FMQB: Radio Industry News, Music Industry Updates, Arbitron Ratings, Music News and more!

As reported in FMQB: "the musicFIRST Coalition filed a formal request with the Federal Communications Commission (FCC), asking them to investigate and take action against radio stations over reports that some of them are refusing to air music from artists who support the Performance Royalty. "

Specifically, they're targeting WMPH, a high school radio station in Wilmington, DE that mostly plays dance and electronic music. WMPH decided to boycott those artists that were promoting Music First. And this likely didn't affect their playlists at all, as most dance/electronic artists that get airplay on non-commercial radio are not affiliated with the Big 4 labels that are behind MusicFirst.

While I'm not opposed removing terrestrial radio's exemption that allows them to play any publicly-released sound recording without royalties, I also think that royalty should be reasonable. And I also think that stations that make licensing deals with the labels they play- labels that still want the promotional exposure- shouldn't be forced to pay a licensing fee for using recordings they don't use.

John Simpson at SoundExchange has repeatedly encouraged direct licensing in response to the CRB rates, including this quote from 2007: "they always have the outlet of going in direct licensing" (Royalty Week PDF)

So why is MusicFirst (of which SoundExchange is a supporting member and financial backer of) getting so upset when a broadcaster says it won't play material from artists who are proponents of this royalty?

You can't force broadcasters to play your music and then charge them for it.

Perhaps once more broadcasters start following the lead of WMPH, we'll start to hear more innovative music on the airwaves, and not just the same old derivative stuff that the big labels try to foist off on the public all the time.

And then maybe them, the labels will start to acknowledge the promotional value that radio exposure can give.

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.

Rusty speaking at SXSW on DMCA issues

I'm speaking at SXSWi on "Rewriting the DMCA: How to Improve Section 114":

``This panel will discuss the ugly bits of the Section 114 compulsory license for digital/internet music usage, and what parts are in it for historic reasons that don't apply in todays world; as well as changes that both users of the licenses (webcasters) and content providers (artists, labels) would agree to.``

Tuesday, March 17th; 11:30 am - 12:30 pm Room Hilton E

Billboard: No Deal Reached For DIMA, SoundExchange

Billboard is reporting No Deal Reached For DIMA, SoundExchange:

The fact that the two parties did not reach a settlement comes as somewhat of a surprise. In the weeks leading up to the deadline, representatives from both parties expressed confidence a deal was imminent. However that changed early in the week, prior to the deadline, when talks fell apart during a conference call with all involved, according to sources. Exactly what issue sparked the fallout is unclear.

Doesn't this always happen at the last minute with SoundExchange negotiations with the internet broadcasters, both small and large?

"Pandora has threatened to shut down completely if it was forced to pay the full royalty rates, which raised the fees due to SoundExchange and other rights holders in some cases by 300%. RealNetworks previously said it would consider severely limiting the streaming radio options currently available to subscribers."

While I still don't think Pandora will completely shut down, they'll have to drastically change their service to a paid subscription service or one with audio ads every 2-3 songs.

Other deals on the horizon?

While the NAB has a deal in place, others, including small commercial webcasters, religions and non-commercials, Pandora and possibly Real Networks (Rhapsody) also failed to come to a deal in time by the deadline of Feb 15th. DiMA, part of the Save Net Radio coalition and the organization representing clients like AOL, Yahoo and other large webcasters, has not announced a deal either.

There was some talk that because the 15th was a Sunday and the 16th was a holiday, that the real deadline is the 17th so there might still be a deal made.

NAB and SoundExchange make deal.

Radio Ink and other journals are reporting that NAB and SoundExchange have made a deal:

"The new agreement keeps the per-performance rate structure but reduces the rates set by the Copyright Royalty Board for 2009 and 2010 by about 16 percent and establishes rates for 2011-2015. This year's rate is $0.0015 per streamed recording, moving up to $0.0025 in 2015. The CRB rates were $0.0018 for 2009 and $0.0019 for 2010."

For a station that plays music 24/7, and assuming 10 songs per hour, this equates to about $11 (in 2009) scaling to $18 (in 2015) per concurrent listener per month (or AQH persons) for their internet broadcasts... or in listener hours, 1.5 cents (2009) to 2.5 cents (2015) per listener hour per month for internet streams.

For a station doing 150,000 hours a month (205 average concurrent listeners per month) that would be around $2250 a month in SoundExchange royalties. 150,000 hours a month is typical of a lot of larger-market FM simulcast netcasts, to that's a typical number.

But we have way more listeners on net than that, and do more like 3 million listener hours (counting only US listeners). So SomaFM would be paying over $45,000 a MONTH at these rates. (Actually more, because without commercials, we play more songs per hour than an AM/FM station does.)

The only way this makes sense for broadcasters is if they're predominately talk or they're getting waivers in exchange for airplay of tracks.

SoundExchange to small webcasters: here's your one offer. Take it or lose it.

SoundExchange continues to try and strangle small webcasters like SomaFM, RadioIO, DI.FM, RadioParadise and others. They've offered us a not very good agreement... that among other things says we can't publicly complain about or discuss the agreement, and we can't talk to Congress about anything related to internet radio royalties or copyright law, and we can't participate in the CRB process for the 2011-2015 period.

They have us between a rock and a hard place. The deadline is Sunday, but for all practical purposes, the deadline is Friday, tomorrow.

Pretty soon I may not be able to post any of this in our blog, because we're going to get forced into an agreement that will limit our audience (and hence growth) and create a serious financial drag on us and other webcasters who aren't big enough to enter into direct licenses with the parties that own the copyrights to the music they play.

Sirius XM Prepares Bankruptcy Filing

Sirius XM Prepares Bankruptcy Filing - NYTimes.com: "Sirius XM Satellite Radio has been working with advisers to prepare for a possible bankruptcy filing in a move that could put pressure on the satellite company EchoStar, which owns a substantial amount of the company’s debt."

I'm sure the service will continue one way or another. The question I have is will they split off the programming side from the transport/distribution side. Much of the heavy debt was brought about by the technology side of the company, not the programming side. (Not to say that they didn't pay a fortune to get some of the programming they carry; they did... but maybe a spun-off programming division can make some more money syndicating that programming other ways- like they're doing with net radio now, and might even do with terrestrial stations.)

