While record labels stalk a new revenue source: over-air broadcasters
It’s nothing new for public radio listeners to bemoan pledge drives, but Linda Fahey, program director for FolkAlley.com at WKSU-FM in Kent, Ohio, faced a less familiar challenge during the webstream’s most recent fundraiser: convincing would-be members that they weren’t donating to a service on the verge of oblivion.
“We’ve had listeners say, ‘On the one hand, you’re saying the service is in jeopardy, and at the same time you’re asking me to support it,’” Fahey recalls. “They’re asking, ‘How do I even know you guys are going to be around?’”
Such is life for webcasters, who warn that vastly increased royalties, demanded by record labels and performers, will cripple them economically.
Since the U.S. Copyright Royalty Board announced a new fee structure in March, online music streamers have rallied their fans and banded together with traditional broadcasters to complain loudly that the royalties will nearly equal or even exceed their revenues.
Their efforts have paid early dividends in the form of a couple of bail-out bills introduced in Congress. In April, Reps. Jay Inslee (D-Wash.) and Donald Manzullo (R-Ill.) introduced the Internet Radio Equality Act, which would vacate the CRB decisions and bring webcasting royalties more in line with those of satellite radio, which pays rates roughly equivalent to 7.5 percent of revenue. The measure had more than 60 House co-sponsors last week and was joined by a Senate bill introduced by Sens. Ron Wyden (D-Ore.) and Sam Brownback (R-Kan.).
“I am hopeful that with this bipartisan legislation Internet radio will continue to flourish,” Brownback said in a statement.
Webcasters also received a momentary reprieve when the copyright panel agreed to delay for two months (until July 15) the due date for first payments at the new rates. Those payments cover music streamed in 2006.
Streaming advocates hope the delay will give Congress enough time to pass the Internet Equality bill, which faces opposition from record labels and SoundExchange, the organization they created to collect digital royalties.
“Members of Congress are getting a lot of pressure from constituents about this,” says Christine Hanson, spokeswoman for Inslee, who comes from the Seattle area, home of streaming technology giants Real Networks and Microsoft. “We think the issue could move faster than the typical glacial speed of Congress because of the deadline.”
Despite the ruckus over web royalties, it may turn out to be a mere prelude to a much louder clash.
At a music and technology conference hosted by the Future of Music Coalition in Washington May 3, John Simson, executive director of SoundExchange, confirmed that the recording industry plans to go after royalties from over-the-air broadcasters next. Though broadcasters have paid royalties to composers and music publishers for decades, they haven’t had to pay the performers in recordings they air. Simson aims to end that exception.
The timing on such a campaign “is still a little uncertain,” Simson told Current. “I think it would certainly be in the near future.” Billboard reported last week that label and artist groups and unions are “gearing up to lobby Congress for a performing right over terrestrial radio.”
“It’s going to be probably the biggest battle royal,” technologist and Radio World columnist Skip Pizzi told Current. “It’ll make [the webcaster fight] look like a little skirmish.”
The National Association of Broadcasters, one of Washington’s most powerful lobbying machines, asked Congress last week to oppose the music industry’s effort to create a new “performance tax,” noting that legislators rejected similar requests in the 1970s and 1990s.
“Congress has long recognized the inherent value to record labels and performers from free radio promotion,” wrote NAB President Donald Fehr in a letter sent to lawmakers.
Pubradio hasn’t mobilized yet against the drive for added over-the-air royalties, says Mike Riksen, NPR v.p. for government relations. “Obviously, we would take any initiative along those lines as a very significant threat to public radio,” he says.
As for the webcasting issue, NPR has filed numerous briefs criticizing the royalty panel’s decision and will file an appeal with the D.C. Circuit Court of Appeals. Lobbyists are also “pressing the issue very aggressively” on Capitol Hill, Riksen says.
NPR and CPB are also meeting with Sound Exchange reps in an effort to work out a mutually acceptable rate for pubradio streamers, Simson said.
“I think we want to sit down and see if we can’t come up with an agreement that we can both endorse,” he says.
CPB has traditionally paid all public radio streaming royalties at a flat rate but its most recent deal with the recording industry effectively expired in 2005. The corporation hasn’t determined whether it has enough money to pay the fees due July 15 or the larger ones that will be due later.
The current fight mirrors one that erupted in 2002, the last time a copyright board tried to boost the royalties that webcasters pay the labels.
Advocates complained then that the new rates would scuttle the nascent web streaming platform and Congress addressed the issue with the Small Webcasters Settlement Act of 2003, which based royalty rates for small-timers on a percentage of their revenue. Large webcasters, such as AOL Radio and Yahoo, paid roughly .07 of a cent per performance — defined as the streaming of one song to one listener.
This was in addition to royalties paid to songwriters’ organizations such as ASCAP and BMI, which total about 4 percent of revenue per year, says Kurt Hanson, c.e.o. of Accuradio and publisher of the Radio and Internet Newsletter.
As the previous deals expired, webcasters expected SoundExchange to extend the Small Webcasters law, Hanson says.
What the three-judge Copyright Royalty Board proposed instead, after 18 months of hearings, was a structure that webcasters say will increase royalties 300 to 1200 percent:
All webcasters would pay streaming royalties on an annually escalating per-play standard.
The royalty rate will more than double over the next four years, from .08 cent per play, retroactive to 2006, to .19 cent per performance in 2010.
The minimum fee is $500 per channel per year. But for streams that appear on multiple websites—such as KCRW’s stream, which has outlets on Live365.com and elsewhere—royalties are owned for each site as a separate channel.
Noncommercial webcasters will pay $500 per channel for up to 159,140 listener-hours—pubradio’s average, based on a 2004 NPR survey. All transmissions after that will be subject to commercial rates. The royalty board estimated that 20 percent of pubradio stations fall within this category.
