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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
FAST FORWARD
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.

By Rob Pegoraro  |  April 17, 2007; 2:26 PM ET
Categories:  Music  
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Comments

The "right" in copyright is the right to dictate as harshly as one wishes the conditions under which a work can be copied, performed, displayed, etc. You can piss and moan that the copyright holder is being a big meanie all you want, but I, as a poor artist myself, would not have it any other way.

Christ, we are already inundated with media products in every possible form from every direction every second of the day. I doubt that mean old copyright holders charging too much is going attenuate the media onslaught such that people will be dying of boredom. If this does occur, we can launch a YouTube telethon.

Pegoraro is too enthusiastic a promoter of the technology fetish that has gripped this nation. If it is new and neat, it must be good, and the enemies of the hip are idiots. May age grant you and your readers a bit of wisdom.

Posted by: bkp | April 17, 2007 8:53 PM | Report abuse

I wonder. Does bkp send a royalty check to the company that made his instrument every time he/she uses it to make money? Royalties are an unbelievable racket. Who else gets paid forever for doing something once?

Posted by: jns | April 18, 2007 11:18 AM | Report abuse

Astroturfer- Wikipedia :
For the artificial grass, see AstroTurf.
Astroturfing is a term for formal public relations campaigns in politics and advertising that seek to create the impression of being spontaneous, grassroots behavior. Hence the reference to AstroTurf (artificial grass) is a metaphor to indicate fake grassroots support.

Posted by: gadzooks | April 18, 2007 11:22 AM | Report abuse

How did * $.0019 (2010) per song, per user. get to be 1.9 in your article?

This is from the future of music site which you linked to:

On March 4, 2007, the Copyright Royalty Board (CRB) announced new royalty rates for non-interactive webcasts that use the statutory webcast license, effective from 2006 to 2010. The retroactive rate for 2006 was set at $0.0008 per song per user, with rates increasing annually to:

* $.0011 (2007) per song, per user
* $.0014 (2008) per song, per user
* $.0018 (2009) per song, per user
* $.0019 (2010) per song, per user.

Posted by: mist | April 18, 2007 11:31 AM | Report abuse

I buy songs all the time that I hear on the 2 different webradios I listen to. Love that I can hear a song I really like, click from my work, check the name and artist, go to itunes BUY it and have it as mine. Check out the rest the artist has and maybe enjoy the whole album - Just bought a song from the movie Kinky Boots, would I have found that song on my own? Don't think so.

Posted by: aec | April 18, 2007 12:11 PM | Report abuse

bkp:

I am "too enthusiastic a promoter of the technology fetish"? You have me confused with somebody else. I'm the curmudgeon who's always complaining about things being too difficult to use, too impractical or too expensive--and who happens to drive a 15-year-old car, listen to a 13-year-old stereo system and live in an 87-year-old home.

Also, your understanding of copyright is incorrect; there is no such absolute right as you described.

mist:

Thank you for catching that idiotic typo. The correct number appears now.

- RP

Posted by: Rob Pegoraro | April 18, 2007 12:18 PM | Report abuse

Being recently widowed, my musician husband never lost his interest in the music industry. He played more than 20 instruments and was a member of the local musician's union at age 13. He had even written a song that was recorded and published. He was a little frog in a big pond, but I remember shortly before we got married (11-22-72), he had me stand behind a building while he checked the inside the engine of his car. He had developed a product that was putting fellow musicians out of work, and he had gotten threats because of his invention. I was a naive little school teacher then. Some Jollyisms (Jolly was his firt name). "Money talks, and bull---- walks!" "My name is Cash." The last: Re: Murphy's Law: "Murphy was an optimist." Sorry for the eulogy, but my
point is that where there is money to be had, one will find the camel trying its best to get its nose under the tent flap--no matter what the organization is.

Posted by: Susan Dawson | April 18, 2007 1:20 PM | Report abuse

Being recently widowed, my musician husband never lost his interest in the music industry. He played more than 20 instruments and was a member of the local musician's union at age 13. He had even written a song that was recorded and published. He was a little frog in a big pond, but I remember shortly before we got married (11-22-72), he had me stand behind a building while he checked the inside the engine of his car. He had developed a product that was putting fellow musicians out of work, and he had gotten threats because of his invention. I was a naive little school teacher then. Some Jollyisms (Jolly was his firt name). "Money talks, and bull---- walks!" "My name is Cash." The last: Re: Murphy's Law: "Murphy was an optimist." Sorry for the eulogy, but my
point is that where there is money to be had, one will find the camel trying its best to get its nose under the tent flap--no matter what the organization is.

Posted by: Susan Dawson | April 18, 2007 1:23 PM | Report abuse

Sorry about the dangling phrase above at the beginning of my comment, I'm still here but wish he was, too.

Posted by: Susan Dawson | April 18, 2007 1:25 PM | Report abuse

I would have to agree that broadcasting music is broadcasting music. Just because Webradio is capable of keeping track of the number of people that log in doesn't mean that they should pay per listener.

If you are broadcasting music in any way, shape or form, you should pay royalties the same.

I've read other articles, and while I think the RIAA is starting to come around a little (DRM issues for online stores) they are still terrified of "new."

bkp may have a correct idea that is true of some (not RP) in that people think the latest is the greatest. But I think the real issue is that we need people to stop and look at what the trends are, and then see how you can exploit them to make money.

If the RIAA would have followed the trend of P2P or music online, and said "Here is a new revenue srteam. How can we capitolize on it?" instead of trying to kill it, they would have been a lot better off.