I'm also curious how bankruptcy will affect their royalty payments to SoundExchange.

Does the New Administration change anything for radio royalties?

It seems that the RIAA, Recording Academy and MusicFirst think the new administration will be more on their side than the old administration:

Neil Portnow, CEO of the Recording Academy said last night at the Grammys:

“When it comes to protecting a musician's intellectual property and the right to earn a living, The Academy says, "Yes, we can!" And with a new Congress, we will champion the passage of pending legislation to ensure, that just like in every developed country in the world, all music creators are compensated for their performances when played on traditional radio.”

Historical datapoint: he DMCA was passed under the Clinton administration, and the DMCA is what has placed huge royalties on internet radio. The Performance Rights Act of 2009 will add those same royalties on over-the-air broadcasters that internet broadcasters now pay. While on one hand, I think it's great that there is equality for over-the-air (often referred to as terrestrial) broadcasters, but I'm concerned that rather than one fair, small royalty placed on everyone will actually end up being one really large royalty levied on all broadcasters, terrestrial and internet.

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.

SoundExchange, Public Radio make deal

FMQB is reporting that SoundExchange and Public Radio has made a deal on royalties:

The agreement will cover approximately 450 public radio webcasters, including CPB supported stations, NPR, NPR members, National Federation of Community Broadcasters members, American Public Media, Public Radio Exchange and Public Radio International.

They go on to say:

Under the new deal, SoundExchange is to receive a single up-front royalty payment of $1.85 million together with consolidated usage and playlist reporting from CPB on behalf of the entire public radio system.

David Oxenford in his Broadcast Law Blog has this additional info:

In some reports, the deal is described as being based on 'consumption' of music, and implies that, if music use by covered stations increases, then the royalties will increase.  It is not clear if this increase means that there will be an adjustment to the one time payment made by CPB, or if the increase will simply lead to adjustments in future royalty periods.

Read "SoundExchange and CPB Reach a Settlement on Webcasting Royalties - More Deals to Come?" by David Oxenford

SoundExchange Royalty Update

A lot of people have asked if we've gotten everything settled with SoundExchange yet. Unfortunately, the answer is no. Basically, SoundExchange is in negotiations with some of the larger webcasters represented by DiMA. Once those negotiations have concluded, SoundExchange will then be negotiations with the small webcasters. I'm expecting that it won't be until Feb 2009 when the agreement is finalized.

Wasn't internet radio killed last year?

KG Writes in:

I thought internet radio was killed last year. What gives?

SomaFM and most other internet broadcasters have technically been operating "out of compliance" (that is, we're not paying the royalties we are supposed to be paying). At some point, we can't keep doing this... someone will sue us for copyright infringement. SoundExchange has informally agreed to not sue any broadcasters who continue negotiations with them, that's why stations are still on the air. Other large services like iMeem and Last.FM have made direct deals with the large record labels, in most cases resulting in the "Big 4" record labels owning a part of those companies. (And with that ownership comes influence over the music they feature.)

So making a deal with the big record labels is not acceptable for most broadcasters who strive to be independent in the music they broadcast.

We have continued to negotiate with SoundExchange (the agency that collects the royalties) over the last year, and are close to a settlement. Originally, one problem was that a SoundExchange settlement would only cover their members, and not apply to all music as the CRB ruling did, unless congress acted to codify any settlements. HR. 7084 which was recently signed into law, does exactly that: it tells the CRB that they have to codify any settlement internet broadcasters and SoundExchange agree to. This is the only way we can get the royalties reduced to a reasonable level.

Internet radio is running on borrowed time. But even without a deal, big, venture-capital funded services like Pandora will likely survive in a slightly altered form: they'll have to make deals with all the major labels which will cause them to lose some of their independence. But small stations like SomaFM will be put out of business: either by lawsuits from the RIAA if we continue to operate without paying the royalty fees or more likely by just not having enough money to continue our operations after paying all these royalties.

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!

NAB drops opposition to HR 7084

I just got a call from Dennis Wharton at NAB, who told me that the NAB is now supporting the bill.

From what I'm reading on cnet and a few other places, NAB was concerned that they wouldn't get their own deal in time and didn't want to have web-only broadcasters get an unfair advantage over them. But a compromise they asked for was simple: extend the date of the bill to Feb 15th, 2009, and they're all for it.

No problem! The date extension is useful to other groups as well who are trying to negotiate deals, and the only possible opposition of the date extension would possibly be SoundExchange- just because they want to see this settled ASAP and not to continue dragging on.

Zoe Lofgren supporting the Webcaster Settlement Act of 2008

Zoe Lofgren (D - CA) on the Webcaster Settlement Act of 2008. It passed in the house, but still needs to pass in the Senate, and the NAB is opposing it.

Don't forget: we still need to get it passed in the Senate!

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.

Internet radio sites push for lower royalties for artists

Austin American-Statesman:

Internet radio sites push for lower royalties for artists

"Satellite and cable radio stations pay royalties at a rate of less than 15 percent - far less than Internet sites - Kennedy said. Traditional AM/FM radio stations are exempt from paying royalties.

Sen. Ron Wyden, D-Ore., who has sponsored one of the Internet radio bills, said the royalty fee schedule improperly imposes the highest rates on the newest forms of technology.

'We are allowing the royalty process to serve as a tax on technology and that is discrimination against innovation,' he said."

Lots of information in the full article, the above was just a brief quote.

House Subcommittee on Courts, the Internet and Intellectual Property passed the Performance Rights Act

The fight between the RIAA and the NAB is heating up.  The RIAA scored one when the House Subcommittee on Courts, the Internet and Intellectual Property passed the Performance Rights Act. I have mixed feelings about this.  I don't like the fact that net radio has to pay high royalties while over the air radio doesn't.  On the other hand, I don't want to see AM/FM broadcasters forced to pay the same ridiculous rates that we have to pay. 

I really think this is going to backfire on the RIAA and it's major label members.

Save Net Radio Press Release

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

Save Net Radio Press Release

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

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

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

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

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

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

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

SENATE JUDICIARY COMMITTEE TO LOOK AT WEBCASTING ROYALTIES:

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

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

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

The Performance Royalty Debate

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

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


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

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?

