July 13, 2007 2:32 PM PDT

FAQ: Net radio's mixed signals

(continued from previous page)

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.

A campaign called "Save Internet Radio" even sprang up, and, as they did a few weeks ago, some Webcasters protested the changes with a day of silence.

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.

Previous page
Page 1 | 2

See more CNET content tagged:
Webcaster, negotiation, recording industry, Internet radio, blogosphere

20 comments

Join the conversation!
Add your comment
Fairness
1) why should a regulator decide how much a radio should pay for playing your copyrighted song. Ok for now it may be hard to work with all the data but soon in the future it's concievable to have open copyright contracts that state how much per full listen, per consumer one would charge(with monitoring for extortion cases)
2) If i produce a peice of music and want it to be played on any computer/internet device when reccomended by a DJ why can't i label it free to air so that i don't get any royalties for it when played on the radio just when somone wants to purchase it.

Asking these questions and more my mind wanders down the murky path of the corrupt music industry and i wonder if any of it really wants individuals to prosper in the most influential art there is or whether music must conform to the propergander of the day/hidden islamic empire.
Posted by wildchild_plasma_gyro (296 comments )
Reply Link Flag
A very bad joke.
"A dollar and change is not too much to pay hardworking musicians,"

I hate to say this, but the "hardworking musicians", don't get the money. Most of it goes to the labels.

We need a system where 90% or more of the money goes to the artist, 10% or less goes to the parasites.
Posted by ralfthedog (1589 comments )
Link Flag
Not sure why they should be excluded?
I am not sure why the internet should be excluded from paying
these royalties? A broadcast is a broadcasts! It is obvious these
internet broadcasters want to make a profit on this.
I am not sure how many user's actually use a radio service?
I would say the only one's that should maybe get a beak would be
FM or HD radio stations which simulcast their station on the
internet. Copy right material is just that! No matter where or how
you listen to it!
Posted by jesmac418 (35 comments )
Reply Link Flag
Rate
They shouldn't be excluded, but the rates seem way off to me. They were talking about eventually going up to 18 cents per song per listener? That seems crazy to me. How does this compare to what FM radio pays? I don't think it should be any different.
Posted by wangbang (155 comments )
Link Flag
Not sure why they should be excluded?
You are absolutely right my friend! Let the Payola begin! When can Net Radio stations expect to begin receiving payments from the RIAA? I mean, if that's the way it works for broadcast, it should work that way for the net, right? Copyright is copy right, what's good for the goose is good for the gander, don't swim for 30 minutes after eating, don't take candy from strangers....

It's like the United States I grew up in moved to Mars, and left me in the middle of Moronistan.
Posted by dick_cheney_before (5 comments )
Link Flag
Does AM & FM currently pay royalty fees?
Years ago I worked at a college radio station and to my knowledge we never paid royalty fees on any music that was played over the air. In fact, there was a big scandal about "Payola" which was the record company reps bribing the disc jockeys with money, drugs or free vacations in order to get their records played more often on the air. This illicit form of free advertising caused a big stink in the 60's. My question: does commercial AM or FM radio pay royalty fees on the music they play. If they don't, then why should them manner of broadcast (i.e. webcasting) matter to anyone?
Posted by retiredtech (1 comment )
Reply Link Flag
re: Does AM & FM currently pay royalty fees? NO
NO, broadcast radio does not pay royalties.
<a class="jive-link-external" href="http://archive.salon.com/ent/feature/2001/03/14/payola/" target="_newWindow">http://archive.salon.com/ent/feature/2001/03/14/payola/</a>
<a class="jive-link-external" href="http://archive.salon.com/ent/music/feature/2001/07/24/urban_radio/" target="_newWindow">http://archive.salon.com/ent/music/feature/2001/07/24/urban_radio/</a>
<a class="jive-link-external" href="http://archive.salon.com/ent/feature/2001/04/30/clear_channel/index.html" target="_newWindow">http://archive.salon.com/ent/feature/2001/04/30/clear_channel/index.html</a>

This is why radio sucks so much. But it is all regulated by the Federal Gubermint - making usre that you here everything they want you to hear, and are paid handsomely for it. I can't find the quote where Jack Valenti - a man known widely for his grossly off-mark predictions as the head of the RIAA - laments that they can't get radio to pay royalties.

