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Royalty Proposal Divides Webcasters, Musicians, And Labels

The plan includes overturning the Copyright Royalty Board to establish below-market royalty rates in an effort to "subsidize small webcasters."

K.C. Jones

May 23, 2007

4 Min Read

A musicians' union said Wednesday that it backs below-market royalty rates to "subsidize small webcasters," but a group representing webcasters rejected the plan.

The American Federation of Musicians (AFM), which claims more than 90,000 members, said it supports SoundExchange's plan to allow some small webcasters to pay below-market rates for songs played from 2006 through 2010. It said the deal would allow the businesses time to develop and expand their audiences.

"Most recording musicians, including royalty artists and session musicians, are entrepreneurs themselves," AFM President Thomas F. Lee said in a prepared statement. "Fifty percent of the royalties paid by webcasters go to performers, and performers surely need that income stream to make it in their own careers. But they also know from experience that it can be tough to build a business, and they are willing to make some sacrifices to give small webcasters the opportunity to grow and make the world of Internet music as diverse and artist-friendly as possible."

A group representing webcasters rejected the plan.

SoundExchange represents the four major record labels, more than 20,000 artists and 2,500 independent labels. It announced the proposal soon after Representatives Howard L. Berman, (D-Calif.) and Howard Coble (R-N.C.), members of the House Judiciary Subcommittee on Courts, the Internet, and Intellectual Property, urged the group to work toward a settlement between recording artists and webcasters. The representatives and several others are considering legislation that would overturn rates set by the Copyright Royalty Board (CRB).

The CRB decided to increase royalty rates for Webcast music, setting a retroactive rate of $0.0008 per song for 2006. The rate in 2005 was $0.0007 per song. The amount is set to rise to $0.0019 per song by 2010. That -- plus a $500-per-station fee and the elimination of schedules that based fees on a percentage of revenue -- could amount to a 300% increase for large operations and up to 1,200% for smaller operations, according to digital media representatives.

SoundExchange said the rates are "fair and based on the value of music in the marketplace," but it is willing settle on 10% of all gross revenue up to $250,000 for royalty fees and 12% for gross revenue above that amount.

"There's a sense in the music community and in Congress that small webcasters need more time to develop their businesses," SoundExchange Executive Director John Simson said in a prepared statement. "Artists and labels are offering a below-market rate to subsidize small webcasters because Congress has made it clear that this is a policy it desires to advance, at least for the next few years. We look at it as artists and labels doing their part to help small operators get a stronger foothold." The AFM called on the small webcasters and SoundExchange to seal a deal quickly and urged small webcasters to more fully and accurately report the songs they play.

"Small webcasters all confirm that they want performers to be paid, but many of them fail to file the reports that enable royalty dollars to flow smoothly to the entitled performers," Lee said. "In return for below-market rates, small webcasters should file the required reports so performers can be paid. Bottom line, musicians' creative work has value and it is important that they be fairly compensated for its use."

SaveNetRadio, which boasts a membership of "hundreds of thousands" of webcasters, listeners, and musicians, said all webcasters are small compared to terrestrial and satellite radio companies, and the proposals would "throw" the largest webcasters under the bus."

"Labeling webcasters small or large is a distinction without a difference," SaveNetRadio spokesman Jack Ward said in a prepared statement. "Two of the most prominent webcasters, Pandora.com and Live365 are models of industry success but would be bankrupted by the CRB and by the SoundExchange proposals. Pandora employs 100 people in an enterprise zone in Oakland, California, but its popularity would put it out of business. Similarly, Live365, an aggregate webcaster that provides a platform for more than 10,000 individual webcasters, has a staff of fewer than 40. Though clearly small as a business, Live365's enormous importance and scope among webcasters would force them to shut down."

Ward said that the revenue caps that SoundExchange proposed would "create an insurmountable barrier to growth for small webcasters," which would guarantee "the perverse and unintended consequence of forcing thousands of webcasters to stay small if they want to stay alive, thereby weakening the industry -- the very opposite of Congress' intention."

SaveNetRadio and the Digital Media Association support legislation that would set rates at 7.5%, which is what satellite radio pays.

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