Even established commercial webcasters say the new rates would break them.
Hanson’s Accuradio would face royalties that total 150 percent of revenues, he says. Live365, essentially a bandwidth provider for more than 10,000 streams, including some from pubradio stations, would have to pay more than 70 percent of its revenues to SoundExchange.
“There’s absolutely no business at that point,” says N. Mark Lam, c.e.o. of Live365.
For some pubcasters, the royalties would be substantial. WXPN’s estimated $67,000 streaming bill for 2006 would be roughly 10 percent of revenue for the entire station, says Roger LaMay, g.m.
That figure doesn’t even take into account Y-Rock, the station’s new alternative rock stream that is currently operating at a loss even without a big royalty bill.
For that new stream, LeMay says, “Our hope was to build up audience and break even in the fourth year, but [the new royalties] would dramatically change the equation or even make it not worth pursuing at all.”
“We don’t need to make money off of our streams—we’re even willing to lose money to get things going,” LeMay adds. “But it’s not fair to our members to do so indefinitely.”
For most pubradio stations, with limited revenues clearly tied to streaming, it’s tricky to assess whether the new royalties would turn streaming into a money pit. An exception is WKSU’s FolkAlley.com, which has a $260,000 annual budget and would pay roughly $49,000 in 2006, Fahey says, or roughly a fifth of its budget. With the escalating rates ordered by the copyright board, the royalties would climb to $67,000 in 2007 and $115,000 in 2010 (using 2006 audience figures).
It’s hard to say how much the royalties will shoot up for pubcasters under the new rate structure, Fahey says, since CPB has covered the system’s streaming fees with a flat payment. CPB won’t say how much the previous deal was worth, but Fahey, for one, doesn’t expect CPB to agree to cover those costs if the new rates take effect.
“I can’t imagine that they could cover all the streams,” Fahey says. “Stations like KCRW and WXPN have tons of listeners. Just their royalties alone would seem out of reach.”
LaMay concludes: “Basically what [the copyright board] is saying is, one, don’t go into this platform and, two, don’t get too many people to listen to it if you do.”
The Inslee-Manzullo bill is called the Internet Equality Act because it would bring webcaster royalty rates down to a level equivalent to the other big digital music platform, satellite radio.
Webcasters are using their streams to drum up fans’ support for the bill, which would set rates at 7.5 percent of streaming-based revenue—or roughly the same level as those for satellite—instead of basing the rate on the per-play standard that the record labels wanted and the CRB judges decreed.
In a fuzzy but important legal point, the bill would also change the standard by which future royalty rates are set from the “willing buyer/willing seller” concept to the 801(b)(1) standard that governs most copyright issues, which webcasters say more fairly balances the needs of copyright owners, users and the public good.
The record industry opposes the new bill and the supporting groundswell of activism led by the webcaster coalition SaveNetRadio.org, asserting that the coalition is merely an effort by large Internet radio providers to hold down the royalties they pay. The bill would reduce royalties by more than $50 million through 2010 for large streamers such as Yahoo and Clear Channel Communications Inc., Simson told Reuters last week.
In his online newsletter, Hanson, a de facto spokesman for the Internet radio cause, rebutted Simson’s assertion that the webcaster coalition is just a cover for the big boys. SaveNetRadio.org is a mix of large and small webcasters, commercial broadcasters and musicians, as well as pubcasters, Hanson wrote.
The public broadcasters support the proposed bill because it would achieve two important things for pubcasting.
First, it would set the new rates for pubradio streamers at 1.5 times what they paid in 2004, the last official year of CPB’s streaming rate deal with the labels.
The bill would also move pubcasters’ web royalties to Section 118 of the Copyright Act, which covers other noncommercial royalties such as those paid to ASCAP and BMI. This would establish pubradio’s streaming royalties as fundamentally different from those for commercial broadcasters.
“Hopefully it can lay the groundwork for what’s going to happen next,” LaMay says.
What comes next—or before too long, anyway — is a fight over broadcast radio’s traditional exception against paying performance royalties.
Broadcasters have always paid royalties to composers and rightsholders, but haven’t paid performer fees, ostensibly because radio gives valuable exposure to music industry wares.
But at the music and tech summit earlier this month, Simson asserted that terrestrial radio gives the labels minimal promotional benefit in the fragmented digital media landscape. (He didn’t explain why, if that was the case, record labels have been caught illegally paying broadcasters to play their music and socked with millions in payola fines in the past three years.)
According to Billboard, the groups behind the push for performer royalties include the Recording Industry Association of America and the performers’ unions AFM and AFTRA, as well as SoundExchange.
“Digital music services have to pay for use of sound recordings and over-the-air traditional radio does not,” Patricia Polach, associate general counsel for the American Federation of Musicians, said at the music summit. “You know what? That is unfair.”
As webcasters also complain about inequity in royalty rates, the uproar will force policymakers to consider adding royalties for over-the-air broadcasters, Pizzi predicts.
The music lobby may also argue that Congress should revisit the issue because HD Radio will change the playing field, he says.
New technology is almost always “the entré for any new discussion about changes in the royalty structure,” Pizzi says. “But the point is, [record labels] don’t care much about digital. They’re really going after terrestrial as a whole.”
While that has clear implications for public radio as well, Simson told Current the music industry would take pubcasters’ noncommercial status into consideration — albeit with a cryptic caveat.
“I think public radio would be looked at differently than commercial,” he said. “But I think you have to be careful because there are some noncommercial stations who play a lot of music, who look very commercial when you go to their websites.”
In other words, stay tuned.
Web page posted June 26, 2007
Copyright 2007 by Current Publishing Committee