RSSRecord Industry Proposes Huge Streaming Royalty Fees
By Scott M. Fulton, III | Published March 6, 2007, 4:28 PM
If a new online radio webcasting royalty rate, proposed last week by the Copyright Royalty Board (CRB) of the US Library of Congress, is ratified and put into effect, BetaNews estimates that online webcasting leader AOL Radio may receive a bill for copyright holders' royalties retroactive to 2006 amounting to $23.7 million, payable to a collective representing the US recording industry. And assuming the service doesn't become more popular, it could find itself paying as much as $56.3 million in copyright royalties in 2010.
This while the world's three major copyright holders' groups - ASCAP, BMI, and SESAC - collectively charge terrestrial broadcast radio stations $972 per year per station, for the rights to broadcast exactly the same music to an equivalent or larger audience.
Last week, after having met with representatives of the recording, broadcast, and webcasting industries, the CRB sided with an industry group comprised of recording industry representatives in recommending that online radio webcasters pay royalty fees to a rights holders' collective based on the individual performances of songs for individual listeners.
Such a system would be in very stark contrast to the annual one-time, flat fees paid by terrestrial broadcast radio stations, for the general rights to play from large lists of songs throughout the year.
The SoundExchange industry group, whose board of directors is comprised of representatives from all four major music publishers, several lesser publishers, and the RIAA, suggested a royalties system whereby commercial online webcasters would pay $.0008 (eight hundredths of one cent) per performance, per listener, for all popular music streamed over the Internet during 2006. While on the surface this may seem a trifle amount, the surface proves very thin and fragile when you apply some math to these figures.
With the help of some common Web radio industry statistics provided by the Radio and Internet Newsletter (RAIN), and Web radio ratings for November 2006 from comScore Arbitron, we used our trusty spreadsheet to create a ballpark estimate of how much today's major webcasters might have to pay. Here's how Arbitron calculates listenership for online radio: During certain hours of the day, Arbitron gathers listener data for 15-minute periods ("quarter-hours," or QH) to gauge how many listeners are online simultaneously.
Last November, between the hours of 6:00 am and 7:00 pm weekdays, AOL Radio had an average quarter-hour (AQH) listenership of 336,364. When you expand that time window to the hours of 6:00 am and 12:00 am daily (including Sundays), that number reduces to 210,694. The overnight hours aren't typically sampled, but RAIN's publisher and AccuRadio Inc. CEO Kurt Hanson typically estimates those hours to garner about 10% of the broader total AQH.
Applying that formula to the Arbitron numbers, during each week in the month of November, AOL Radio served up an average of 569,614,272 performances to individual users. Assuming a flat annual rate, that's about 29.6 trillion songs per year for 2006. Under the new fees proposed by the CRB, the service would owe royalties on each and every one.
Meanwhile, #2 online radio service LaunchCast may owe retroactive royalties for last year in the neighborhood of $18.3 million, online services of #3 Clear Channel Communications may owe around $10 million, and Live365.com may owe $6.8 million.
In deliberating a fair rate structure for online royalties, the SoundExchange proposal was compared to a system proposed by the Digital Media Association, whose member companies include AOL Music, Live365.com, and Yahoo Music. DiMA proposed a rate structure that computed either $.00025 per performance or 5.5% of a service's revenue, for all its channels collected together.
But the testimony of an expert witness, Dr. Adam Jaffe, convinced the CRB that it should avoid instituting a revenue-oriented approach, "because the revenue that a licensee derives, even from its music-related activities can be influenced by a variety of factors that have nothing to do with music."
In other words, it might be unfair for some services to devote a percentage of advertising revenue to royalties, when other non-commercial services might not be similarly charged.
Besides, states the CRB in its report last week, "percentage of revenue metrics ultimately demand a clear definition of revenue so as to properly relate the fee to the value of the rights being provided, and no such clear definition has been proffered by the [deliberating] parties."
Meanwhile, representatives of radio stations with online interests proposed an ASCAP-like flat annual fee of as much as $8,000 per annum, and National Public Radio proposed a fee of as much as $80,000 per annum. CRB rejected their proposals for various reasons, including that these stations could not create a justifiable metric for converting flat rates to gradually increasing ratings for stations. As a station becomes more popular, it would end up paying less per song, CRB argued; and besides, non-commercial broadcasters such as NPR use music differently, and on a different scale, than commercial broadcasters.
The only fair flat annual fee, the CRB concluded, would have to differentiate between commercial and non-commercial broadcasters. (The report failed to mention that US law already distinguishes between the royalty fees that NPR, PBS, and other public broadcasters pay to ASCAP, BMI, and SESAC, and those which commercial broadcasters pay. Strangely, the public broadcasters pay slightly more.)