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.

Senator Clinton "backs webcaster compromise"

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

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

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

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...

CNN: SoundExchange spent $50,000 lobbying

CNN:

SoundExchange spent $50,000 in the first half of 2007 to lobby against Senate and House bills that would nullify the new payment system set by a three-judge copyright panel in March, according to a disclosure form posted online Sept. 7 by the Senate's public records office.

Frankly, I'm surprised that they only spent $50k. And doesn't this money belong to the artists?

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.

No deal on the horizon

Some places are reporting that a deal is just about finalized with SoundExchange, but this is not correct. I think they're referring to the NPR/SoundExchange deal, which I hear is getting close to being finalized. But that doesn't do any good for all the other webcasters out there!

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 Webcaster Revenue Limits

The RIAA defines small commercial webcasters as entities with less than $1.25 million in annual revenues. Exceeding this amount in a calendar year would disquality a webcaster for paying based on a percentage of revenues, and force them to pay on a per song, per listener basis which would be multiple times their annual revenue. This cap needs to be raised if the webcasting industry is to be allowed to grow. Revenue caps this low will force small webcasters to constrain their growth or else face debilitating royalty liabilities. We think this cap should be raised to at least $5 million. The US Small Business Administration "Table of Small Business Size Standards" defines a small traditional radio broadcasting network as a company with less than $6.5 million in annual revenue (and no limit to the number of employees). An internet broadcasting service is considered a small business if they have less than 500 employees and no revenue limits.

Why is it that SoundExchange insists on setting the revenue limits so low?

The ongoing debate over SoundExchange's independence from the RIAA

There is an ongoing debate over whether or not SoundExchange is controlled by the RIAA. Originally, it was an unincorporated division of the RIAA. Then in 2003, it was spun off. But to paraphrase an old saying, you can take the SoundExchange out of the RIAA, but you can't take the RIAA out of the SoundExchange!

Or can you?

In theory, SoundExchange is made up of 9 label representatives and 9 artist representatives. In theory, only 6 of the board seats are supposed to be RIAA. But as we see below, it's not really balanced out the way it should be ideally. Adding 2 more seats to independent labels might be the way to really fix this in the eyes of many.

SoundExchange Board of Directors by categories:

Independent Artist Reps: 3
RIAA-releated Reps: 8
Other reps, often siding with the RIAA: 4
Other reps, often opposing the RIAA: 3

Seems like the votes will fall to the RIAA side in most cases. If I'm wrong, I'd like to know about it.

Truly Independent:

Richard Bengloff - American Association of Independent Music Walter F. McDonough, Esq. - Future of Music Coalition (FMC) Dick Huey - Matador Records (note that Dick Huey holds the small independent label seat on the SoundExchange board, and while he has been a vocal proponent of radio royalties but at the same time a supporter of small webcasters)

RIAA Representstives

Alasdair McMullan - EMI Music North America
Andrea Finkelstein - Sony BMG Music Entertainment
Kendall Minter (Entertainment lawyer, RIAA-affiliated label owner)
Larry Kenswil - RIAA
Michael Ostroff - Universal Music Group
Mitch Bainwol - RIAA
Paul Robinson - Warner Music Group
Tom Silverman - Tommy Boy Entertainment LLC (RIAA board member, although Tommy Boy isn't a RIAA member label)

Board members often siding with the RIAA position

Daryl P. Friedman - Recording Academy
Jay L. Cooper, Esq. - Recording Artists' Coalition (RAC)
Kim Roberts Hedgpeth - AFTRA
Patricia Polach - AFM

Unknown or inconsistent RIAA siding:

Michael Hausman - Michael Hausman Artist Management, Inc. (Manages currently-independent released Aimee Mann, RIAA-released Suzanne Vega among others)
Patrick Rains - PRA Management (Manages RIAA-released artist Cheryl Crow and a lot of big smooth jazz names, operates an indie label PRA records that released 20 discs or so in the 90s)
Perry Resnick - Music Manager's Forum-U.S.

Digital Radio Services, by type of license

SoundExchange has updated their website, and has some interesting data on the number of webcasters operating under the different classes of services.

Number of services paying royalties under the statutory license by license type (2004-2006)

Service	2004	2005	2006
Commercial Webcasters	130	312	588
SWSA Commercial Webcasters	24	30	52
Noncommercial Webcasters	279	299	352
Preexisting Services	3	3	2
Satellite Digital Audio Radio Services	2	2	2
Business Establishment Services	1	4	3
New Types of New Subscription Services	0	2	2

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.

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.

Congressman Ed Markey jumps to webcasters defense!

Congressman Ed Markey jumps to webcasters defense, From Congressional Quarterly:

Markey brought webcasters and representatives of the music industry together in last-ditch talks late last week. Some progress was made in that closed-door meeting and, for now, the old fees are still in place. Negotiations are still ongoing.
"Markey decided to host the Web radio negotiations because “he does have jurisdiction over the Internet, and he has a longstanding interest in the issue."
As a result of the meeting, SoundExchange, the nonprofit that collects royalty payments and distributes them to recording artists, has agreed to keep the old royalty rate in place as long as good-faith negotiations continue.
Christine Hanson, Inslee’s spokeswoman, said he prefers negotiating to legislating. “Simply because of the time involved, it just would be a lot faster,” Hanson said. “But for Jay, the number one thing is reaching an agreeable solution to both sides, where artists feel like they’re being compensated fairly and webcasters can have a sustainable economic model.”

Read entire story...

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

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

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

The critical piece:

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

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

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

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

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

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

SoundExchange to require DRM in exchange for lower royalties?

Washington Post:

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

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

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

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

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

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

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

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

Read the whole article here.

Online Radio: It was nice while it lasted

Eliot Van Buskirk at Wired writes:

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

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

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

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

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

Notes from the Hill

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

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

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

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

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

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

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

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

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

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

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

Naked Corporate Greed

Flint Journal quoting John Simson:

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

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

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

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

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

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

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

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

RIAA Myths and Lies about Internet Radio

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

RIAA blocking IREA, holding up any settlements

I've heard "off the record" now from several sources that the RIAA has been the party behind a large mis-information push about the Internet Radio Equality Act.

