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A detailed report on the Battle Between Webcasters and the CopyrightRoyaltyBoard

Posted by Molli Fire on Wednesday, 7March07

randall munroe
comic by Randall Munroe

I posted last week about internet broadcasters (webcasters) being charged royalty fees, including retroactively for all of 2006, when the US Copyright Royalty Board announced its decision on the new rates. (See here for that post) Given the obscene nature of these fees : enforced retroactively AND costing 2-5 times more what most stations were able to earn through listener support and advertising, the online community and the legal defense parties are leaping into action, first with an appeal, and simultaneously with awareness and support from people who don’t want to lose internet radio stations.

One internet radio station that will be dramatically affected by this new royalty rate is SomaFM from San Francisco, CA. They are a poster child for the small radio station that played by the rules, but might be forced to shut down due to the enormous disparity between what a station is capable of earning, and what it is expected to pay to all the different music management and licensing companies. SomaFM relates the details of their situation in the latest newsletter :

You may have heard, but once again internet radio is facing huge additional royalties for broadcasting music. These royalties are in addition to the ones that we pay to ASCAP and BMI, and are a royalty that is only paid by internet broadcasters. Over-the-air (AM/FM) broadcasters are explicitly exempt from this royalty; it only applies to internet broadcasters and subscription music services. In the past, we paid royalties based on a percentage of our revenues, in our case 10% of our revenue. But the new royalties don’t allow that percentage of revenue factor, and instead charge us for each song we play times the number of people listening. This works out to about $8 per average concurrent listener per month. In 2006, we averaged over 6000 average concurrent listeners per month, and the royalties we will have to pay for 2006 is about $628,000, over 4 times the amount of money we brought in. And these rates go up drastically each year, until 2010, where they are 2.5 times their initial rate: by then we will have to pay over $1 million dollars a year in royalties if we want to stay on the air. So you can see that this puts us in an impossible position. And to make it even worse, the rates are retroactive to 2006. It doesn’t seem fair that a small radio service like SomaFM has to pay all these additional royalties, when over-the-air stations who reach much larger audiences are exempted from paying them. If you are in the USA, we would appreciate it if you could sign this online petition which will be presented to members of Congress.It’s important for us to let Congress know that independent internet radio is about to be forced out of business. We need to keep our existing “percentage of revenue” royalty rate structure, or better yet, have Congress extend the exemption to internet radio stations as well as terrestrial (over-the-air) stations.

http://www.petitiononline.com/SIR2007r/petition.html

Thanks for all of your support for SomaFM in the past. We will do what we need to do to keep SomaFM on the air and broadcasting. We love you!

Rusty Hodge,
General Manager and Program Director
SomaFM.com

For more information on SomaFM, visit their website : http://somafm.com

This petition is the big deal right now. The website “Save Our Internet Radio” has a page with 6 things you can do to help webcasters in this daunting legal battle, and this petition is at the top of the list.

Mad as hell about the threat to Internet Radio? Do Something!

Posted by
Bill Goldsmith

1. Sign this online petition and open letter to the US Congress.

2. Send an email to your members of Congress. You can use our suggested text, or write your own.

3. Print out the email (you’ll get a copy) and mail it to your Congresspeople. Follow up with a phone call. You can look up their addresses and phone numbers here.

4. Write a letter to the editor of your favorite magazines and newspapers. If you know someone in the media, let them know what’s going on. Have them read my post below, if you like.

5. Don’t panic. Together we can save the medium that we all love. We have the passion to make it happen!

6. Digg this post to help spread the word.

In order to digg that post, you will have to go to the post itself. Just click on the headline, or the word permalink in the quoted text.

Another thing to consider, since Congress is a bit slow to action, is contacting the Copyright Royalty Board directly. Let them know exactly how you feel about this decision, how it affects you personally, and how it affects the existance of internet radio. Let them see that killing this industry may make royalties harder to collect in the future, not only because so many stations went out of business, but also because we, the public, aren’t being exposed to new artists and new music, and therefore are not buying as many albums as we did when we heard it first on internet radio. You can contact the CRB directly at :

Copyright Royalty Board
P.O. Box 70977
Washington DC 20024-0977

(202) 707-7658

Or use the online form on their website : http://www.loc.gov/crb/contact/

For what it’s worth, many organizations, government agencies, and lobbyists count each form of communication as representing more than one person’s opinion. The formula for this type of math counts letters as representing more people than phone calls, which in turn represent more than emails. Doing all 3 counts the most!

