A lot has happened since our report in the March newsletter about webcasting rates, with some hopeful progress in the last few days. To recap:
On March 2, the Copyright Royalty Board issued new royalty rates for non-interactive webcasters, effective from 2006 to 2012. Specifically, the royalty payment rate would increase to .08 cents per song per listener retroactive to 2006, and would climb to .19 cents per song per listener by 2010. Without other action, these new rates go into effect on May 15, 2007.
This was a tremendously controversial decision. Many webcasters, especially the small and noncommercial ones, claimed that this royalty rate was far too high, in many cases exceeding their available revenue. If the financial impact is as severe as stated by some small webcasters, these new rates could mean less music and more advertising or, even worse, stations going off the air altogether because they can’t afford to pay the new rates.
The small webcasters began to organize in early April, kick-starting letter-writing campaigns to Congress and the CRB and filing a motion for a rehearing. Meanwhile, SoundExchange continued to publicly support the higher rates as announced by the CRB. On April 16, the CRB denied the webcasters’ a rehearing on procedural grounds, saying the webcasters didn’t present any new evidence that would warrant a new hearing.
Without a rehearing, the webcasters turned to Congress for help. And late last week (March 26), Rep. Jay Inslee (D-WA) introduced HR. 2060, the Internet Radio Equality Act. The bill has five major provisions (this bill explanation taken directly from RAIN):
- It nullifies the recent decision of the CRB judges
- It changes the royalty rate-setting standard that applies to Internet radio royalty arbitrations in the future so that it is the same standard that applies to satellite radio royalty arbitrations.
- It instructs future CRBs that the minimum annual royalty per service may be set no higher than $500.
- It establishes a "transitional" royalty rate, until the 2011-15 CRB hearing is held, of either .33 cents per listener hour, or 7.5% of annual revenues, as selected by the provider for that year. Those rates would be applied retroactively to January 1, 2006. (The logic behind this rate, incidentally, is an attempt to match the royalty rate that satellite radio pays for this royalty — thus the name of the bill.)
- It expands the Copyright Act’s Section 118 musical work license for noncommercial webcasters to enable noncoms to also perform sound recordings over Internet radio at royalty rates designed for noncommercial entities, and sets an transition royalty at 150% of the royalty amount paid by each webcaster in 2004. (Note that this amount would be a set, flat fee through the end of the decade.) More analysis of HR 2060 here by Kurt Hanson
Whether this legislation presents a solution that is agreeable to all stakeholders remains to be seen, but we’re glad to see that the process of developing a royalty rate framework is moving ahead. Through all of these negotiations, FMC remains committed to four key points:
1. Internet radio is an incredibly valuable music platform for musicians, fans and labels
FMC supports the continued growth of internet radio. It has the unparalleled ability to develop loyal, worldwide audiences for niche musical genres — from 60s rock to contemporary classical to southern blues — something that is incredibly valuable for all the artists and labels that work outside the "mainstream" formats. Small and noncommercial webcasters in particular have proven to be a valuable promoter of both independent music and genres that are routinely ignored by commercial broadcasters.
2. Performers and labels should be paid.
We have and always will support the digital performance royalty, which are the royalties paid by webcasters and satellite radio to SoundExchange, which then pays them to performers and sound recording copyright owners (usually the record label). As webcasting continues to grow, the digital performance royalty will also grow for performers.
3. Rates proportionate to the size of the webcasters.
We also believe that the "one size fits all" approach that was part of the March 2007 rate setting decision would be harmful to the small and non-commercial webcasters. There’s a vast difference between the staffing and revenue generated by a volunteer-run internet radio station and an AOL or Clear Channel. These differences in resources and revenue - not to mention motivation for running a station — makes a tiered system the most sensible solution: charge the big broadcasters a higher rate, and the small webcasters, hobbyists and noncommercial webcasters lower rates that match their revenues and resources. This ensures artists get paid and small webcasters stay online.
4. Streamline the reporting process.
FMC continues to believe that it’s important to develop a reporting process that ensures that even the smallest webcaster can file timely and accurate playlists with SoundExchange. For years we have urged the development of an authentication database, managed by a neutral third party, through which copyright ownership and performer information would be verified. Such a database would reduce filling time and errors on playlists, thus making sure more money flows directly to artists.
To summarize, FMC believes that large commercial webcasters should pay higher rates, similar to the way that royalties are calculated in the terrestrial radio setting, and we call on parties to adopt reasonable rates and reporting requirements for clearly-defined categories of small, noncommercial and hobbyist webcasters that will ensure the future development of this medium.
In the end, whether through legislation, court action or negotiation, FMC hopes that the webcasters and SoundExchange can work together to strike a balance that recognizes the value of webcasting to creators and listeners, but also properly compensates artists, performers and labels for uses of their work.
FMC will continue to monitor the webcasting rate activity. We’ll also be speaking about it this week during our Music, Technology and IP Policy Day on May 2. Check out the event for details
Lawmakers propose reversal of Net radio fee increases
CNET, April 26, 2007
SoundExchange Softens Stance, Seeks Webcaster Discussions
Digital Music News, April 19, 2007
Your Government Working for You
David Byrne & Danielle Spencer, April 1, 2007