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The amendment, which was later withdrawn, signals the renewed efforts of Net radio webcasters to reverse an unprecedented 2007 rate increase by the Copyright Royalty Board (CRB) that threatens to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. :-)