Friday, August 3, 2007

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?

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Blogger Fred said...

The revenue caps and the retroactive pay-per-play guillotine aren't intended to make larger webcasters pay more. The desired result is only to reduce the number of webcasters. Looking for a rational explanation of the SoundExchange/RIAA position on this is futile unless you understand what they really want.

One solvable problem with the way the revenue caps operate under the CRB rates is the retroactive application of the higher rate if a webcaster exceeds the cap by as little as a dollar. SoundExchange/RIAA is insisting that larger webcasters pay a greater share of their revenue, so let's give them a way to achieve that without killing everything that grows.

This retroactive guillotine could be easily solved by applying the same graduated tax reasoning the IRS does (and apologies to those who think the words "IRS" and "reasoning" don't belong in the same sentence).

Apply the basic rate to the first X dollars of revenue, then a graduated rate to the next X dollars of revenue, another increased rate for the next X dollars and so on. Under such a system, the webcaster would know exactly what the tax burden will be for reaching specific revenue levels in any given year. The more you make, the more you pay, but on a consistent and easily anticipated basis.

Of course, this solution requires that the same royalty calculation basis apply at all revenue levels for all webcasters all the time. You can't count oranges until you reach a certain point and then start counting apples and expect the system to work rationally.

Raising the cap before the blade comes down is not a solution, because the blade will always be there to punish the successful, even if you raise the limit. Sooner or later, someone will trigger it. We're not supposed to punish success, we're supposed to reward it and emulate it.

August 4, 2007 8:25 AM  
Anonymous Darrell Burgan said...

Someone needs to explain to me why there isn't a threshold below which net radio is declared "hobbyist" and no royalties are charged.

Seriously, the vast majority of net radio stations have very small listening audiences. When your average number of listeners is in the single digits or double digits, the amount of revenue that could be gathered is almost nil. Why does the industry even care at all about stations like these?

The solution for these stations is simple. The law should include a threshold that says if you have no revenue stream and if you have an average number of listeners less than, say, 50 people at a time, then you are statutorily exempted from royalties. If you start bringing in money, or if you start having more listeners than 50, then you have to sign up for a license.

Seems like a win/win to me. The recording industry gets some free exposure but it doesn't really cost them anything since they wouldn't get any real $ from these tiny stations anyway. And, the tiny stations have the ability to continue to carry out their passion, as long as they never try to make it a real business.

I challenge the RIAA to answer this simple question: Why isn't this a good idea for everyone concerned??

August 5, 2007 10:53 AM  
Anonymous DomPierre said...

SoundExchange Caught Lobbying, Despite Strict Rules Against Using Its Money For Lobbying

SoundExchange, which is a "non-profit" spinoff of the RIAA is supposed to be a neutral party, simply in charge of collecting certain royalties and distributing it to the artists. Of course, things aren't always the way they're supposed to be. After all, SoundExchange is famous for having trouble finding many of the musicians it's supposed to pay -- which isn't all that surprising since it gets to keep the money that goes unclaimed. However, part of the law that governs SoundExchange's existence makes very clear that the organization may only use its money for three things: administration of collecting and distributing royalties, settling disputes about the royalties and licensing and enforcement. One thing clearly not on that list is building a PR campaign and lobbying Congress to expand its ability to collect royalties from other sources. However, Eliot Van Buskirk over at Wired has discovered that's exactly what SoundExchange is doing, and it appears to be breaking the law.

You'll recall the recent stories about the music industry claiming that radio stations are getting a free ride in not having to pay musicians' royalties, despite the fact that, for years, the record labels felt they needed to pay the radio stations just to get airtime. This came out as a new lobbying group and PR campaign kicked off -- including the ridiculous assertion that radio makes people buy less music. It turns out that the group behind this lobbying effort, musicFIRST, happens to be funded in part by SoundExchange. It makes sense why SoundExchange would do this. After all, it would be in charge of collecting those royalties. However, the law seems pretty clear that SoundExchange can't use its money for lobbying (especially lobbying to expand its own power). Van Buskirk got the run around from SoundExchange on this, with the executive director ignoring the question and simply repeating the laughable statement that radio stations (who are promoting the music for the record labels) are somehow getting "a free ride." A lawyer for SoundExchange then tries to explain the situation away by saying that the royalty money being used for lobbying was authorized to be used this way by SoundExchange members. That's like saying it's okay that they broke the law, because they gave themselves permission to break the law. Very convincing.

SoundExchange Caught Lobbying, Despite Strict Rules Against Using Its Money For Lobbying

August 6, 2007 9:39 AM  

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