To review: CRB rejected DiMA's proposal because its members couldn't adequately define "revenue" to its satisfaction. It then rejected broadcasters' proposals because their flat annual fees couldn't translate to "per use" metrics in a way that's scalable and fair to all involved, the CRB concluded. So it accepted SoundExchange's proposal not so much for what it explained but for what it refrained from attempting to explain.
For small, non-commercial webcasters, however, there is a small exemption: A small streaming service may be charged a flat rate of $500 per annum, good toward the first 159,140 "aggregate tuning hours" of service. That gives small webcasters a reprieve for the first 5,304 listeners who tune in a station for an hour per day, every day, for a month. After then, the station gets charged the full per-performance, per-listener rate.
But the CRB, in its report, sounded a note of caution on that point as well, arguing that there may not be consensus over the definition of "small" in the context of webcasting. It cited the testimony of AccuRadio's Kurt Hanson in this statement:
"There is no evidence in the record about how the Copyright Royalty Judges would delineate between small webcasters and large webcasters. Similarly, while Mr. Hanson asserts that a percentage-of-revenue [licensing framework, as DiMA suggested] is necessary because 'this is a nascent industry' or because small entrepreneurs require such a structure, he offers no evidence to support that assertion or to help define the parameters of the assertion."
CRB made this statement in dismissing Hanson's claim, which it actually quotes: "Obviously, were there to be a sound recording royalty based on performances that was at an extremely low rate...a percentage-of-revenue model might not be required," Hanson testified. "And just as obviously, a confiscatory percentage-of-revenue rate would not allow [small commercial webcasters] to survive."
In last week's RAIN newsletter, the proprietor of independent online streaming service Radio Paradise, Bill Goldsmith, wrote, "Our obligation under this rate structure would be equal to over 125% of our total income. There is no practical way for us to increase our income so dramatically as to render that affordable...That's a truly sad - and deeply un-American - state of affairs. I can only hope that the copyright board recognizes their error in time for the business that I have devoted seven years of love, sweat, time, and energy building up is torn to pieces by the wolves of the music industry."
Wow, these guys at the library of congress must set around all day long thinking up ways to bilk more money out of people. This is outrageous and rediculous.
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|What these clowns in the music industry need to realize is that when someone tunes into an internet radio station, and they like what they hear, that person is more likely going to go out and buy that CD. Charging these kinds of fees would shut down roughly 98% of all internet radio stations, thus reducing the selections of genres people can choose to listen to, which in the end screws no one else but the artists.
Now PC_Tool, consider the market audience of terrestrial radio versus web radio. Terrestrial stations have a set market to work in, thus they can play commercials to help with the fees and operating costs. But what about the web radio station operators? Their audience can be anyone around the globe, so if they have to pay these fees, they have to get the money through donations, or pay it out of their own pockets. And these fees are already on top of server and bandwidth fees, not to mention paying an ISP just so they can connect to their server to stream to the audience. The method of operation is so different between terrestrial and web stations that there is no fair way to implement any sort of fee, unless you screw over the people who ultimately provide the artists their paychecks - the listener.
I suggest that you do your research on how these stations operate and reach their audiences, and compare all the differences. The actions of the CRB threaten the entire music industry. A greater selection to choose to listen to means that more artists can be heard, and make more money when people buy their albums.
Being that I DJ for a small internet radio station, I know how important it is to have listener controlled selection of music. By playing what my audience wants to hear, rather than what I want to hear, I'm able to expand the number of genres that my play lists cover, and increase the number of listeners. And because my listeners expand my play lists, I'm able to get more artists out there, and the end result is that the artists are heard, and their music gets bought.
The RIAA makes enough money as it is, and I feel that everyone should write to their Congressional leaders to stop this.
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|Just go download a few tunes somewhere.
Say its civil disobedience.
Choke off their money by refusing to buy ANY music in ANY form.
And turn off that radio. The record companies pay THEM to play the dreck you hear while demanding millions from webcasters.
I'm happy to say I have bought $0 of music in the past 3 years.
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|The music industry are he greediest people on earth.. The artists never get what they rightfully deserve. If I were webcasters, i woul donly promote indie music.. If you are an unsigned band, and I was a webcaster, you're music would be th eonly music i played.. We can stop these money hungry people by supporting local and unsigned music.. A least you will get music that is fresh and not the same old crap cause that is all this industry puts out anyway... If we all stopped buying music from these big labels and bought local and unsigned music, cd prices would come down and radio will have to start playing indie music to survive.. Stop listening to the radio.. Stop bying major label cd's and support indie music.. Teach these jerks a lesson
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|The music industry are he greediest people on earth..