One example is claiming that the biggest internet radio services are giant corporations. With the exception of Yahoo and AOL, most of the largest internet broadcasters - in terms of listeners - are all independent operations.

As Bill Goldsmith at Radio Paradise says:

SoundExchange has been challenged many times, by numerous people (including myself) to give ONE example of a webcaster currently online in the U.S. who could operate successfully under the CRB rate structure. They have never done so, because there are no stations that meet that criteria.

Instead, the RIAA brings up misleading statements of how most webcasters are all billion dollar corporations who could easily afford these rates, yet won't state facts. (I've asked members of the SoundExchange board as well as their news department to name the 20 major webcasters and gotten no response.) WHY? Because they can't name them because they don't have the facts to back it up.

Additionally, the RIAA is holding up settlements that could be enacted (and congressionally codified). Independent artist representatives on SoundExchange's board support a settlement that's favorable to independent internet broadcasters, but since the majority of the SoundExchange board is controlled by the RIAA and the musician's union (which represents session musicians performing on RIAA label recordings), nothing is happening.

Why?

It should be obvious. The RIAA wants to force all webcasters to make direct deals with the Big 4 labels, because that's the way the Big 4 labels get control back. They want to control what you hear over the air.

Don't let this happen.

Get on the phone right now and call SomaFM's home town representative, House Speaker Nancy Pelosi's office at (415) 556-4862 and ask Speaker Pelosi to demand that the RIAA come to a fair settlement with small webcasters. Remind her that otherwise, the RIAA will end up forcing small webcasters out of business through impossibly high royalty rates. Also remind her that the majority of the "Big 4" labels represented by the RIAA are foreign-owned, and will be putting American companies out of business.

Call her office now. You can leave messages after hours.

Why do Nashville Songwriters oppose the IREA?

From nashvillesongwriters.com: Songwriters oppose the “Internet Radio Equality Act,” H.R. 2060, S 1353:

This legislation contains provisions that would disallow performance royalties to be negotiated in the free market. Past history shows that other emerging technologies, including cable television and video rentals, made the same argument—that rates should be lower so they could compete. The industries became huge and the result was business models that are very unfair to the creators of music. Also, large corporations such as Clear Channel and Microsoft could end up being the biggest windfall financial beneficiaries.

A few things:

1. The IREA does not affect songwriter royalties.

2. The IREA does not "disallow performance royalties to be negotiated in the free market". Sound-recording performance royalties can still be negotiated independently. Ironically, this is NOT the case with the composition performance royalties (paid through ASCAP, BMI, SESAC) which covers the songwriters.

3. The rate cut that "large corporations" get isn't the most important part of this legislation. In fact, I'm sure those numbers were put there as a point of negotiation. Bills always get changed before they're passed. Why throw out the baby with the bath water? The important part of the IREA is the changes to the Copyright Act to treat satellite radio and internet radio on the same basis (that of a fair market value vs. a "willing buyer, willing seller" value which only internet radio is subject to now.)

I think someone doesn't get it over there. Internet radio is paying royalties to the composers now. The IREA doesn't affect that. Higher royalties on the sound recording performance will reduce the number of internet radio stations, which will in turn mean less diversity in music programming.

But then they also say:

America has LOST TWO-THIRDS of its PROFESSIONAL SONGWRITERS over the past decade due to illegal downloading, piracy, radio deregulation and corporate mergers. Radio Deregulation has resulted in dramatically fewer spots on radio playlists. A few companies program the majority of country music reporting stations.

So they're complaining about the lack of diversity in music radio, yet they're supporting a bill that will kill off much of that diversity. Hopefully they'll realize this soon.

SoundExchange represents less than 10% of artists

John Simson quoted in the Hartford Courant: We [SoundExchanve] represent over 20,000 performers and over 3,000 independent labels and the four major labels.

Johnny Floater over at Live365 tells me that there are 250,000+ artists that get airplay on Live365. On SomaFM, we've played 8000 different artists this year, and we have only 11 different channels. Because SoundExchange doesn't publish a list of their member artists and labels, we can't compare our playlists to see how much of the music we play is by SoundExchange member rightsholders. But I bet we play a lot of stuff by artists and labels that aren't affiliated with SX.

There are also over 8200 artists on SoundExchange's "unpaid artists list"; artists that SoundExchange has collected statutory royalties for but hasn't distributed because you have to join SoundExchange before you can get paid. And if these people don't join within a certain point of time, they lose their royalties and SoundExchange gets to keep that money.

Bottom line: this is why we can't make a deal with SoundExchange. A deal with SoundExchange would only cover their members, and that's less than 10% of the artists out there. It would be fine if we were playing Top 40 or Big 4 label releases, those guys are all covered. But we play "long tail" stuff, and much of it is likely not going to be by SoundExchange members.

The Economist: A battle over music royalties threatens a nascent industry

From The Economist:

The quest for higher royalties may actually be doing record labels more harm than good. People generally do not buy music unless they have already heard it. Internet radio makes it easy to zero in on a preferred genre, so listeners are more likely to discover music they would want to buy. Many online stations even provide links to online music stores—free of charge.

Hey SoundExchange: wake up. Don't kill off this industry. You need it.

(Maybe if SoundExchange would focus on trying to extract royalties out of the companies not paying them at all, instead of trying to get more from the ones who are paying now, they could increase their revenues and not hurt the current net radio industry.)

SoundExchange starts new lobbying organization

SoundExchange starts new lobbying organization: the Music First Coalition to go after over-the-air broadcasters and remove the exemptions they were granted in the copyright act.

Mark Kadesh is the executive director of the Music First Coalition, a new lobbying coalition started by SoundExchange to go after over-the-air broadcasters for more music royalties.

Mark Kadesh, previously the Chief of Staff for Senator Dianne Feinstein, recently joined Bartlett Bendall, and they've changed their name to Bartlett, Bendall & Kadesh.

You can see why Senator Feinstein hasn't been too receptive to internet radio issues; her former chief of staff seems to have been in bed with the RIAA lobby.

And SoundExchange is one of Bartlett, Bendall & Kadesh's clients, as is the RIAA, MPAA and NBC Universal as well as Universal Music Group.