Here's something informative written by an expert in the field:
<a class="jive-link-external" href="http://www.legalaffairs.org/issues/July-August-2003/feature_zittrain_julaug03.msp" target="_newWindow">http://www.legalaffairs.org/issues/July-August-2003/feature_zittrain_julaug03.msp</a>
Posted by dick_cheney_before (5 comments )
Link Flag
recording of digitized music
I guess it might be free for AM &#38; FM radio since there's quality loss if someone tries to record the music. But I think the situation is different with Webcasters since they're playing digitized music which could be easier to record and there's no quality loss in this case. This might be one good reason for the music companies to ask for royalty (in compensation for piracy)
Posted by dndk82 (12 comments )
Reply Link Flag
Re: recording of digitized music
Look, here's the biggest problem: too many stupid people who don't know the first thing about an issue commenting vacuously. Yes, analog broadcast does incur a loss of quality. But done properly, it can be better than a commercial tape. However, not only do Commercial broadcasters NOT pay for music, they are PAID by the likes of the RIAA to promote their latest top-40 rubbish. First there was the direct money Payola scandal, then they fixed that problem by going through "independent" music promoters that took a cut off the top. The consolidation of large national broadcasters like "ClearChannel" turned this into a big money generator when they decided to go through a single "indie" (not to be confused with "indie artists"). Learn how to read and think before piping up.

Secondly, the RIAA would love to turn the tables on wireless broadcast so they can get PAID, but they realize it is impractical now because it's too late, and the broadcasters have enough money to wrestle the RIAA to the mat. However, Net Radio is still nascent and the RIAA smells money in the water - they and their bought-and-paid Congress parasites want (a) all the money they can get or short of that (b) kill off net radio because if they can't have it, no one can have it. Many people believe that the current neo-con/fascist regime is all about control: it is easier to control several mega-broadcast operations than hundreds of little ones. "You sure got a nice network of stations there, it would be a shame if you lost your license..." If only "big players" can operate in net radio, so much the better. They certainly don't want thousands of individuals setting up their own stations, playing music they like and saying what they think because, who knows, then the government couldn't control it all, now could they? It might even drive their controlled media sources out of business - or make them less profitable so they fracture back into small, less manageable franchises.

Finally, who told you digital == perfect? Are you a moron or do you just play one on TV? Net radio is compressed down to 64Kbps or 128Kbps for a good one. Perhaps you have a tin ear or a really terrible lo-fi stereo at home, but for me and most of my friends, 64Kbps ain't cutting it for quality. It makes no difference if I can copy it a billion times - it still sucks. I rip all my CDs (and I have thousands, mainly bought used) and compress them losslessly with FLAC. I run a DAAPD server to stream through out my house, as I am entitled to by the Fair Use provisions of the Copyright Act. Digital does not imply "no fair use". Much as the RIAA parasites would like to charge me per use, per room, per day, it doesn't work that way. They are old-think dinosaurs trying to do as much damage as they can in the new mammal world before they die.

Learn about an issue before opening your mouth.
Posted by dick_cheney_before (5 comments )
Link Flag
To Broadcast...or NOT to Broadcast (a repost)
One of the things that strikes me as odd is the fact that...streaming audio is a product of innovation of the internet. That 'innovation,' as we can see, is becoming stifled as more and more non-technological businesses (read: SoundExchange, internet marketers, Pfizer) try to take control of it and make the rules of what you can and can't do with it.

It's a sad period for the history of the internet when it used to be full of research, development, meaningful communications, and overall common sense.

Nowadays it's just a giant 'rent me' or 'buy me' space for zillions of billboards and I think I can liken this to any highway going into Las Vegas - the desert used to be a beautiful place until Wayne Newton and Carrot Top started popping up along the way.