That makes no sense in this example. They will actually *lose* money because the internet radio market will disappear completely and any royalties they *were* getting will do the same.
I believe this might simply be an act of desperation on their part. They have a lot more control over OTA stations than they do over internet radio. I think that instead of trying to work out some kind of solution that would allow it all to work and give them some semblance of control, they have instead opted for the easy way out, i.e., simply killing the market in it's entirety.
*shrug*
If the left arm hurts, cut it off, right? Sure, a little advil might solved the problem, but why bother.
lmao.
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|This latest news is bad news of course, for everyone. I recently read that MTV doesn't even pay royalties on the videos they play. If the royalty rates were reasonable that would be one thing...if they can find a formula that doesn't overwhelm webcasters that's fine, but the royalties they want are extreme, unfair, and help destroy what's left of the music "business". One guy just posted on Digg that he worked at a terrestrial radio station that had to pay $400/song played, simply outrageous! No wonder there's so damn many commercials...and no wonder I no longer listen to radio anymore!!! Anyways, the RIAA should focus on eliminating middlemen and lowering CD prices...and they better enjoy their lawsuits while they can, because lots of file-sharers are making the switch to encrypted file-sharing solutions like GigaTribe, which keep people out of the radar ( http://www.gigatribe.com ).
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|Just a thought:
On top of the operational expenses of broadcasting OTA, which are a *lot* more than a podcast, a station must pay all kinds of licensing fees, royalties, and taxes.
The expense is astronomical compared to webcasting.
Why should the webcasters be free of these royalties, licensing fees and expenses? Just because they're on the internet? Does that really make sense?
It seems to me that if an organization or licensing group is going to make one group of folks pay to stream music, it should make the others as well.
I don't know if the numbers jive at all, not being involved, but I really doubt anyone here actually does.
The radio stations figured out how to operate with a profit paying more in operational expenses. I'm sure the internet stations that deserve to survive will also figure out how.
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|PC_Tool, you don't seem to understand this.
Terrestrial radio pays $0 in performance royalties (they only pay small songwriter royalties, which Internet radio also pays). Why should Internet radio have to pay millions, while conglomerates like Clear Channel pay nothing? Internet radio services have plenty of expenses just like terrestrial stations, including bandwidth costs, personnel costs, hardware costs, and more.
Webcasters aren't arguing that there should not be royalties. They have been paying them for years. They aren't even arguing that the royalties should be as low as terrestrial royalties. They just want the royalties to be at a reasonable level such that the services can continue to operate.
The bottom line is that there is little (if any) money being made in the Internet radio market today. Even if Internet radio were able to capture the same ad rates as terrestrial radio, the ad revenue would not cover the new royalty rates.
There's no reason why any Internet radio service would continue to operate a business (or hobby) when one source of costs alone accounted for more than the potential revenue of such a service.
The only thing for the Copyright Office to do is to truly educate themselves on the economics of this business and establish a rate that encourages Internet radio services to grow into a profitable industry that benefits listeners, artists, labels, and Internet radio services. If the current decision stands, Internet radio will likely go away and all will lose.
I wrote my congressman today, and suggest you do the same.
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|Agreed. It seems that the goal is to squeeze as many of the smaller stations out of business as possible. I'll be firing off a note to my reps., too.
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|If you are correct (and I don't doubt you), this makes no sense.
How does killing off an entire market that is currently paying royalties benefit *anyone*?
Meh...
I can't imagine how it would pass in that case. But, stranger things have happened.
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|I guess I'm the only one that got the double entendre in the title of this article?
Nice one, guys.
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|Hmm, I'm just curious but help me understand something...I'm an artist, and if I wasn't to see a dime from these recording industries, shouldn't I be able to sue them for making money out of my music as well? since they are charging all these other royalty fees to the webcasters?
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|Good luck with that. I know a friend who currently receives a fraction of a cent (.02) for what is called a "paid listen" from some online music stores. Oh yes, the music business is "fab" when you're on top, but slim pickins if you're not U2 or Celine Dion.
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|Jesus wept. Those greedy ****s are taking this way to far. I hope they all die slowly of very painful cancer...getting fat off the talent of others while the talent starves.
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|I'm not sure I agree with you entirely (wishing cancer? c'mon), and the "talent" isn't starving based on what we all see on MTV Cribs. However, I do agree that the middle-tier of the industry is sucking up way too much of the revenue for what they really provide in terms of real service. There's still payola involved in air-time ranking, whether the industry admits or denies it, it's normal life for radio at least. I have friends in the music business, artists and record industry types, they all privately admit the "industry" makes 95 percent of the profit. If that's true, and what we see on Cribs is true, the margins have to be HUGE.