Their current and past clients include:

ALDRICH CONTEMPORARY ART MUSEUM
AMGEN, INC
APPLIED DNA SCIENCES
BICKEL & BREWER
BLACK WARRIOR - CAHABA RIVERS LAND TRUST
BOND MARKET ASSN
CALIFORNIA HEALTHCARE INSTITUTE
CITY OF CALERA, ALABAMA
COALITION FOR FAIR & AFFORDABLE LENDING
COUNTRYWIDE FINANCIAL
EASTERN HEALTH SYSTEM INC
EQUIFAX
FEDERAL HOME LOAN BANK OF ATLANTA
FEDERAL HOME LOAN MORTGAGE CORP
FINANCIAL SERVICES INSTITUTE
FIRST DATA
GENENTECH, INC
HUMAN RIGHTS CAMPAIGN
INTEL
LINCOLN CENTER FOR PERFORMING ARTS
LOVE TERMINAL PARTNERS
MAINE MEDICAL CENTER
METLIFE
METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA
MORGAN STANLEY
MOTION PICTURE ASSN OF AMERICA
NATL CENTER FOR VICTIMS OF CRIME
NBC UNIVERSAL
OPTIMAL GROUP INC
PMI GROUP INC
RESOURCES LEGACY FUND FOUNDATION
SOUNDEXCHANGE
SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT
SOUTHEASTERN ECONOMIC ALLIANCE
SOUTHERN CALIFORNIA EDISON
UNIVERSAL MUSIC GROUP
WASHINGTON MUTUAL BANK
WESTERN UNION

(Source: US Senate Registrant/Client List and Senate Identification Numbers)

They also list their current clients on their web site, which includes the RIAA.

There is some lively discussion about this over at the Slyck Forums.

PBS looks into the shaky future of internet radio stations

In "Radio Paradise Lost?," NOW on PBS looks into the shaky future of Internet radio stations pending a decision to dramatically increase royalty fees on July 15. Will it begin to drive these often small, independent outfits -- including some of you --- out of business? Please feel free to direct your users, listeners, and other followings to see the report for free as it aired on Friday, June 8

The SoundExchange Billion Dollar Administrative Fee

(While this won't affect SomaFM right now, it does affect many mid-sized broadcasters like Pandora and Live365; and it will affect future personalized SomaFM stations we're working on.)

c|net: ``When the CRB decided earlier this year to change the rules for Internet broadcasters, it also decided to levy a $500 minimum annual fee per Internet radio "channel." ... But since some of the larger Internet radio services potentially offer their listeners hundreds of thousands of unique "channels" (RealNetworks' Rhapsody offered more than 400,000 in 2006 alone, according to a company spokesman), the companies view the ruling as forcing them to multiply that mandatory minimum payment accordingly (for Real, that would amount to $200 million).``

What will this admin fee pay for? One notable fee: more lawyers. And more lawsuit. They'll be able to go after all the MP3 bloggers, the music podcaters, the 5000 tiny stations in the Shoutcast.com directory who aren't licensed with SoundExchange, etc. Then they'll probably start going after all the restaurants and stores that playback background music from an iPod without paying the annual $10,000 "ephemeral" fee for business establishment services.

Slashdot has also picked this up.

Motion for stay pending appeal filed

DiMA and SaveNetRadio.com have filed a motion for a stay pending appeal. If granted this will push back the looming July 15th payment deadline.

PDF of Filing

WSJ: Online-Radio Royalty Fight Reaches New Pitch

``... the Internet Radio Equality Act, would replace higher performance-royalty rates, unveiled in March, which charge Webcasters a fee per song and per listener, with a rate of about 7.5% of revenue. While that could reap the record labels less money in many cases than the per-song, per-play fee schedule that Webcasters are railing against, it would still generate more than the music companies get from other sources. Satellite radio pays about 3.5% to 4% of revenue in performance royalties. Because airplay for years was seen as promotional, regular radio doesn't pay anything, though the record labels are trying to change that.``

emergency stay filed

WASHINGTON, May 30 /PRNewswire-USNewswire/ -- An emergency stay filed today in the U.S. Court of Appeals for the D.C. Circuit could delay the looming D-Day for Internet radio. The motion, filed by the Digital Media Association in conjunction with National Public Radio, and the Small Commercial Webcasters, formally requests the court delay the implementation of a "radical and arbitrary" recording royalty rate increase imposed by the Copyright Royalty Board May 1. Legislation that would repeal the rate increase is pending in the Senate and the House, but may not be brought to a vote in either chamber before July 15th, the day the first payments for the newly increased rates for webcasters are due. "July 15th, D-day for Internet radio, is fast approaching," SaveNetRadio spokesperson, Jake Ward said, "and we are hopeful that today's motion for an emergency stay will afford the Internet radio industry crucial time to rehear this case. We have every confidence that Congress will continue to give the Internet Radio Equality Act the attention it deserves with the urgency it requires, as evidenced by the over 100 cosponsors who have signed on H.R. 2060 since its April 26th introduction. SaveNetRadio and the millions of webcasters, artists and listeners we represent urge the Court to give this motion full consideration."

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. :-)

SoundExchange Settlement entails further negotiations

I asked the PR contact at SX, "Could you please provide details on the revenue cap and a usage cap and any other modifications to the SWSA extension that SoundExchange is offering?" and the response I received was:

"They are subject to negotiations."

That's the entire response. Now I understand these are Washington, DC Blackberry-toting PR specialists and I did get this response later in the evening DC time, and you can't type long emails on those thumb-boards, but I expected a bit more.

So they're offering a settlement BUT it is still subject to further negotiations.

Not exactly how I define a settlement.

SoundExchange's offer: perception vs. reality

it seems like SoundExchange is trying to diffuse the grass roots effort by trying to strike an acceptable but short-lived deal with small webcasters. The perception is that they're making a great offer to appease small webcasters. But the reality is that there are un-stated changes to the original SWSA and that this deal is only for the next 30 months, and then royalties will increase again.

Their press release says:

[SoundExchange] offered to extend to small webcasters through 2010 the terms of prior legislation known as the Small Webcaster Settlement Act (SWSA) with some minor modifications."
(snip)
These minor modifications include a revenue cap and a usage cap.

