Dueling Musicians' Petitions Take the Internet Royalty Fight to Congress

The performance rights organization that the US Copyright Royalty Board designated as the collector of royalties from streaming Internet music services such as AOL Radio and Pandora, is urging independent music artists to write their congressperson, urging that she or he support a significant increase in royalty rates over the next three years.

SoundExchange, which collects royalties on behalf of performers whose music is distributed digitally (as opposed to over the airwaves), is the beneficiary of a CRB decision last month that would officially increase its per-performance streaming royalty rates by 238% by 2010. Last month, BetaNews projections - circulated throughout the industry by streaming audio industry representatives and executives - forecast that in 2010, the Web's top four streaming providers alone could find themselves owing $363 million in royalties, at the same time that the collective performance royalties charged to all 14,000 US radio stations combined would be capped at $550 million.

As SoundExchange explains on its Web site, 50% of royalties it collects are distributed to copyright holders, which are typically music publishers such as Sony BMG, EMI, Universal Music Group, and Warner Music Group, all of whom have representatives on the SoundExchange board of directors. Of the remainder, 45% is distributed to featured recording artists, and 5% to non-featured artists.

"It is only fair that the artists who make the music be compensated by all of those who profit or otherwise benefit from their work," reads the letter SoundExchange urges artists to send to Congress. "Webcasters and musicians are partners, and by working together they can create a thriving online radio marketplace. I believe the decision of the CRB fully recognizes the value of music to the internet radio community and properly realizes the intent of Congress to ensure that artists are fairly treated."

While streaming music providers have argued that the new rate tiers will be too cost-prohibitive for smaller webcasters, the CRB believes that this could be a good thing after all. In its published decision (PDF available here), the CRB argued that high rates could potentially "weed out" lower-class Webcasters who wouldn't be sharing much with artists anyway.

"It must be emphasized that, in reaching a determination, the Copyright Royalty Judges cannot guarantee a profitable business to every market entrant," the decision reads. "Indeed, the normal free market processes typically weed out those entities that have poor business models or are inefficient. 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."

In response, an attorney representing some of those same artists is circulating an alternative letter, urging Congress to oppose the fee increase and to save the industry from being weeded in this way.

"We don't understand how having fewer stations playing music can be good for artists," reads attorney Fred Wilhelms' alternative letter. "The more stations there are, the more music, and more artists, will be heard. That's just logical. It's also what really is good for the artists."

Wilhelms goes on to argue some dangerous theories: One is that, with fewer webcasters in business, the remaining competitors would be forced to increase commercial time, and change their formats to include more songs geared to attract a larger audience. As a result, streaming radio could "sound like regular radio. Another regular radio channel not only won't do us any good, it will do us harm." The second theory is that prohibitive royalties could either drive Webcasters out of business or force them to operate beyond US borders, where they could conceivably still reach their listeners without owing artists' royalties.

But SoundExchange executive director John Simson, in a statement released last week, rebutted webcasters' protests by essentially saying they already lost the fight, and they should take that loss like ladies and gentlemen.

"Just because you don't like the outcome of a fairly-played game doesn't mean you should ask the referee to order the game replayed," reads Simson's statement. "Yes, Internet radio is important to the music community, but that doesn't mean that artists and record labels don't deserve fair compensation for their works."

SoundExchange's statement goes on to quote musician Michelle Shocked, who argues that the royalty increase is necessary specifically because those royalties go on to support more than just the big four music publishers.

"A lot of internet users think of music as a product created and generated by major labels with corporate mega-dollars," Shocked writes, "and so think nothing of taking or paying very little to use this music. But the evidence shows that a large majority of music is now created by independent artists with very small margins trying to earn a living and it's in that context that the recent decision to raise the internet broadcasting rates is seen as an encouragement to creativity and independence."