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Web Radio Royalties Resolved*

Our long national Web-radio nightmare is over--sort of, at least for the next five years or so.

Yesterday, representatives of the recording and Web-radio industries announced an agreement on a lower set of royalties that Webcasters would pay to musicians and record labels for the use of their recordings.

Instead of the financially destructive fees--per song and per listener--that Webcasters were set to cough up, courtesy of an ill-informed panel of copyright judges, Web radio sites could pay either lower rates or a percentage of their revenues or expenses if they opt into this new royalty structure.

Tim Westergren, founder of the popular but royalty-threatened Web-radio site Pandora, characterized the news in glowing terms:

For more than two years now I have been eagerly anticipating the day when I could finally write these words: the royalty crisis is over!

Webcasters, artists, and record labels have reached a resolution to the calamitous Internet radio royalty ruling of 2007. Pandora is finally on safe ground with a long-term agreement for survivable royalty rates. This ensures that Pandora will continue streaming music for many years to come!

The actual picture is a little more complex. SoundExchange, the D.C.-based organization representing musicians and record labels, and veteran Web-radio broadcaster and blogger Kurt Hanson, who helped negotiate this agreement, each needed lengthy, multiple-table blog posts to recap the new rules.

Here's my summary of SoundExchange and Hanson's posts--leaving out some fine print to avoid anesthetizing all of you:

* Large Webcasters--defined as those who rake in more than $1.25 million in annual revenues--will pay either 25 percent of those revenues or a per-performance rate in the neighborhood of a tenth of a cent, whichever is greater. This deal runs through 2015.

* Small Webcasters--those raking in less than $1.25 million a year in revenues and fewer than 8 to 10 million listener-hours a month of broadcasts, depending on the year--can choose between paying a percentage of their revenues (12 percent of the first $250,000, then 14 percent of everything on top of that) or their expenses (7 percent). These options run through 2014.

Note that these rates, while cheaper than before, remain fairly expensive. Pandora's Westergren, for example, noted in that blog post that the site would have to charge listeners 99 cents if they tune in for more than 40 hours in a month.

These rates also far exceed those that satellite-radio broadcasters pay--6.5 percent of gross revenue this year, rising to 8 percent in 2012--and infinitely exceed the rates--zero percent--that American FM and AM stations cough up to musicians and labels. (In most other countries, terrestrial radio stations already pay performance royalties.) That has been the fundamental problem with the Web-radio-royalties debacle, going back not just to 2007 but to 2002: One group of businesses is getting charged more than others that provide the same basic service, apparently for the sin of taking too long to hire good lobbyists.

Bill Goldsmith, founder of the non-profit Webcast station Radio Paradise, emphasized that point in an e-mail:

I understand that Mr. Westergren has advertisers and potential advertisers who need reassurance that Pandora will still be around. But this is hardly a victory for webcasters. It perpetuates a situation where the ability for the Internet radio industry to grow and prosper is hampered--to a nearly fatal degree--by the record industry's blatant attempt to recoup some of the money lost by their mismanagement of all things digital.

Goldsmith is not saying, nor do I think, that stations shouldn't have to pay any royalties to musicians. Others disagree; Mike Masnick argues that point in a post on the Techdirt blog:

The idea that webcasters/broadcasters should need to pay artists for the right to promote them to fans just seems bizarre and borderline incomprehensible in the first place.

A paragraph later, however, Masnick seems to accept the idea that Webcasters--just like satellite broadcasters and even plain old AM and FM--should pay royalties to the composers of songs, noting that these rates amount to a more sensible 2 or 4 percent of revenue.

Well, if songwriters deserve a check for the use of their work, why not performers too? Should our copyright laws mandate some compensation to Tom Waits for his music and lyrics to "Jersey Girl,", but none to Bruce Springsteen for his performance of the song?

To that end, Congress is debating a bill called the Performance Rights Act that would levy performance royalties on regular AM and FM broadcasters. But those rates would still run far less than Webcasters' fees.

There's a simple and fair way out of this, and that's to standardize royalties--to composers and performers alike--on broadcast music outlets, whether they use a satellite, the public airwaves or an Internet connection to reach your ears. As an added benefit, this royalty structure wouldn't have to resemble the tax code.

But is that far too logical a solution for Congress? Tell me how you'd like to see this whole debate end--and how you think it will conclude--in the comments.

By Rob Pegoraro  |  July 8, 2009; 8:07 AM ET
Categories:  Music  
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"One group of businesses is getting charged more than others that provide the same basic service, apparently for the sin of taking too long to hire good lobbyists."

Thank you! This is the point that many webcasters like myself have been trying to make to people. It makes no sense for a small online radio station to be paying different royalties than a satellite radio station or terrestrial radio station.

Standardize the rate system!

Posted by: lightgrw | July 8, 2009 9:34 AM | Report abuse

I testified in front of the CRB on this subject a couple of years ago. The record labels, who own the royalty rights on the songs, argued that Internet Radio provides a digital signal that can be easily copied by nefarious people (using a technology called stream-ripping) who want to avoid paying the high prices of CDs. The Internet Radio stations argued that the stream-ripping process was cumbersome, of low quality, and there were easier ways for a miscreant to copy songs like the peer file sharing software and sites that RIAA was going after. The iTunes store basically dropped the price of a song to $.99 and the popularity of that seems to have brought the labels back to the table to negotiate.

Posted by: rogernebel | July 8, 2009 11:42 AM | Report abuse

What about "terrestrial radio stations" who also stream their content over the Web? Do they have to pay SoundExchange royalties for their Web listeners, or since they are just streaming their broadcasts, are they exempt?

Of course (thankfully), not all radio involves "songwriters". Will Garrison Keillor receive Web royalties for "A Prairie Home Companion"?

If Web streams have to pay royalties, do downloadable podcasts?

The possible legal labyrinth goes on and on....

Posted by: 54Stratocaster | July 8, 2009 10:28 PM | Report abuse

Oh, BTW, the RIAA are idiots. As far as I am aware, they have not yet given up on their perverted notion of making people who have bought actual music CDs make us pay them for ripping our own MP3s to play on our iPods and smartphones.

Posted by: 54Stratocaster | July 8, 2009 10:30 PM | Report abuse

What kills me is that originally, before recording technology was invented in the 19th century, musicians could only be paid for each live performance, just like a shoemaker could only collect payment for each pair of shoes made.

Artists such as musicians and filmmakers have benefited far beyond shoemakers and the like from the ability to infinitely duplicate and expose their work to the public, thereby making them rich if a great number of consumers demand copies of their work, or listen to broadcasts of it.

If the poor shoemaker experiences that type of demand, s/he cannot infinitely dup the product at a similar low cost or quick time. Wouldn't a shoemaker just love it if s/he could make a great pair of shoes just once, "record" and distribute it, then just sit back and collect checks the rest of his/her life? (no I am not a shoemaker) Yes this does happen to a few inventors, but not ordinary craftspeople.

This is why I chuckle over this brouhaha about royalties on broadcasts of recorded performances. Those plays of recordings obviously can go on ad infinitum, with no further effort on the part of the performer or writer.

The descendents of the songwriter of "Happy Birthday" still collect royalties, but I receive nothing (oh,oh, sour grapes) from the work on Detroit's automobile technology done last century by my ancestors.

Posted by: photodon | July 10, 2009 11:23 AM | Report abuse

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