Even Wired Magazine is abuzz with updates on the battle between broadcasters and the Board. Today their headlines included :

Royalty Hike Panics Webcasters
08:00 AM Mar, 06, 2007
By Eliot Van Buskirk

Internet radio companies big and small are revving up for a fight with the Copyright Royalty Board that could lead to the halls of Congress and — some fear — the end of streaming music stations in the United States.

The panicked preparation follows last Friday’s buzz-killing bombshell: As 50 million or so online radio listeners geared up for their weekends, the board released new royalty rates representing a potential tenfold increase webcasters would have to pay out.

In the old, percentage-based fee system, webcasters paid SoundExchange — the Recording Industry Association of America-associated organization that pushed the Copyright Royalty Board to adopt the new rates — between 6 percent and 12 percent of their revenue, depending on audience reach. The new system charges all webcasters a flat fee per song per listener; for instance, in 2007, streaming companies would owe $0.0011 per song per listener (rates change based on year).

That amount may not sound like much, but it adds up quickly. Consider, for instance, AOL Music, with its average of 210,694 listeners for November 2006. According to calculations made by the Radio and Internet Newsletter, or RAIN, AOL retroactively owes about $1.65 million in sound-recording royalties for that month alone (and that doesn’t include songwriting royalties). By the end of this year, according to RAIN, the company could owe roughly $20 million — unless the rates are overturned by the board or by Congress, which is still a possibility.

Larger services that offer thousands of channels, such as the free Pandora, are also facing a huge spike in royalty costs. Kurt Hanson, publisher of RAIN and CEO of AccuRadio, went so far as to speculate that Pandora, which is based in the United States, could “disappear” as a result of the new rates. Overseas competitors like Last.fm, which is based in London and removed from the board’s restrictions, could easily claim Pandora’s market share. If Pandora has to pay the annual $500 minimum for each channel, Hanson said, its sound-recording royalty bill for 2006 alone would be capped at about $2 billion (based on the service’s 300 million registered users, each of whom gets to create up to 100 unique channels).

“The rates are disastrous,” says Joe Kennedy, CEO of Pandora. “I’m not aware of any internet radio service that believes it can sustain a business at the rates set by this decision.”

The situation for smaller webcasters isn’t any better. And for the likes of Bill Goldsmith, who runs Radio Paradise, it’s far worse: “This royalty structure would wipe out an entire class of business, small independent webcasters such as myself and my wife. Our obligation under this rate structure would be equal to over 125 percent of our total income.”

The smallest webcasters, who use services such as Live365 for their shows, will likely vanish as well unless the rates are overturned. RAIN pegs Live365’s royalty obligation for 2006 at approximately $4.2 million — and that’s not counting the minimum $500 it could owe annually for thousands of its channels. Again, that’s in addition to other royalty fees. (The site, like most others, already pays songwriter royalties to performing rights organizations BMI, ASCAP and SESAC.)

Live365 did not respond to e-mail and phone queries from Wired News in time for publication, and Yahoo declined to comment. SoundExchange also failed to respond.

Hanson, who testified at the hearings on behalf of small webcasters, said he doesn’t “think the people actually running the record labels want to see internet radio shut down,” but that SoundExchange’s lawyers had planned “an aggressive, win-all-you-can battle in Washington. I think they were more successful than they expected to be.”

Pandora’s Joe Kennedy believes the board’s decision will not stand — it’s simply too extreme. He wrote to Wired News, “The only reason the (online streaming) services are not shutting down today is the belief that rationality will ultimately prevail here, either through appeal or congressional intervention.” (A third option, according to Hanson, is that SoundExchange could choose to continue licensing music as a share of revenue, as it did before the Copyright Royalty Board decision.)

Only webcasters that were involved in the original Copyright Royalty Board decision-making process (Yahoo, AOL, Live365 and a few smaller webcasters including Radioio, Ultimate80s and Accuradio) will be able to file an appeal, and they have 15 days to do so.

The House Commerce Committee’s telecommunications subcommittee is holding a hearing on March 7 to hear testimony on the current and future radio industry. Witnesses will include Mel Karmazin from Sirius, Peter Smith from broadcaster Greater Media and Bob Kimball from RealNetworks.

