250,000 but more than $500,000 annually will pay only $5000 (unchanged since the bill was introduced)) annually for unlimited use of music.

The bill also includes a statement of "Parity for all radio services" which establishes a “placeholder” standard to determine a fair rate for all radio services that will encourage negotiations between the stakeholders

As I've mentioned before compared to AM/FM broadcasters, Webcasters currently get a really bad deal: A webcaster with 1.25 million in revenue would be paying about $140,000 while an over-the-air broadcaster would only pay $5000. A webcaster with $250,000 in revenue would be paying $25,000 a year while an over-the-air station would pay 1/10th that.

SomaFM joined over 300 other broadcasters in signing a letter to Chairman Conyers and Ranking Member Smith [PDF] asking them to amend the Performance Rights Act to extend small broadcaster protections to small webcasters.

On the webcasters side, Rep. Zoe Lofgren of California spoke passionately and convincingly of this need to extend small broadcaster royalty limits to small webcasters. Unfortunately, a specific webcaster inclusion was not put in this version of the bill, so we'll need to do more lobbying of Congress to get it included in the final bill.

In related news, The Webcaster Settlement Act of 2009 was also introduced. The text is basically the same as the WSA 2008, the biggest difference being instead of a specific date for submitting deals for publication (a deadline which has already passed) the new bill gives 30 days from enactment to finalize deals.

SoundExchange Offers Settlement To Webcasters

Billboard is reporting that SoundExchange has made a new settlement offer to webcasters: but it's not the results of negotiation, it's a unilateral offer, and it's ultimately won't work for webcasters like SomaFM.

I'm quoted in the Billboard article saying:

"'We're disappointed with the offer,' says Rusty Hodge, founder of SomaFM. 'It effectively is worse that the previous [one]. Basically SoundExchange has done nothing to comprise with webcasters at all.'"

This hasn't been a negotiation. This has been a series of offers that gets worse each time. The original SWSA passed in 2002 was better than the current offer. The offer made about 18 months ago was the same as the current offer except that there were less strings attached; and because at that point, the offer only applied to SoundExchange member artists.

The current offer is just the same old offer with more restrictions and limitations. There has been no compromise. Every counter-offer webcasters make is met with a less-desirable offer from SoundExchange.

The really big issue for SomaFM is the traffic limits of 5 million monthly aggregate tuning hours. While that number sounds big, in January, we did did about 6.2 million. 5 million monthly tuning hours equates to 6720 average concurrent listeners. And the SoundExchange offer technically applies to US-only listener hours, which is about 50-55% of our listeners, so we're still technically under the limit. But this means that as we grow in the future we're going to hit that cap, and we'll be forced to limit the number of listeners we have.

The big RIAA labels are threatened by independent internet broadcasters and want to make sure that we're constrained to a niche market.

We're very disappointed with this so-called "offer".

The RIAA is still out to kill off independent webcasters like SomaFM.

H.R.7084 passed in the Senate!

9/30/2008 Passed/agreed to in Senate: Passed Senate without amendment by Unanimous Consent.

Good work everyone!

Webcaster Settlement Act of 2008 passes in the House!

Thanks to everyone who called their representatives. The Webcaster Settlement Act of 2008 has passed the house, now it's onto the Senate. We'll need to call them in the next 24 hours and ask for the support of "HR 7084, The Webcaster Settlement Act of 2008" (it's still called HR even though it's in the Senate).

Look up your Senator's phone number and call them. You can leave a voice message after hours.

All you need to say is "Please support HR 7084, The Webcaster Settlement Act of 2008, in the Senate. I support internet radio and want to see a fair royalty agreed upon."

The Senate will resume Monday morning, September 29th, and will consider this in the morning. If we leave messages this weekend, we can show that there is considerable grass roots support for it, and it will greatly lessen the impact of the NAB's opposition to it. And calling on Monday as well is a good thing to do; as there is a good chance it won't be passed first thing.

Summary & Background

H.R. 7084 contains technical amendments to the Small Webcasting Settlement Act of 2002 (P.L. 107-321) which will permit commercial and noncommercial webcasters to negotiate royalty rates and terms other than those determined by the Copyright Royalty Board (CRB) in its May 2007 decision. That decision was the basis for legislation introduced last year and is currently subject to a legal challenge at the D.C. Circuit Court of Appeals, which has, thus far, upheld the market rates and terms set by the CRB.