The details of of these caps are not provided. What if that revenue cap is $100,000? What if the usage cap is 500,000 hours a month?

I tried calling SoundExchange's news department to get more details on this, but I had to leave a message, maybe they'll call me back tomorrow.

As it currently stands, this press release seems to be all fluff, and no substance, and needs to be called out for what it is: an attempt to derail the current Internet Radio Equality Act now in congress.

Also, if anyone received a copy of the actual "settlement offer" that SX released, could you send it to us?

SaveNetRadio's response to SoundExchange "offer"

This is the official response from the SaveNetRadio coalition to SoundExchange's "offer":

For Immediate Release
May 22, 2007

Proposal Would Decimate Internet Radio Industry
SaveNetRadio Rejects SoundExchange Offer to "Small Webcasters"

WASHINGTON, D.C. In response to SoundExchange’s announcement today that it plans to offer those they designate as "small webcasters" an extension of current royalty rates through 2010, SaveNetRadio has released the following statement:

"The proposal made by SoundExchange today would throw "large webcasters" under the bus and end any "small" webcaster’s hopes of one day becoming big," SaveNetRadio spokesperson Jake Ward said. "Under government-set revenue caps, webcasters will invest less, innovate less and promote less. Under this proposal, Internet radio would become a lousy long-term business, unable to compete effectively against big broadcast and big satellite radio – artists, webcasters, and listeners be damned."

"Labeling webcasters small or large is a distinction without a difference," continued Ward. "Two of the most prominent webcasters, Pandora.com and Live365 are models of industry success but would be bankrupted by the CRB and by the SoundExchange proposals. Pandora employs 100 people in an enterprise zone in Oakland, California, but its popularity would put it out of business. Similarly, Live365, an aggregate webcaster that provides a platform for more than 10,000 individual webcasters, has a staff of fewer than 40. Though clearly small as a business, Live365’s enormous importance and scope among webcasters would force them to shut down."

By broadcast radio standards, even the largest webcasters (i.e., the Internet radio divisions of Yahoo! and AOL) are small broadcasters. (A few years ago, broadcast groups that didn't even make the list of the 40 largest radio companies -- Fisher, Service B'casting, Arso Radio, Curtis Media, Mid-West Family, Hubbard, etc. -- all had annual revenues of over $20 million, making them larger than the largest webcaster.)

The revenue caps SoundExchange is proposing are an extension of those put in place during the 2000-05 period which created an insurmountable barrier to growth for small webcasters. This revenue cap has had the perverse and unintended consequence of forcing thousands of webcasters to stay small if they want to stay alive, thereby weakening the industry – the very opposite of Congress’ intention.

Under the "willing buyer / willing seller" standard set by the Digital Millennium Copyright Act, the distinction between "large" and "small" is irrelevant. Indeed, it is that standard, combined with the judges interpretation, that led to this unexpected consequence of a royalty rate increase on March 2nd. A standard that would set a royalty rate more than 300% of a webcaster’s revenue was not what Congress had in mind, and it must be adjusted if the industry is going to survive.

SaveNetRadio is a national coalition comprised of hundreds of thousands of webcasters, artists, listeners and labels from throughout the country committed to preserving the future of Internet radio. Legislation currently before Congress, H.R. 2060 and S. 1353 - the Internet Radio Equality Act - would vacate the Copyright Royalty Board’s decision and set a 2006-2010 royalty rate at the same level currently paid by 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 satellite radio.

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

###

Contact: Jake Ward
(202) 448-3156

SoundExchange "offers settlement" to Small Webcasters via Press Release

This just in: SoundExchange offers a "settlement" to Small Webcasters. The catch: it only is good for 2 and a half more years, then the huge huge huge rates kick in again. This settlement offer is less of an olive branch than it is a thron-covered branch; the idea is to lessen the momentum behind the Internet Radio Equality Act, satisfy our immediate needs and then ream us again in a few years.

It also doesn't help folks like Live365 and Pandora. This seems like the traditional RIAA-influenced Divide and Conquer routine than an actual "offer". Do not be fooled, this offer is not a viable alternative.

FOR IMMEDIATE RELEASE: MAY 22, 2007     
CONTACT: RICHARD ADES OR   GREGG PERRY 
    202-640-5894 
NEWS@SOUNDEXCHANGE.COM 

SoundExchange Extends Offer to Small Webcasters

Move Responds To Request From Congress To Allow Small Webcasters More Time With Below-Market Rates

WASHINGTON, D.C. SoundExchange today offered to extend to small webcasters through 2010 the terms of prior legislation known as the Small Webcaster Settlement Act (SWSA) with some minor modifications. The 2002 act that sunset in 2005 had set temporary below-market royalty rates for small Internet radio stations in order to provide them additional time to build their businesses. SoundExchange's offer to extend the core SWSA terms represents a continued subsidy for these small webcasters in the form of lower payments to artists and content owners.

Today's offer comes as a direct response to a request from the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property to "initiate good faith private negotiations with small commercial and noncommercial webcasters with the shared goal of ensuring their continued operations and viability." The Subcommittee's request was sent to SoundExchange last week in a letter co-signed by Representatives Howard L. Berman (D-CA) and Howard Coble (R-NC)1.

"Although the rates revised by the CRB are fair and based on the value of music in the marketplace, there's a sense in the music community and in Congress that small webcasters need more time to develop their businesses," said John Simson, Executive Director of SoundExchange. "Artists and labels are offering a below-market rate to subsidize small webcasters because Congress has made it clear that this is a policy it 1 Chairman and Ranking Minority Member respectively of the Subcommittee on Courts, the Internet and Intellectual Property. desires to advance, at least for the next few years. We look at it as artists and labels doing their part to help small operators get a stronger foothold."

This offer is only for small webcasters and defers the new rates set by the CRB on May 1, 2007, retroactive to January 1, 2006 and effective through 2010. While the subsidy is an effort by SoundExchange to address alleged weaknesses of the small webcasters' businesses, SoundExchange noted that this proposal is an adjunct to the CRB process.

