Internet Radio Fights Back

In the continuing fight over royalty rates for internet broadcasters, the Copyright Royalty Board (CRB) is now coming under legal assault as the webcasters begin to fight back against what many see as an unwise ruling. The CRB recently changed the way royalty fees are calculated for internet broadcasters, resulting in greatly increased royalty fees. You can read previous posts here, here, here and here.

Now the webcasters are preparing for legal action. Both National Public Radio (NPR) and the Corporation for Public Broadcasting (CPB) have sent their lawyers to D.C. to prepare for a legal battle. The broadcasters will soon be joined by Pandora and, most likely, other commercial broadcasters.

NPR station WXPN General Manager Roger LaMay has been quoted as saying that the ruling serves as a dis-incentive and would cause cutbacks in service from internet broadcasters.

If this were to go into effect it’s going to have public radio stations looking for ways to cut back what we do, as opposed to expanding. Now, there is significant dis-incentive when you’re talking about services that are committed to public service.

LaMay went on to say that independent artists are the ones who will suffer the most from this ruling as they aren’t getting played that much on terrestrial radio so internet broadcasts serve as an outlet for their music.

CNNMoney.com reports today that NPR will be filing a petition with the CRB asking them to reconsider the rate increase, on Friday of this week. Failing that, NPR has vowed legal action.

Adam Jaffe, dean of arts and sciences at Brandeis University thinks the industry is trying to collect the wrong type or royalties from webcasters.

The question is what is the appropriate standard for what should be paid. The RIAA (Recording Industry Association of America) and the record companies basically want to make the argument that this Web-based streaming is like selling CDs or downloads of MP3 files and they should be compensated at the same rate. I think that’s the wrong way to look at it.

I agree with him. For all intents and purposes, they are attempting to exact a mechanical royalty for “webplay” of songs. Royalties that would amount to over $2 billion annually according to BetaNews.com.

That calculation is accompanied by some other interesting statistics. For instance, in comparing internet radio to terrestrial radio, BetaNews found that for 2006 terrestrial radio had almost 5 times as many listeners as internet radio, but paid only $437.5 million in royalties. These royalties were paid to the PROs (internet broadcasters pay these royalties as well). Regular radio is not subject to the per track/per listener royalty imposed on internet radio by the recent CRB decision.

BetaNews also did calculations of cost per listener, again, comparing internet radio to terrestrial radio. Here’s what they found.

On a per-listener scale, broadcast radio stations paid $1.56 per listener on average during 2006; and in 2010, that figure rises to $1.94 per listener. BetaNews estimates that Internet radio sites, by contrast, will pay $8.91 per listener for 2006, rising to $15.59 per listener in 2008 and staying flat beyond that time.

Thus an Internet radio music provider is likely to pay in royalties almost ten times the amount for each of its listeners throughout the year, than the terrestrial broadcaster.

“What happens to all these royalties?” you may ask.

SoundExchange collects and then distributes these enormous sums to the labels, artists, and sidemen. Many predict a drastic decline in internet broadcasting that could include most smaller webcasters closing up shop. That of course would decrease the total royalty figure collected for distribution by SoundExchange.

Another side effect that I’ve not seen mentioned is that with the increase in royalties being paid to artists and sidemen, it seems likely that the labels would change the way they conduct business with these people. It seems entirely possible to me, that labels would attempt to cease payment to sidemen for session work. This move would be made on the grounds that the musician will be paid on the back end via SoundExchange. In the least the label may offer the players a choice between up-front payment and royalties, with the royalty rights being signed over to the label should the musician chose a cash payment. That’s purely my prediction, but it seems to me a course of action the labels are likely to consider.

  • Thanks Brance and John for keeping this in front of the bluegrass community.
    Any clear thinking person can see that this is very unfair to Internet Radio providers.
    I think the fight has just started. Those of us who love this music, and the people that provide it, will not go away easy.