People in power need to remember that Corporations just like people have a "fight or flight" reaction. If you corner them and try to kill them, they will fight tooth and nail. If you offer them an avenue that is different than what they wanted, but allows both of you to continue in a positive fashion, then your better off.

I guess it's the old saying about catching more flies with honey than vinegar.

Posted by: SJB | April 18, 2007 1:53 PM | Report abuse

Do the math. In 2010 when the royalties will be $0.0019 per song per user. If there are say 3 million users and only 240 songs webcast in a 24 hour period the royalty would only be $1,368,000 for that day. ($499,320,000 a year) Sounds fair to me! But I guess you could webcast the same song 240 times in a 24 hour period on only pay $5,700 in royalties.

Posted by: dmr | April 18, 2007 2:04 PM | Report abuse

I live in a small Montana town. Our town has 2 radio stations, the AM is top 10 country (and it's absolutely horrid), the FM is canned elevator music. Both shut down at 10 pm. Thus I've very appreciative of the music options available on the Internet. My CD collection has grown since having gained access to web radio (have KEXP tuned in as I type this). I do not record any of the songs I listen to on the web, instead if I want it I buy it.

Also I've booked bands for our annual Irish Fair that I first heard on the Internet, something I couldn't do w/o web radio. However, as w/ all things, it doesn't matter what myself or others wish. Money goes only to a select few corporations who want to control my choices. So I will continue my boycott of all the large music companies. They don't deserve my money.

Posted by: bfs | April 18, 2007 2:56 PM | Report abuse

I belong to four Public Radio stations. I subscribe to Live365. I subscribe to a semi-private PubRadio music outlet. And, I pick out one web streamer on the 15th of the month and donate $10.00. I am not rich and none of this is big money. But there is no reason for web listeners to expect content for free. Terrestrial radio costs us in commercials. Satellite radio is a subscription service. Web Radio should accept this royalty thing as the future.

There should be a paradigm shift to subscription based streaming with user ID's and passwords. It does not have to cost a lot of money to monetize away this whole problem. Streamers with good bit rates, stereo and solid streaming, with quality content will do fine.

Posted by: Richard Mitnick | April 18, 2007 3:18 PM | Report abuse

I'm not going to buy music from a band I've never heard. I also don't have time to surf though an online store's sample tracks and forget about a brick and mortar store, so the only new music I buy is from bands I hear on listener supported radio such as KEXP (got to give those guys another plug). "Starving artists" need to get a clue realize that it takes money to make money and assuming you're talented giving up some of your royalty $$ to small independent radio stations (almost all of which are online thanks to Clear Channel) is the only way you're going to get people to buy your music. By dictating too harshly the "the conditions under which a work can be copied, performed, displayed" you're just guaranteeing the obsolescence of your art.

Posted by: Norm | April 18, 2007 3:47 PM | Report abuse

To R Mitnick, I don't think that the listeners should be burdened with fees. I mean terrestrial radio doesn't cost the "listener" money. They have a radio in their car or from K-Mart and they get to listen for free.

Yes, commercials pay the cost of the radio personalities salaries and so forth, but it is the advertisers that pay the costs.

To that end, broadcasting is broadcasting. Why should broadcaster A be required to pay a premium when broadcaster B gets to broadcast for free.

Everyone has costs. They utilize commercials (or banner ads on Web) to pay for those costs.

But to have Webradio pay these royalties and AM/FM not would be like telling a Honda dealership that they have to buy a license because the sales people are on salary. But since the Nissan dealership next door pays the sales people commision, they aren't required to get a license. They are both doing the exact same thing, they just have slightly different costs.

Posted by: SJB | April 18, 2007 4:01 PM | Report abuse

I've been buying around 150 CDs year for over 20 years. I don't tend to buy much of the chart-topping stuff,because I will hear it everywhere. So I probably end up buying mostly higher-margin obscure material.

Getting previews of such music is quite hard. They are less likely to have preview clips at online stores, and they are not sampled in stores like Borders, B&N etc which claim to have all discs in store available for preview ( I went through 10 CDs in one B&N store once without finding a single available sample).

Stores don't do themselves a favour by plastering so many stickers and layers of plastic film/shell over a CD. Apart from the sheer environmental wastage, I can't even see what's on the album half the time. Some labels do themselves no favours by making their CD cases so artsily-obscure that there is nothing that will tell me even vaguely what sort of music I can expect to find.

Web radio services like Pandora are very useful in unearthing new material. But now the long tail is being crimped.

Are these CRB idiots from the same zone as the ones that came up with DVD region coding?

Posted by: Mike | April 19, 2007 7:43 AM | Report abuse

$0.0019 cents per song (NOT per user) sounds fair to me...

Posted by: Stratocaster | April 21, 2007 12:57 PM | Report abuse

There appears to be a growing trend for broadcast radio to have internet streams as well (frequently using some type of weird-ass proprietary media player) to reach listeners while they are away from their radios, such as while working in the office. Let's make sure the new CRB rules apply to the internet streams from the airwave broadcasters as well, and see how well they like it when the shoe is on the other foot. Those connections can be audited, too.

Posted by: URLfan | April 21, 2007 1:44 PM | Report abuse

Anyone that has researched this issue would know that this royalty alone would cost an average of 100% or more of the current income internet stations receive. That is based on some very successful internet stations. Then there are royalties to be paid to the other agencies, ASCAP, SESAC and BMI above this royalty. One of the above mentioned stations alone generates an average of $40,000.00 a month in cd sales. Under this rate structure that station will close. Gone are the royalty rates already being paid along with the $40,000.00 a month in generated cd sales. How is this good for artists? I fail to see it.

Posted by: Paul | April 23, 2007 3:39 PM | Report abuse

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