July 13, 2007 2:32 PM PDT
FAQ: Net radio's mixed signals
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Before the changes, most Internet radio companies paid about 0.076 cents per performance, according to an analysis by attorney David Oxenford at the law firm Davis Wright Tremaine, which is representing some of the smaller Webcasters that challenged the rules.
A few fractions of a cent doesn't sound like very much. Why are Webcasters so upset about this?
They contend that many smaller DJs simply don't take in enough revenue to come up with the new payments, which the advocacy group SaveNetRadio estimates at as much as 1,200 percent of their previous required payments (and up to 300 percent for larger operators).
Another problem is that the rules require a $500 minimum payment for each "channel" a Webcaster operates, regardless of the actual royalties they owe on that station. So if a Webcaster owes $250 in royalties based on the number of songs and listeners they have for a particular station, they'd still have to pay $500. But if they owed $750, that's what they'd pay.
The idea behind the minimum fee is to offset SoundExchange's administrative costs. But large Webcasters argue fulfilling the requirement would cost more than $1 billion in the first year alone for the three largest Net radio operators--Yahoo, Pandora and RealNetworks--because their services allow users to set up thousands of distinct "stations." To put it into perspective, the entire industry grossed less than $200 million last year, according to SaveNetRadio, an advocacy group opposed to the changes.
Webcasters have also argued that the rates amount to far more than what is expected of their digital broadcasting counterparts, such as satellite radio. Satellite is required to pay 7.5 percent of its total revenues, and Webcasters say they'd be content with the same arrangement. (A couple of bills in Congress would make that so.)
How does the music industry feel about those complaints?
SoundExchange, for its part, says the rates are entirely fair, particularly because the rate has already remained unchanged for seven years.
The group estimated that even when the rates creep to their highest levels in 2010, each user would only owe $1.12 per month, based on 15 songs streamed per hour and about 40 listening hours. Between 1998 and 2005, the same listening habits cost each user 47 cents per month.
"A dollar and change is not too much to pay hardworking musicians," the group said in a statement last month.
You said the negotiators may be edging closer to an agreement. How would that agreement differ from the mandate Webcasters face now?
As we mentioned earlier, SoundExchange has offered to cap the fees required of small Webcasters at their 1998 levels through 2010. The details remain murky, but in May, the group said Webcasters that fall in the small category would be required to pay 10 percent of all gross revenue up to $250,000 and 12 percent for all gross revenue above that amount.
To SoundExchange, the rates are considered "below-market" and a significant reprieve. But the initial offer drew resistance from SaveNetRadio, which argued that offering privileges to companies that keep their revenue below a certain level could keep smaller Net radio broadcasters from flourishing.
Another offer pertains to concerns raised by larger Webcasters. The Digital Media Association, whose members include Yahoo, AOL, Pandora, Live365, RealNetworks and other major Webcasters, has reportedly asked SoundExchange to consider imposing a $50,000 annual cap on the minimum "per channel" fees. That would mean those services would only have to pay those fees on 100 of their channels, as opposed to all of the thousands that they operate.
SoundExchange issued a statement saying the group is prepared to accept that offer, provided the Webcasters subject to the cap "agree to provide more detailed reporting of the music that they play and work to stop users from engaging in "streamripping"--that is, turning digital music streams into more lasting copies.
I seem to remember hearing all this talk of Internet radio gloom and doom a few years ago. Has a similar conflict come up in the past?
That's right. Back in 2002, the recording industry and Webcasters were also butting heads over royalty rate increases set by a federal arbitration panel after bitter negotiations.
The ultimate savior for shallower-pocketed Webcasters at that time was the enactment of a bill called the Small Webcaster Settlement Act, a compromise piece of legislation that allowed small and noncommercial outfits to renegotiate lower rates with the music industry.
So how did we get to this point again?
Between 1998 and 2002, an arbitration panel appointed by the U.S. Copyright Office was charged with setting the royalty rates for Internet radio services. That changed in 2004; Congress passed a law creating a slightly different three-"judge" panel called the Copyright Royalty Board within the U.S. Copyright Office. That panel was charged with setting new rates for 2006 to 2010 if Webcasters and record labels couldn't reach an agreement on their own.
After 18 months of extensive written and oral testimony from a number of interested parties, the CRB issued its decision in March. It opted to adopt a rate similar to what SoundExchange had suggested.
What if the negotiations among the Webcasters and the record industry break down this time around? Could Congress or a court step in?
So far, as we mentioned earlier, a federal appeals court has denied an emergency request that it block the CRB decision. But Oxenford, the attorney representing some of those Webcasters in that dispute, said the case is expected to proceed through its normal course, with both sides fully briefing the judges on their perspectives. There's no timeline, however, for that process yet.
The issue has, indeed, also attracted quite a bit of attention from certain members of Congress. The House of Representatives Small Business Committee recently held a hearing on the topic, and Rep. Edward Markey (D-Mass.) organized Thursday's closed-door roundtable with the stakeholders.
There are also now three Internet radio-related bills on the table, which groups like SaveNetRadio would like to see passed.
Two of them--one in the House and one in the Senate--would overturn the CRB decision and replace it with a requirement that Webcasters pay the same royalty rate currently required of satellite radio broadcasters, which is 7.5 percent of their revenues. Webcasters argue that's a fairer solution than the one currently in place.
Another bill, just introduced late on Thursday by the Small Business Committee heads, would simply buy more time for hashing out a compromise. It proposes delaying the onset of the fees by 60 days after July 15.
So, it's not over yet?
Exactly, although I'll spare you the Yogi Berra cliche.
After Thursday's meeting on Capitol Hill, representatives from various sides of the debate who attended the meeting told CNET News.com that they found the latest talks encouraging and were still working actively to reach common ground.
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