If the new rates stick, online music fans may come to expect far less innovation, variety and quality when it comes to internet radio. Some industry experts fear that even more users could be driven to illicit services that pay no royalties or those that operate from other countries.

A little more info on SoundExchange, taken from the FAQ on their website :

Who
governs SoundExchange?

The SoundExchange Board of Directors oversees all operations of SoundExchange.
This board approves such things as the distribution methodology and
administrative expenses. It is comprised of one representative from
each of the major label groups (EMI Music Group, SONY BMG Music
Entertainment, Universal Music Group and Warner Music Group); independent
labels (Tommy Boy Entertainment, a large independent, and Matador Records,
a small independent); a designated executive from an independent label
association; a designated executive from the Recording Industry Association
of America (RIAA); and an equal number of artists and artist representatives
from such organizations as AFTRA, AFM, the Recording
Academy, Music Manager’s Forum – U.S. and the Future of Music Coalition.
For a full board member listing, click
here
.

When was SoundExchange founded?
Before its spin-off in September of 2003 as an independent organization, SoundExchange was originally created in 2000 as an unincorporated division of the RIAA.

I’m already a member of ASCAP, BMI or SESAC. Don’t they cover this for me? What is the difference?
No. ASCAP, BMI and SESAC represent a different copyright than SoundExchange. ASCAP, BMI and SESAC collect performance revenue for the owners of the copyrighted musical work (the song), i.e. music publishers, songwriters and composers. SoundExchange collects performance revenue for owners of the sound recording copyright (the recording) and for featured and nonfeatured artists. SoundExchange, therefore, performs a different function and does not compete with ASCAP, BMI or SESAC. In fact, a company with both publishing (“song”) copyrights and recording copyrights should join collecting societies administering both types of rights: one for the song and another for the sound recording copyright.

And, a list of the SoundExchange Board includes :

SoundExchange Board

Alasdair McMullan
– EMI
Andrea Finkelstein – Sony BMG
Cary Sherman – RIAA

Daryl P. Friedman
– Recording Academy*
Dick Huey – Matador Records*
Don Rose – American Association of Independent Music

Jay L. Cooper, Esq.
– Recording Artists’ Coalition (RAC)*
Jay Rosenthal, Esq. – RAC*
Kim Roberts Hedgpeth – AFTRA
Michael Hausman

Michael Ostroff
– UMG
Patricia Polach – AFM

Patrick Rains

Paul Robinson
– WMG
Perry Resnick – Music Manager’s Forum-U.S.*
Steven M. Marks – RIAA*

Tom Silverman
– Tommy Boy Entertainment LLC*
Walter F. McDonough, Esq. – Future of Music Coalition
(FMC)*

*For identification purposes
only

One last thing from SoundExchange, their page on Licensing 101 is very valuable for webcasters. It spells out what a webcaster needs to do in order to obtain licenses and pay royalties….

If you would like to read a more detailed article from a legal standpoint, discussing exactly what and who this decision covers, what is financially expected between now and the appeal, and how the new royalty rates were created, and how they are intended to be distributed between the artists and the copyright holder (record company usually) please see the broadcast law blog.

2 great resources for everyone affected by the CRB and the royalty rates – legal guides in PDF form :


INTERNET RADIO: THE BASICS OF YOUR MUSIC ROYALTY OBLIGATIONS

Copyright Royalty Board Announces Music Recordkeeping and Reporting Requirements for Internet Streaming

If you have any trouble loading those links, try the IWA page that they came from. These legal guides are offered free to all from the Internet Webcasting Association, courtesy of David Oxenford and Davis Wright Tremaine. The IWA website states :

For more information or questions about these or other legal issues related to streaming, please contact David Oxenford.

Contact Info:
David Oxenford David D. Oxenford
Washington, D.C.
(202) 508-6656
davidoxenford@dwt.com

These advisories are publications of the Broadcast Group of Davis Wright Tremaine LLP. Our purpose in publishing these advisories is to inform our clients and friends of recent developments in the broadcasting industry. They are not intended, nor should they be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Both Attached Documents are Copyright © 2006 | Davis Wright Tremaine LLP

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2 Responses to “A detailed report on the Battle Between Webcasters and the CopyrightRoyaltyBoard”

  1. Jeff said

    Nice webpage, lovely, cool design.

  2. Yuolgovj said

    This is a cool site! Thanks and wish you better luck! Brilliant but simple idea.

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