"The copyright royalty judges conducted a thorough and comprehensive legal proceeding. The judges determined fair rates based upon marketplace evidence provided by all parties. Nobody is questioning the integrity of the CRB process," said Michael Huppe, General Counsel of SoundExchange. Indeed, the Subcommittee noted that, "we have not yet been provided with a single credible assertion by a party to the proceeding that tends to demonstrate the CRB deviated from the process specified in the Reform Act."

Huppe added, "This offer is not about displacing the Judges' correct analysis of the market, but rather about extending for a limited time the below-market rates that these small businesses received several years ago. We have heard the concerns of Congress and we are responding."

As suggested by the Subcommittee, SoundExchange is proposing that the subsidy be based on a percentage of revenue model and is proposing the same rates that prevailed under SWSA: small webcasters would pay royalty fees of 10 percent of all gross revenue up to $250,000, and 12 percent for all gross revenue above that amount. The proposal includes both a revenue cap and a usage cap to ensure that this subsidy is used only by webcasters of a certain size who are forming or strengthening their business.

"These modest limitations assure that the subsidy is targeted only to those webcasters that Congress believes need the additional financial flexibility to build their businesses. When a company's revenue or listenership reaches a certain level, our proposal appropriately provides that they share those full gains with the artists who helped create this opportunity for them," said Huppe. "The net result of this proposal is that small webcasters would be guaranteed no increase in royalty payments for 13 years, from 1998- 2010."

Of particular concern to SoundExchange and the thousands of artists and labels it represents is the lack of compliance by most small webcasters, including many that have complained the loudest about the CRB decision. Indeed, in their letter Representatives Berman and Coble noted that, "In return for compelling sound recording copyright owners to make their works available, the qualifying services agree to meet the terms and conditions of the compulsory license, which, inter alia, requires the periodic filing of statements of account and the timely payment of statutory royalties to the copyright owners whose works they have elected to perform."

In order for the process to work, small webcasters need to register with the copyright office, comply with all reporting requirements to SoundExchange and not avoid paying royalties that are lawfully owed. "The artists and labels are acting in good faith today, giving small webcasters a break. In return they expect the integrity of their music and their copyrights to be respected. That includes proper tracking and reporting of how their music is used, and that they are properly compensated," said Simson.

Background On May 1, 2007 the Copyright Royalty Board issued a fair and reasonable decision that sets compensation rates to be paid artists and record labels for the public performance of their works by Internet radio broadcasters from 2006-2010. The three-judge panel heard testimony from dozens of witnesses and conducted a comprehensive review of tens of thousands of pages of evidence submitted by all interested parties over an 18-month period. The decision is a reflection of the need for artists to be fairly compensated for the use of their work by webcasters who benefit financially or otherwise from their talents. As the music industry evolves from CD-only sales to multiple distribution platforms it is critical that creators of music share in revenues from all platforms.

SoundExchange is a non-profit organization representing more than 20,000 artists, 2,500 independent record labels and the four major record companies for the collection and distribution of digital performance royalties for recording artists and sound recording copyright owners (usually a record label) when their sound recordings are performed on Internet radio, satellite radio and digital cable. For additional information please visit www.soundexchange.com

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Ex-SoundExchange Lawyer on why Direct Licensing won't work

Gary R. Greenstein, former general counsel for SoundExchange, explains via the Pho list why direct licensing won't work for most net radio stations:

The Section 114 statutory license grants licensees the right to make digital audio transmissions of any sound recording released to the public with the consent of the copyright owner. A separately negotiated agreement with SoundExchange, on the other hand, would likely only grant the licensee the right to make transmissions of the sound recordings over which SoundExchange had the authority to license. From a practical standpoint this likely means that if a webcaster enters into an agreement with SoundExchange for a rate structure that differs from that adopted by the Copyright Royalty Board, then the webcaster would be entitled to pay the privately negotiated rates for those recordings licensed under the license entered into with SoundExchange while those sound recordings not covered by the license with SoundExchange would still need to be paid for at the rate adopted by the CRB. This could also mean that webcasters streaming non-SoundExchange covered recordings might have to continue to file for the statutory license, pay the CRB-established minimum fees for the non-SoundExchange covered recordings as those minimums are currently required whether you stream one song during a year or 1 million, and comply with the final interim recordkeeping regulations for those recordings that are not covered by a direct license.

Because SoundExchange represents the four majors and a large number of independent labels, the amount of repertoire covered by a private agreement with SoundExchange would likely be substantial but for those copyright owners who have not authorized SoundExchange to license on their behalf, they would likely have a claim to the CRB-established royalty rates for the transmission of their recordings. An open question is whether those copyright owners would look to SoundExchange to pay them the full statutory rate (thus leaving SoundExchange's own copyright owners and artists with even less money) or might seek to go after the individual webcasters for payment of the full CRB-established amount.

Each webcaster may need to evaluate their exposure to infringement liability if they stream recordings not covered by a direct license and fail to pay royalties under the CRB rates and the likelihood that any copyright owner(s) might file suit for such non-compliance.

This is why politicians need to understand that a legislative solution is required, and that it can't be worked out between the parties privately. Private deals will not cover everything. Private deals would force broadcasters to play music from the major and largest independent labels only and would not allow them to play tracks that weren't covered by the agreement.

If over-the-air radio had to pay SoundExchange

According to the Radio Advertiing Board, 2006 total broadcast radio revenue was $21,669,000,000 - or $21.7 billion. If over the air braodcasters were paying just 3% of their revenues to SoundExchange, that would be $650 million a year in royalties. ($21,669,000,000 x 3% = $650,070,000). Which would be 15 times the total revenues that SoundExchange pulled in last year.

Yet, over the air radio is exempt from paying these royalties. But Satellite and internet radio is not.

Here's an idea for SoundExchange: charge all radio broadcasters the same rate, and charge them 3% of gross revenues. You would increase your revenues by at least 1500%. That sounds pretty fair, doesn't it?

You'd make LOTS of new revenue, and you wouldn't kill off small, independent internet radio stations.

(inspired by a speech by David Carson, General Counsel of Copyright, Library of Congress at the Future of Music Coalition Policy Conference)

Satellite Royalty Rates: now and in the future

Yesterday at the Future of Music Coalition Policy Summit, I learned that XM and Sirius aren't paying royalties on a percentage of their revenues, they've been paying a flat annual fee for the last few years, "while they were getting started". Last year, that fee worked out to be under 3% of their revenues.

