Copyright Board to Web Radio: Drop Dead
When it comes to copyright policy, it seems that no idea is too stupid to get a second hearing. Most of the time, the greedy proposals foisted upon us by Big Copyright are appropriately ignored even on the first go-round, but every now and then some foolishness slips by.
Which brings us to this week's outrage: The government's Copyright Royalty Board rejected an appeal brought by numerous Web broadcasters large and small, and instead reaffirmed a royalty-payments scheme meant to compensate musicians for the use of their work. Under the scheme, Internet radio stations would pay royalty fees that would quickly and rapidly rise to .19 cents per song, per listener by 2010, a rate that Webcasters say would bankrupt all but the largest operations.
This is a staggeringly bad idea, both unfair towards Web radio and ultimately harmful to the musicians it's supposed to benefit. The defects of this concept should have been obvious when it first surfaced five years ago. And yet it's back anyway.
My colleague Marc Fisher did his usual excellent job documenting the effects this will likely have on Web radio stations in this blog posting (Short version: SoundExchange, the non-profit set up by the Recording Industry Association of America to collect and distribute these royalty payments to musicians and record labels, is trying to mug people with very thin wallets). But there's a couple of points I'd add.
One, if Web radio stations are ripping off musicians so badly that they must be slapped with these new, much higher royalty payments, why do record labels ever send these stations free copies of the musicians' work? Even operations as small as my old college radio station (to all three of you who could pick up WGTB's "carrier-current" signal in the dorms, thanks for listening!) get free CDs, and with good reason--how else are fans supposed to discover new music without spending hours every week in record stores or in clubs?
Two, a big chunk of music sales these days consists of the more obscure artists, not the chart-toppers you can't escape on commercial radio--the so-called "long tail" of the business. The last thing musicians need is to choke off the one part of the radio business that helps expose these lower-profile acts--the smaller, usually independently-run Web broadcasters that don't let market research program their playlists.
(You'd think that XM and Sirius would be the most vociferous opponents of the CRB verdict for this reason alone--without a diverse Web radio industry, they're going to have an even harder time saying that listeners will have numerous alternatives to a single, merged satellite-radio service.)
About the only good news in the CRB decision is that it could have been worse--in its ruling (PDF), the board rejected such extortionate SoundExchange ideas as a proposal that Webcasters pay 30 percent of their gross revenues and a 25 percent premium for digital music transmitted wirelessly.
Some musicians understand this--read the Future of Music Coalition's detailed posting on this topic. (Disclosure: FMC executive director Jenny Toomey, also known for her work with the wonderful alt-rock band Tsunami, is a former Post employee.) I'd like to see more stand up and say if they need SoundExchange's "help."
For more on this topic, click past the jump for the column I wrote about Web radio royalties back in 2002--a piece I'd hoped would be my last word on the subject.
Published on: Sunday, 5/26/2002, Business section,
edition, zone, H05
They're Not Treating Webcasters Like Royalty
By Rob Pegoraro
Internet radio did not die last week. The stay of execution came from an unlikely figure, Librarian of Congress James Billington, who rejected without comment a proposal for royalty payments that Web broadcasters said would bankrupt them.
But that's not the end of the story. Web broadcasts remain stuck in a peculiar legal box, subject to fees that no FM station pays. Billington now has 30 days to decide what those fees should be.
How did we get here? How could such a diverse, creative medium be threatened with government-mandated financial ruin?
Easy: Start with good intentions, then let the lobbyists go to town.
This story begins with the basic idea behind copyright law -- the author of a creative work deserves a chance to profit from it. So radio stations must pay a few percent of their revenues to songwriters, via a handful of composers' associations.
But what about the people who actually perform the music? Oops. Records didn't exist when many copyright laws were enacted. So radio stations in the United States, unlike those in some other countries, don't have to pay for their use of musicians' recordings. (Broadcasters say their airplay helps sell records in the first place.)
