Music, Government and Others - Who's Right

Shortly thereafter came a public outcry from small independent webcasters that the rates were too high and would put them out of business as they did back in 2002. At first site the rates don't appear to be unreasonable. A closer look reveals a different story.


Per performance rates at the following percentages retroactive for the year 2006.

2006 $.0008 per performance

2007 $.0011 per performance

2008 $.0014 per performance

2009 $.0018 per performance

2010 $.0019 per performance

Add a minimum $500.00 per channel per year retroactive for the year 2006.

Unfortunately when you do the math with these rates you begin to understand their significance and why these small streamers object so strongly. Given the average 16 songs played per hour the royalty rate per listener would be approximately $1.28. If you then multiply that by 100 listeners the per hour rate becomes very expensive indeed. Several 1000% higher than what was previously being paid. The first objection, and it is a valid one, the retroactive rates for 2006. This alone would put a large majority of internet radio stations out of business. The back payment above the royalty payments that have already been paid in 2006. To quote one webcaster with an average listnership of around 1500 during peak hours, My back payment for 2006 would be $76,000.00. My station barely breaks even now! I'll just have to shut down. This is echoed by small webcasters throughout the United States. Indeed even the National Public Radio (NPR) has voiced outrage and legal action as they too are subject to these new rates. Hearings this week in congress will decide if the appeals on behalf of webcasters will be heard.

Soundexchange and the RIAA defend these new rates. They feel the Copyright Royalty Board made the correct decision by giving them virtually everything they asked for. The Copyright Royalty Board judges emphasized that they cannot guarantee a profit to everyone who enters the market. To allow inefficient market participants to continue to use as much music as they want and for as long a time period as they want without compensating copyright owners on the same basis as more efficient market participants trivializes the property rights of copyright owners. This statement makes it clear that the small webcaster is not even a consideration in these proceedings, although they provide a large portion of the independent artist content as well as much of the special niche genres unavailable elsewhere. Small webcasters help to pioneer this system of broadcasting, but that would seem to be of no importance. I would also note these small webcasters have been paying royalties at the rate set back in 2002. To some it becomes a question of whether the recording industry top labels simply want to control the listener experience as they have on terrestrial radio, leaving smaller independent artists with no outlet for their music to be heard in light of the recent payola news. This would effectively remove direct competition for the major labels in this new and growing market. Many webcasters play these seemingly unknown artists to provide fresh content to their listeners and remove themselves from the mainstream top 40 play list. Broadcasters, artists, and listeners alike agree that this content is a welcome change. Since the small webcasters generally use a blanket licensing company such as Live365 or Loudcity, they have no direct voice in Washington. On the other hand they do have a voice through their listeners. This is the route they have chosen to use, directing their listeners to contact their representatives. In response to the webcasters grassroots campaign, Soundexchange launched it own campaign asking artists and their fans to contact their representatives in favor of the decision.

The Copyright Board at this time upholds their decision. They agreed to hear arguments for an appeal, although an appeal has currently not been granted. All webcasters are awaiting an outcome to these hearings. The National Public Radio spokesperson has vowed continued legal action if the rates are not overturned. Clear Channel, the largest terrestrial radio owners in the U.S. have also joined in the mix. The smallest webcasters want to see something along the lines of the Small Webcasters Settlement Act enacted by the Lbrary of Congress after the 2002 dispute which allowed the little guys to pay a percentage of revenue rather than a per play rate. That allowed an affordable rate for the smaller broadcasters to survive. All webcasters agree that royalties must be paid, but they do not believe excessive rates should be imposed on this new and growing broadcast industry. These rates figures do not include royalties paid through the other entities like BMI and SESAC. They additionally do not believe that the small webcaster should be squeezed out of existence to make room for big players only. They reject the notion stated by Soundexchange that maybe 10,000 internet stations may be too many. Diversity and choice is offered to the listeners. It seems that it would be unfair to remove these choices from the public.

Some artists have spoken in favor of the new rates, and some have spoken out against the new rates. In a recent interview KK Downing of Judas Priest stated the new rates were ridiculous and didn't stack up. He also stated to his knowledge he had never received a royalty paymet from Soundexchange. JJ French, a guitarist for Twisted Sister upheld the rates on the other hand saying that he applauded the new rates. Another well known artist, Sabrina Korva, recorded one of the public service announcements that webcasters have been playing. There appears to be a lot of disagreement in the music industry surrounding these rates and the role small webcasters play. For some it is a blessing, others feel it floods the market with music choices. There is no clear cut opinion that I have found as many artists seek exposure through any means available to them, while others prefer to stay in the limelight generated by playing the top labels.

My own opinion is that forcing the pioneers of internet broadcasting and small independent webcasters off the net with huge rate increases serves no ones interest. I believe a suitable compromise must be reached, even if the Library of Congress must once again intervene to uphold fairness for all involved. The constitution begins with We the people. I firmly believe the people have spoken out. Many letters have been posted on the congress website opposing the rates. The upcoming days in the internet radio community will be watched intently by the largest and smallest of providers in hopes of finding a common ground for all.