According to SEC filings:

XM revenue 2006: $925.55
Sirius revenue 2006: $636.01 million

Total Revenues for both satellite companies: $1.561 BILLION.

Yet SoundExchange states (on page 2 of this PDF) they've received $43 million in royalties for 2006. And that is ALL the royalties they've received, not just satellite radio. Yet 43 million is 2.8% of $1.561 billion. So we know that Satellite Radio is paying less than 2.8% of their revenues in royalties to SoundExchange. That's also less than half of what webcaseters are asking for in the Internet Radio Equaliy Act (which is 7.5%).

There are over 12 million XM and Sirius subscribers. At $12.99 a month, that's over $1.8 billion a year in revenues for satellite radio. SoundExchange said it anticipates collecting roughly $55 million to $60 million this year. That's still less than 3.3% of sat radio's gross revenues. And that is the total royalties they expect to collect, not excluding the revenues paid by webcasters and cable music services (like MusicChoice).

But SoundExchange and the RIAA are negotiating for higher rates for Satellite. According to Forbes.com, the CRB is considering new rates ranging from 10% to 23% of total revenue each year through 2012. That's a serious jump. And since webcasters would be trated the same way as satellite radio is if HR.2060 passes, these numbers are good to keep in mind.

David Byrne on Net Radio

David Byrne and Danielle Spencer wrote a good article on the importance of internet radio.

I do want to clarify something that Danielle Spencer wrote:

While traditional terrestrial radio does pay songwriter/publishing royalties for the musical work itself, in the U.S. they don’t pay performance royalties for the sound recording under the rationale that airplay promotes the songs, which benefits the copyright holders. (This determination was mostly due to the radio industry lobbying congress not to collect these royalties.)

This is not historically accurate - this is the version of history that the RIAA likes to propagate! When the original copyright laws were written, Congress realized it was granting a legal monopoly to the copyright holder. So in order to balance out that government-given monopoly it also added provisions for fair use and public rights, such as copying for personal use, exemptions for libraries, and exemptions for radio broadcasters. Fair Use is These public rights are an important part of the American way. We are one of the few countries in the world that have it fair use and other public rights defined in our law. Like freedom of the speech, it is a foundation of our culture. But the RIAA wants to change this, and they're doing it by chipping away at the law.

Can you imaging the outrage if over-the-air radio suddenly was forced to pay huge amounts of money to play music? Music radio would go away, and become all talk radio. Payola would return in a new form: the only music you would hear on the radio is music that the record labels granted permission for broadcasters to play. The labels would then control the music that got played over the air to the public - which is something they have always wanted to do anyway.

Many people, including myself, think that this is all about control and not money. The labels want to control what music the public hear- they want radio to only be an extension of their marketing efforts. So if they can't bribe stations to play the music they want them to play, they went for legislation that says stations have to pay for everything other than the music the labels want them to play.

Can't you just move your servers to another country?

Many people ask us, why can't you just move your servers to another country?

Gary Greenstein, former general counsel for SoundExchange recently said:

The RIAA and the major labels have take the position that the law in the territory of destination of a transmission will govern and that off-shore webcasters streaming into the US will still have liability for transmissions (i.e., public performances) that terminate in the US. Therefore, moving a webcaster's facilities off shore will not immunize them from liability or the reach of US courts, particularly if the owner/operator still has sufficient business in the US.

We would have to move our entire business operations, not just our servers. So this isn't really a tactic that will work, especially for the long term. It's not practical for SomaFM to move our entire operations overseas; and if we retained ownership of a foreign company that was broadcasting to the USA, we would likely be the target of a lawsuit.

But, the good news is that we're not going to have to pay SoundExchange for our audience that's outside the USA. The bad news is that soon we'll likely have to pay royalty collection agencies in other countries:

David Oxenford, a broadcast law Attorney, says:

In the first CARP (I believe) there was a specific statement that a "performance" was a play to a US listener. So webcasters have excluded performances to non-US IP addresses when computing their royalties. After the first CARP, a number of large UK streamers cut off their service to US listeners, worried that they would have to pay the royalty.``

``In the last year or so, the performing rights organization from the UK has been in contact with some US streamers looking for royalties for performances that are heard in the UK. I understand that both Yahoo and Clear Channel block streams to IP addresses that are clearly not in the US, possibly to avoid this issue. ``

Really, the only solution is to fix the problems with the royalty rates in the USA. Running away from them won't solve the problem for the long term.

A Tale of Two Press Releases - Who Is A Musician to Believe?

David Oxenford (an attorney representing small commercial webcasters and who SomaFM contributed funds to) writes in his blog:

Two press releases about the radio music royalty controversy were issued late last week from groups appealing to musicians - and they couldn't have been more different in tone.:
(excerpt)
FMC suggests that multiple tiers of licensing are necessary so that all kinds of webcasters can continue to exist (unlike the one size fits all scheme adopted by the Copyright Royalty Board). FMC urges SoundExchange and the webcasters to come to a settlement that will preserve webcasting while fairly compensating musicians.
...
By contrast, SoundExchange argues in its press release that some webcasters are acting in bad faith in arguing that the rates are too high - and are "engaged in a campaign of misinformation about the process, the decision itself, and the impact of the decision on the participants." The Press Release itself is subtitled "Suggests Some Webcasters Not Telling the Truth About the Royalty Process."
...
In other forums directed to musicians, SoundExchange President John Simson has posted a more detailed statement, arguing that the music industry is changing through the digital revolution, and that music is an important portion of most webcasting operations - points with which no webcaster can argue. But where there is an argument is the further claim made by SoundExchange in these postings - that Internet radio revenues have increased in recent years from $50 million to $500 million (implying that these revenues allow webcasters to pay the new royalties). That $500 million figure apparently came from a widely quoted report recently released by an analyst at JP Morgan. However, that analyst, John Blackledge, last Thursday stated at a Jupiter/Kagan Conference on Radio and Television Values and Finance that the actual revenues from Internet Radio were in the $50 to $100 million dollar range, not the $500 million dollar number that many press reports seized on.

Read the whole thing here.