The recording industry has long bemoaned this situation, to no effect. In 1995 and 1998, however, Congress passed the Digital Performance Rights in Sound Recordings Act and the Digital Millennium Copyright Act, which together require "digital audio transmission" services -- with one massive exception -- to compensate performers and their record labels.
One important consideration was the alleged ease of copying digital broadcasts. As entertainment-industry lobbyists keep saying, anything digital can be copied infinitely and perfectly.
The Internet-radio business and the recording industry couldn't agree on a standard royalty, which meant the Library of Congress's Copyright Office had to step in. Here's where the process derailed.
The office's Copyright Arbitration Royalty Panel (CARP) tried to base a royalty system on 26 deals the Recording Industry Association of America had signed with individual webcasters. But it found that the RIAA had tried to rig the system by choosing weak bargaining partners it could arm-wrestle into paying steep royalties.
The panel identified only one valid example of a royalty agreement, the confidential settlement Yahoo inked in September 2000. It used this single data point to propose a rate of 0.14 cents per song played online, or 0.07 cents per song simulcast over the Internet and FM or AM. Non-commercial broadcasters got a discount of about two-thirds.
That sounds cheap, but it isn't. Those rates would be per listener -- an unusual policy whose enforcement is implausible with "multicast" Web technology -- and retroactive to 1998.
The Copyright Office also proposed that Web broadcasters log not just songs and audience totals, but such irrelevant data as each listener's time zone and country.
Some webcasters, such as Yahoo and Seattle's non-commercial station KEXP, say they can afford the royalties. Many others fear they'd be run out of business.
"Last year we would have owed $34,030.09," wrote Jim Atkinson, program director for 3WK Underground Radio in St. Louis. He estimated he would owe $80,000 for this year. Counting retroactive fees, this Internet-only station would be more than $500,000 in the hole.
If these forecasts are true, most small webcasters would have to shut down, and Web radio would walk the same dreary path of corporate consolidation as commercial FM.
"Some of our most common search terms are techno, jazz, electronica, folk," wrote Andrew Leyden, chief executive of a D.C.-based Web radio site called PenguinRadio.com. "How many of those genres can you hear 'over the air'? These are the stations we'll lose with the CARP fees."
Rejecting this exploitative scheme was the right call. Other digital services have much fairer, simpler royalty arrangements.
For instance, the Music Choice network available through DirecTV pays a flat fee of 6.5 percent of revenues. Satellite radio services are still haggling over royalties, but New York-based Sirius Satellite Radio says the RIAA isn't demanding per-listener fees. "I think they understand why it's not practical," said Doug Kaplan, Sirius's deputy general counsel.
Then there's that massive exemption I mentioned before. FM and AM stations will start digital broadcasts later this year, using technology developed by Columbia-based Ibiquity Digital Corp. What will musicians get for these CD-quality, easy-to-copy broadcasts? Nothing.
The RIAA and the nonprofit it set up to process musicians' royalties, SoundExchange, insist they want Web radio to succeed. Well, what do they think their proposed terms would do? If record labels are so annoyed by Web radio's free ride, why do they send promotional CDs to even a single webcaster?
But foolish greed doesn't negate that industry's fundamental argument. "Radio and television use these records to build their business," said John Simson, executive director of SoundExchange. And selling CDs isn't their primary concern: "They're in business to sell ads."
If artists do deserve this compensation -- note that the law requires half of these royalties go directly to musicians, with the other half going to their labels -- then all broadcasters should pay up equally.
"The fair thing would be for broadcast stations and Internet radio stations alike to pay the same rate," said William Goldsmith, a consultant to KPIG-FM in Watsonville, Calif., who also runs the Web-only station Radio Paradise.
To do otherwise would amount to imposing a special tax on Web radio, even as every other representative and senator claims to want to promote broadband Internet access.
I'd like to see Congress step in and fix things. But Congress also created this mess and a great many other tech-policy disasters, and I have a hard time trusting it to do the right thing this time.
April 17, 2007; 2:26 PM ET
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