RSSDissecting the Proposed Internet Radio Royalty Fees
By Scott M. Fulton, III | Published March 8, 2007, 5:02 PM
On Tuesday, BetaNews reported on the acceptance by the US Copyright Royalty Board (CRB) of a proposal put forth by a consortium of recording industry representatives, whereby Internet streaming radio sites would be responsible for royalties for the music they play, the total of which would substantially exceed their annual revenue, probably forcing many to shut down.
Our story generated a lot of buzz in the streaming radio community, which prompted prominent members of that industry to share with us some more up-to-date statistics. With these facts in hand, BetaNews is able to make more accurate projections about what major and minor streaming radio providers - including terrestrial radio stations with Internet services - are likely to pay in royalty fees.
Using new facts presented to us by several sources, especially Eric Ronning, managing partner of online radio advertising firm Ronning Lipset Radio, BetaNews can project with some confidence that the SoundExchange group would become a $2.3 billion dollar per year business should the rates the CRB accepted last week finally become ratified.
What radio stations pay today
For our research, we wanted to compare what streaming radio providers would be charged by SoundExchange against the fees that broadcast radio stations today pay to the three major performance royalty organizations (PRO) - ASCAP, BMI, and SESAC. While indeed, some radio stations do pay as little as $972 per year in total royalty fees to PROs, as BetaNews reported Tuesday, in practice, we've since learned this isn't an average that applies to all stations, and major metropolitan radio stations do pay significantly more.
Nonetheless, there's still a considerable gap between PRO fees and SoundExchange's proposed "per-performance" fees, as our updated statistics demonstrates.
Radio stations collectively bargain for the royalty fees they pay to PROs; and as Keith Meehan, the executive director of the Radio Music License Committee, kindly explained to us today, the compromises these bargaining parties make effectively set a cap on how much PROs can collect from all stations combined.
As Meehan explained, in 2002 for ASCAP and 2003 for BMI, the two organizations calculated the amount of maximum royalty collections they could each live with, based on a percentage of radio stations' estimated revenue retroactive to 2001. Then they agreed to stop using stations' revenue as a benchmark for determining royalty rates from that time forward, switching instead to a formula that takes the maximum collectable amount for each year, and works it backwards to determine a fair rate that each station can contribute to it.
As a result, we absolutely know the amount of royalties that these two firms are expected to receive for 2006. For ASCAP, the agreed upon amount is $208,650,000. That's as much as it can collect from radio broadcasters in the US, no more. For BMI, the figure is $208,000,000 even.
No such agreement exists with SESAC. However, this #3 firm represents a small percentage of music rights holders, mostly in the religious music category. An estimate presented to Congress a few years ago stated SESAC collects about 5% of what the other two PROs take in, combined. Based on that figure, we can estimate that SESAC is owed about $20.8 million in royalties for last year.
Totaling up these figures, the three PROs receive about $437.5 million in combined revenue from terrestrial broadcasters' royalties for 2006. BMI is near to settling a continuation of its current agreement with RMLC into successive years, Meehan told us, with ASCAP's current agreement already extending into 2009. By 2010, BetaNews estimates, these PROs will be slated to receive about $550 million in royalties, regardless of the growth rate (or decline) of the radio industry.
Next: Will online music providers be treated fairly?
Can you please post a citation for that BridgeRatings forecasted Internet growth? I went to the site and couldn't find it.
Score: 0
|Your 3D charts are very pretty and shiny.
Now how about presenting the data in a flattened graph where you can actually *see* the values without it looking like a New York City fly-over?
Score: 0
|Hello!!!! 14,000 stations billed $550 billion combined in one year for performance royalities? I think someone had better get a calulator that works, or start explaining where all the money is going to the artists that are owed for their work. Or the writer of this article needs to hire an editor that knows how to read!
And the music industry wonders why they are not selling any CD's! What a group of slimey leeches the recording and music publishing industry has become!
Score: 0
|{retracted on account of author's temporary blindness, which has hopefully since cleared up, but with apologies to mjpowell45}
Score: 0
|I think the writer needs to search the article to the end instead of stopping on page 1. The second web page of the article shows "during the same year that all 14,000 US radio stations combined would be billed $550 billion." So the original comment is correct, and the authour has egg on the face now as well as the high and mighty attitude.
Score: 0
|And a rather tasty egg it is, too.
I did check that article even after the comment was posted, and yet I still missed it. My sincere apologies, including for the high and mighty attitude; and if anyone would like some custard pie, I appear to have a surplus.
-SF2.25
Score: 0
|Well the good news if anything, is that Webcasters have seen what's at stake and are now gearing up to form an industry trade association to combat this injustice.
http://www.smallwebcaster.org/
Let's just hope it's not to late to affect some change in this whole ordeal.
Score: 0
|Well it was fun while it lasted.
Score: 0
|Internet radio providers, like my company Pandora, pay BOTH Soundexchange and the PROs (ASCAP, BMI, and SESAC) so it's even worse than the picture you paint. It's not $2.3B vs $500M it's $2.3B vs $0.
You're certainly right that Internet radio can't survive unless these rates are revisited.
Score: 0
|love pandora. great service. dont know what id do without it behind my work firewall :(
Score: 0
|Of course your analysis will never come true because if the rates hold there will be few legal businesses streaming to pay the royalties.
Your anaylsis shows how the willing buyer/willing seller rationale used by the CRP cannot be viewed in a vacuum. Internet can only survive if its cost of sales - in this case royalty fees - are near what broadcasters pay. With the added SoundExchange fees not paid by broadcasters, Internet doesn't stand a chance as a viable business. Only reasonable solution is for all non-interactive services to pay same royalty rates. In the case of SoundExchange fees, that means either $0 as currently paid by broadcasters, or some reasonable percent of revenue fee that is easily tracked,
Score: 0
|Great way to get your music heard. What's next, suing highschool cover bands? Oh wait, that's already happening.
Score: 0
|To answer your question, "What's next?" it's suing funeral homes. Not a joke.
-SF3
Score: 0
|Odd. I could understand it if they charged admission, but I've yet to go to a funeral home with a cover-charge.
Stupid lawsuits abound, as always.
Score: 0
|I like the ideal, where is the white paper on this.
The way of "Open Source" and letting people have a say.
http://www.rmvb-converter.com/news
Score: 0
|What about FM/AM stations that also broadcast over the internet, i have set up a few of these, will this affect them?
Score: 0
|Indeed it will. The Copyright Board ruled that the recording industry is entitled to a separate set of royalties to compensate them for what the board described as a handing over of their rights of first performance in digital format. So whoever provides a digital performance of a song (regardless of the quality of the digital track or stream) is responsible for royalties, even if it's a radio station that has already paid the PROs for the over-the-air rights (analog).
So I'm afraid yes, this affects you.
-SF3
Score: 0
|Oh Yes. AM/FM broadcasters get the double whammy. The have to pay once for over the air broadcast and again for the webcast of the same performance. Yes, you heard right. They have to pay twice for one performance.
Who says the government, courts and PROs aren't corrupt. Even the Mafia is better behaved than this!
Score: 0
|Do you know something about Shylock?
It reminds me him ,the policy of all those lawmakers, lawers and company owners.
I think they will tax you when singing in your bathroom.
Score: 0
|