The principal purpose of the legislation is to facilitate a reduction in Internet streaming rates, something H.R. 7084 will permit to be voluntarily negotiated by willing parties rather than imposed by Congress. Essentially, this bill will allow SoundExchange, the organization which collects royalties on behalf of the music industry, to reach a settlement with the Digital Media Association, the national trade organization for the online audio and video industries.

NAB opposing Webcaster Settlement Act of 2008

According to CNET: NAB, the National Association of Broadcasters, is opposing the Webcaster Settlement Act of 2008:

(CNET quoting a NAB representative) "NAB has concerns related to Congress attempting to fast-track a bill introduced less than 24 hours ago that could have serious implications for broadcasters, webcasters, and consumers of music. NAB spent more than a year trying to work out an equitable agreement on webcasting rates, only to be stonewalled by SoundExchange and the record labels. We will continue to work with policymakers on a solution that is fair to all parties."

I don't get it, you'd think this would be in AM/FM's interests as well, as it will let NAB negotiate a deal and have it codified as well. This doesn't limit deals to a single, specific organization.

Webcaster Settlement Act of 2008 introduced

DiMA and SaveNetRadio announced that H.R. 7084: “Webcaster Settlement Act of 2008” was introduced, and clears a path for private negotiations to continue while Congress is in recess.

Basically this bill says: when the parties agree to a settlement, the CRB publishes it in the Federal Register, and it becomes an option qualified webcasters can elect, by re-wording the Small Commercial Webcasters provisions from 2002 to be applied to all webcasters, and for the period of 11 years from 1/1/2006.

So effectively, this will allow any SoundExchange settlement to be codified, and apply to all sound recordings, not just those represented by SoundExchange. I think is a good thing.

Trade organization DiMA (who represents the larger internet broadcasters like AOL and Pandora) says:

This bill does not affect the scope of performance rights or any underlying copyright law, and it does not impact broadcasters. It only clears the path for private negotiations to continue while Congress is in recess. It is scheduled to be considered today under Suspension of the Rules in the House.

I just spoke with John Simson and he confirmed that SoundExchange supports this as well.

Kirt Hanson in RAIN says ``H.R. 7084 is a bipartisan bill introduced by Congressmen Inslee, Conyers, Smith, Berman, and Manzullo and apparently supported by SoundExchange, the RIAA, NPR, and DiMA. It is scheduled to be considered today under Suspension of the Rules in the House.`` http://www.kurthanson.com

Here's the Save Net Radio release:

WASHINGTON D.C. –Today, Congress introduced legislation that will provide critical life support into the negotiations regarding the drastically increased performance royalties for Internet webcasters. H.R. 7084, the Webcaster Settlement Act of 2008, authorizes SoundExchange, on behalf of copyright owners and performers, to negotiate an alternative royalty agreement before the end of the year with any Internet radio service. This legislation will benefit all webcasters, including NPR, college webcasters, small webcasters and broadcasters who put their stations on the Internet. Because Internet radio royalties operate under a government license, Congressional authority is required to allow any negotiated settlement to take effect.

“Passage of this bipartisan legislation will ensure that the progress in negotiations over the last several weeks between webcasters and SoundExchange can continue and, we hope, lead to a solution that allows Internet radio to survive and thrive,” said Jake Ward, spokesperson for the SaveNetRadio Coalition. “The SaveNetRadio coalition, and the thousands of webcasters, artists and Internet radio listeners it represents, thanks Reps. Inslee, Berman, Smith, Conyers and Manzullo for their sponsorship of this critical legislation and greatly appreciates their continued attention and leadership on this issue.”

H.R. 7084 is scheduled to be considered today under Suspension of the Rules in the House. This bill does not affect the scope of performance rights or any underlying copyright law, and it does not impact broadcasters, it only clears the path for private negotiations to continue while Congress is in recess.

BACKGROUND:

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, increased rates for webcasters by an unjustified and unprecedented 300 to 1200 percent.