Back to the topic at hand: SoundExchange has zero authority as far as I'm concerned to try and collect fees from public radio stations that do not broadcast any copyrighted material, even anything that is allowed by the original copyright holder. If I make an audio file that I want to post for free use on the internet, as long as the broadcaster is in agreement to cite the source, I have no problem letting it go. I don't want/require/need/desire SoundExchange going after money I'll never see.

That's like me trying to sell fruit on a public street corner and a guy in a silk suit telling me I need to pay a 'tax' to him and his boss or I risk losing more than just my business.

There are a few words to describe what is happening and they all imply organized crime mentality:

- Extortion.
- Racket.
- Blackmail.
- Swindle.
- Theft.
- Strong arm.
- Bleed.
- Intimidate.
- Muscle.

The sad part of this is that the United States Government, who is supposed to be for the people, by the people, is turning a blind eye to the people who just want to exercise their first amendment rights in the most inexpensive means possible.

If that's the case, then I want Hugo Chavez for president. At least you know where he stands.
Posted by `WarpKat (275 comments )
Reply Link Flag
Don't Listen, Don't Buy
The solution is to fight back against the tyranny of the "Big Five" music conglomerates - Universal, EMI, BMG, Warner and Sony. They are the masters of the RIAA, the scumbags behind DRM, the rootkit, and the bribers of Congress that has made a mess of copyright law.
These companies have colluded repeatedly in price fixing, artist contract abuse, and illegal payola to promote sales.
Do not buy music from these parasitical entities!
Rejoice as each year their sales and profits slip and we can look forward to their demise. The times have changed and their existence is akin to buggy whip makers.
There is plenty of compelling music offered by independent labels and artists. The Big Five give you manufactured boy bands, bimbo faux pop divas, mindless rap and hip hop prattle, and aging dinosaur wrinkly rockers.
If the confiscatory increase in royalty payments results in internet stations shutting down there will still be those that play music that is not part of the copyright payment scam. Let the idiots shoot themselves in the foot yet again! If they insist on extorting payments from stations to advertise their music then refuse to play or purchase any of it! Let the power fall!
Posted by zanzzz (138 comments )
Reply Link Flag
Used to be per hour?
According to <a class="jive-link-external" href="http://www.soundexchange.com/licensee/licensee_cws.html," target="_newWindow">http://www.soundexchange.com/licensee/licensee_cws.html,</a> the fee used to be 0.76 cents per *hour* per listener, although per performance was an option. Per hour seems much cheaper, so it would be a price increase of much more than 5%. Did I miss something?
Posted by AySz88 (44 comments )
Reply Link Flag
Extraneous comma
Sorry, that link should have been without the comma: <a class="jive-link-external" href="http://www.soundexchange.com/licensee/licensee_cws.html" target="_newWindow">http://www.soundexchange.com/licensee/licensee_cws.html</a>
Posted by AySz88 (44 comments )
Link Flag
Let net radio opt out.
Why not let artists have the choice of opting out of SoundExchange. If an independent band wants to let their songs be played on internet radio for free, let them.

Let net radio stations choose to play all independent music, or be part of SoundExchange. I think this free market solution would soon remove SoundExchange and the RIAA from relevance.
Posted by ralfthedog (1589 comments )
Reply Link Flag
If the fees stand most net radio will be DEAD
OUTRAGIOUS FEES that would force net radio broadcasters to
pay up to millions would kill net radio. They are killing some of
the best and most outreaching type of marketing for the artists
music. Were talking global. Far better than any FM station could
reach out to anyone. So now this is it. Unless Congress gets off
there ASS and stops this GREEDY non-sense net radio will be
dead and the only ones that will lose out is the artists that they
claim are supposed to be paid. Well now they will get NOTHING!
Because no broadcasters will be found as no one can AFFORD IT!
So now they will lose two ways, no money and no GLOBAL
advertising. I see nothing good coming out of this except the
death of internet radio.
Posted by jhorvatic (18 comments )
Reply Link Flag
 

Join the conversation

Add your comment

The posting of advertisements, profanity, or personal attacks is prohibited. Click here to review our Terms of Use.

What's Hot

Discussions

Shared

RSS Feeds

Add headlines from CNET News to your homepage or feedreader.