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| | Issue #20.18 :: 05/02/2007 - 05/08/2007 | Webcasters Under Threat
Record Industry Raises Royalty Rates
| BY PATRICK WALL
| Is the record industry trying to sink Internet radio? The Copyright Royalty Board, a branch of the Library of Congress that administers various statutory copyright licenses, announced March 2 that Internet Radio royalty rates are going up — way up. The royalty rate hike was engineered by SoundExchange, a digital music fee collection body created by the RIAA (but now an independent nonprofit), and passed despite much protest from webcasters. And it could mean the end of web broadcasts for local indies WXRY and WUSC.
The new rates work on a per-performance basis: $.0008 per performance in 2006 (applied retroactively); $.0011 per performance in 2007; and going all the way up to $.0019 per performance in 2010. These are mere fractions of a cent, but here’s the kicker — the royalty hike also redefines “performance” as the streaming of one song to one listener. Put simply: A station that averages 500 listeners racks up 500 performances for each song it plays. While it seems innocuous at first, such a hike could put Internet broadcasters out of business.
“[T]his is undeniably a huge victory for the legal departments of record labels,” writes Kurt Hanson of the Radio and Internet Newsletter (kurthanson.com). Hanson crunches some numbers, and it doesn’t look good. “Because a typical Internet radio station plays about 16 songs an hour, that’s a royalty obligation in 2006 of about 1.28 cents per listener-hour,” Hanson writes. But because Internet broadcasters typically only pull in 1 to 1.2 cents per listener-hour, Hanson says, the cost of performance royalties (which doesn’t factor in artists’ royalties) well exceeds the revenue. Large broadcasters such as AOL Radio could owe as much as $1.65 million per month in royalty fees.
Yikes.
Small stations are in bigger trouble; and in the era of consolidating radio, such small Internet stations — as well as local webstreamers such as WXRY and WUSC — are more important than ever, serving the greater good for independent-minded labels and artists. “This royalty structure would wipe out an entire class of business,” Bill Goldsmith of Internet broadcaster Radio Paradise posts on the RAIN blog. “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.” Hanson estimates that small webcasters who stream through sites such as live365.com could also be in jeopardy, as live365’s royalty obligation is running in the range of $350,000 per month. Should the costs prove prohibitive, WXRY and WUSC could find themselves without an Internet presence.
Double yikes.
Possibly the most Draconian aspect of this whole shebang: The royalty hike isn’t for the artists being played. SoundExchange collects royalties for the “sound recording copyright,” a copyright that many artists don’t own. “Even if you do own the copyright to your own recording of your own song,” Douglas Giles writes on political blog Daily Kos (dailykos.com), “SoundExchange will collect Internet radio royalties for your song even if you don’t want them to do so.”
Matt Buchanan of Gizmodo (gizmodo.com) sums it up pithily: “If you’re an artist whose work is played on an internet radio station, even if you’re not a member of SoundExchange, they’re still going to collect royalties for you. And if you don’t join, you won’t see a dime — it simply goes straight into their pocket. And this is legally [prescribed]. Awesome.”
Triple yikes.
There is some hope, however. Reps. Jay Inslee (D-WA) and Donald Manzullo (R-IL) have introduced the Internet Radio Equality Act, which aims to reverse the federal Copyright Royalty Board’s rate hike. “The Internet has provided us with amazing opportunities to enjoy music, and this unfair action by the Copyright Royalty Board threatens to take it all away,” Manzullo says in a press release. “You can’t put an economic chokehold on this emerging force of democracy,” Inslee adds. “There has to be a business model that allows creative webcasters to thrive and the existing rule removes all the oxygen from this space.” Here’s to hoping Congress finally smacks some sense into the music biz.
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