Since the Copyright Royalty Board (CRB) increase royalty rates for webcasters 16 months ago, there has been an immediate and devastating effect on Internet radio services. Three of the most-listened-to services (AOL Radio, Yahoo! Radio and Pandora) have either left the business, limited listener access to their services, or announced they are likely to shut down in the near future if royalties are not significantly reduced. Just as importantly from the perspective of the artists that depend upon Internet radio, recent Arbitron data demonstrates clearly that royalty-paying webcast listening has diminished substantially since the CRB decision.

Legislation introduced last year to correct the discrepancy between Internet radio and cable and satellite radio providers by establishing an equal rate for all digital radio – cable, satellite and internet radio – at 7.5% of revenue is still pending with more than 150 Congressional cosponsors. The Internet Radio Equality Act (S. 1353/H.R. 2060) 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).

The internet radio royalty issue is NOT settled, as some news sources have reported

The Internet Radio proceeding has not been settled. We are still trying to get a settlement with SoundExchange which can be approved by the CRB judges.

This ruling only applies to Section 115 of the copyright law, and covers "interactive streaming music and limited digital downloads," and it's only the royalties that cover the "composition" of the recording, not the sound recording. Interactive streaming is defined as music on demand, such as Rhapsody or Napster, and not services like Pandora or SomaFM.

Basically, this settled things for Rhapsody, iTunes, Napster and a few others; it doesn't affect streaming radio stations at all. :-( Our issue is with SoundExchange over the "sound recording" part of the copyright royalties, we already have a suitable agreement with the licensing agencies that handle the "composition" (BMI, SESAC, ASCAP).

Attorney David Oxenford discusses this in his blog:

While many press reports (at least some of which have already been pulled) have concluded that this is a settlement of the Internet Radio royalties proceeding - that is wrong. The Internet radio royalty proceeding involves Section 114, not Section 115, of the Copyright Act. Section 114 deals with a royalty paid to the performers, not the composers.

And it's not about paying the RIAA. The RIAA was on the other side of the table from the music publishers. Because Sound Recording copyright owners have to pay the composers when they release tracks (on CD or digitally). So in this case, the RIAA is the buyer, where as with internet radio, the RIAA is in the position of the seller (at least they claim to represent 80% of the sellers).

Internet radio is still in trouble. This did not solve things.

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.

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.

 

"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.

Small Commercial Webcasters stance on the SoundExchange offer (via David Oxenford)

From RAIN : the Radio and Internet Newsletter, David Oxenford, an attorney with Washington, DC-based Davis Wright Tremaine LLP, represents the "small commercial webcasters" to which yesterday's SoundExchange offer was directed. (SomaFM has contributed to the legal fund for the Small Commercial Webcaters (SCW) but is not on the board and therefore has no direct say in what they do. However, we are all "friends" and historically, SomaFM has fully supported the SCW group and David Oxenford.)

Here's what David wrote in RAIN:

While there has been much in the press about SoundExchange extending the SWSA [Small Webcaster Settlement Act of 2002], that really is not what happened. They simply made a preliminary, conditional offer to settle the case to the group of independent commercial webcasters that I represented in the CRB proceeding .

Their offer is to extend the SWSA with some "tweaks" that are yet to be negotiated. An SWSA extension would limit small webcasters to $1.2 million in revenue, and once they earned a dollar more, all their performances back to the beginning of the year in which they exceed the cap would be subject to the CRB per performance royalties, effectively exceeding their revenues by many multiples.

While the $1.2 million cap was fine in 2002 when it was used in the SWSA negotiations, it doesn't work in 2007. This would effectively limit the independent webcaster's growth and investment opportunities, as who would invest in an entity with an absolute cap on their financial growth?

While my clients are pleased that SoundExchange has finally made us a proposal -- after we have been requesting one for the past two years -- their offer is simply to extend the SWSA with some modifications that they want. We are studying these proposed modifications. The independent webcasters have suggested modifications of our own to the SWSA, modifications which were not addressed in the SoundExchange proposal.

We welcome this proposal as what it is: the first step in a negotiation process which we hope to be able to conduct in a business-like fashion in the coming weeks, rather than one negotiated through press releases.

That statement is in sync with SomaFM's position on this, although usually my wording isn't quite as nice as Davids. :-)