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|They just keep making it to where it will be more and more enjoyable to see the day they get shut down. I hope they end up flipping burgers at McDonalds.
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|This is actually nothing new at all. SoundExchange has been around for quite a few years now, charging about the same rate, and quite a few people have made a stir out of how unfair it is. I actually believe that going after AOL for royalties in this amount could actually help out small broadcasters considerably because AOL has the lawyer power to get these rates overturned for something much more reasonable.
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|SoundExchange fees for webcasters are nothing new... but what's new are these particular royalty rates.
In 2002, small independent webcasters were allowed to pay a percentage-of-revenue fee to save them from fees that would certainly bankrupt them. But as of the end of 2005, this is no longer allowed. So the royalties owed by these small webcasters will leap dramatically for 2006 (the new rates are retroactive to the beginning of last year), and will increase 37.5% in 2007, another 28% next year, another 28% in 2009, and so on.
Companies like AOL, since they make so much money in other areas, can operate at a loss and write is off... small webcasters that base their business purely on webcasting revenues will close.
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|Unbeliveable, bet the artsts dont see much of that money
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|I'll bet they don't see a cent. This is about fatcat undeserving fatcat CEO's getting this million dollar bonuses for doing nothing more than acting like the greedy bas****s they are. If the money actually went to the real artists it might be acceptable...but this is nothing more than pure greed. The day the RIAA and the MPAA go down will be a day to be celebrated.
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|RE-FUKIN-DICULOUS
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|ROFLMFAO - definately, that'll be one word I'll add to my dictionary.
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|Yes indeed! RFD will be a new abbrev for me.
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|Well said!
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|In last week's RAIN newsletter, the proprietor of independent online streaming service Radio Paradise, Bill Goldsmith, wrote, "Our obligation under this rate structure would be equal to over 125% of our total income. There is no practical way for us to increase our income so dramatically as to render that affordable...That's a truly sad - and deeply un-American - state of affairs. I can only hope that the copyright board recognizes their error in time for the business that I have devoted seven years of love, sweat, time, and energy building up is torn to pieces by the wolves of the music industry."
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this is so sad.... greedy rich wh*te people are the worst :-/
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|troll
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|Did you say that by way of introduction, KingMotley? :P
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|Oh, so greedy rich black, brown, or yellow people are better?
Racist!
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|Are they trying to piss off everyone just for fun?
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|Yes.
Also, record companies and other DRM-based organisations don't want to believe the fact that we don't need them anymore - and they'll do anything to hold on as long as they can.
Actually, we never really needed record companies or motion picture associations in the first place.
anybody disagree?
Then which record label did Beethoven and Mozart sign up with? And which movie studio did Shakespeare work with? Open media is awesome, man.
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|Then which record label did Beethoven and Mozart sign up with? And which movie studio did Shakespeare work with? Open media is awesome, man.
Their music was not distributed. The *only* way you could hear it was by going to a concert, whether they were playing the music or someone else.
Post modern, the music was licensed by the copyright holders to labels that produced albums with their works, so which label did they use? Several.
Oh, and in case you weren't aware, Shakespeare didn't make movies, he made plays.
Neither the music, or the plays were "open".
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|To partly answer your question: Beethoven signed in about 1817 with the Viennese music publisher Sigmund Anton Steiner, who published such pieces as could be played in parlors on the "pianoforte" (the piano), or what the publisher at the time insisted on calling the "Hammer Clavier" in an attempt to sound less Italian. Apparently Beethoven's publisher didn't want his works confused with that Italian sound that was going out of style.
The record industry has been around for a heck of a long time - it assimilated recording technology, it wasn't created by recording technology. I probably shouldn't get into too much of a digression over Shakespeare and his content providers, if you will.
Indeed, open media is awesome, unless you happen to be Ludwig von Beethoven, in which case you pretty much have to die before you see the real benefits from it.
-SF3
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|Greedy. They're shooting themselves in the foot yet again. The artists probably won't see any of this either.
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|It "might" be alright IF the money went right into the rights holders bank. How any times has EMI or Sony said they kept the money becuase they just couldn't find the artist like Neil Young etc.. I think the DA of New york busted them for that a year ago..
some of these companies just move money from one pocket to another. and just forget about the artist!!
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|Bah, "the artists". I don't think "the artists" are starving.
In fact, Britney could do without many of her dollars I think.
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