    Clyde Scott – BluegrassRadio.org

  • Jon Weisberger

    I’m a clear thinking person, and I don’t think it’s unfair to compensate the copyright holders whose work is the very reason for the existence of music webcasts to the tune of a 10th of a cent per play. The same play in a jukebox would cost a quarter or more! 😉 .

  • JON:

    Please read the ruling and re-do your math..!!! You are way off in your calculations. Also, next time you release a project, DO NOT send it to any radio and just see how many you sell. You have yet to clearly explain why over-the-air broadcasters should not pay royalties. You only want to see Internet radio take the hit.

    BTW, I do not see where any juke box owners are bound by this ruling.

  • Jon Weisberger

    I have read the ruling many times, Clyde, and it is quite clear: the 2007 royalty is $0.0011 per play, 11/1000ths of a dollar, or approximately 1/10th of a cent. And I would love to see terrestrial radio in the US pay similar performance royalties, as they do elsewhere (and as do webcasters in other countries, by the way). But I don’t see the fact that they’re not doing so as a good reason to let webcasters off the hook, especially when the amount involved is so small.

  • Jon:

    Here is how your math is flawed. You are not calculation the number of listening hours. That is the multiplier here. Say we play 500 songs per 24 hours @0.0011 per song. That is 55 cents for the day. That multiplied by say 5000 listening hours for today. That sir is $2750 today only. Multiply that by 31 days at that gives us a bill of $85,250.00!! BTW, What countries pay this rate. We in this country already pay royalties and have since 2000.
    You as a member of the IBMA board of directors should be promoting the music on all platforms not trying to kill one of the only platforms it has.

  • Jon Weisberger

    Yes, Clyde, the more listeners you have, the more your total royalty bill will be – but it is still 11/100ths of a cent per play per listener. That is what the rate is, period. To generate a $2750 royalty bill for playing 500 songs in a day, you would have to have a minimum of 5000 listeners all listening non-stop for the entire 24 hours; more likely, a $2750 royalty bill would represent something like 20,000 listeners at an average of 6 hours of listening per day. The bottom line is still 11/1000ths of a cent per play per listener or, to use your 20+ songs per hour, about 2 cents per hour of listening.

    As I’ve pointed out before, that’s cheaper than satellite radio subscription rates, cable TV subscription rates, and just about everything other form of entertainment available. It should not be difficult for a competent webcaster to raise 2 cents per hour of listening, either from listener contributions, subscription fees, advertisements or underwriting, or some combination of those.

  • I give up on trying to explain this to you.. The fact that you have 5000 TOTAL LISTENING HOURS is the key here. Do you not understand what a “listening hour” is..?? You STILL do not see the impact here. So, are you saying that every webcaster that will be forced to sign off is incompetent? You Sir are the incompetent one for not understanding this ruling.!!

  • Let me explain what a listenig hour is for you..!! Say 500 people are connected for 5 hours, That would be 2500 “Listening Hours”.. Got it..??

  • Jon Weisberger

    Clyde, total listening hours are not “the key here,” Because the Copyright Royalty Board’s new rates are not by total listening hour, but by play:

    “we find that the per play rate applicable to each year of the license for Commercial Webcasters is as follows: a per play rate of $.0008 for 2006, a per play rate of $.0011 for 2007, a per play rate of $.0014 for 2008, a per play rate of $.0018 for 2009 and a per play rate of $.0019 for 2010.”

    and:

    “the following rates apply to Noncommercial Webcasters: (1) an annual per station or per channel rate of $500 for stations or channels will constitute full payment for digital audio transmissions totaling not more than 159,140 ATH per month and (2) if in any month a Noncommercial Webcaster makes digital audio transmissions in excess of 159,140 ATH per month, then the Noncommercial Webcaster will pay additional usage
    fees for digital audio transmissions of sound recordings in excess of the cap as follows: a per play rate of $.0008 for 2006, a per play rate of $.0011 for 2007, a per play rate of $.0014 for 2008, a per play rate of $.0018 for 2009 and a per play rate of $.0019 for 2010.”

    Where the ruling says that the royalty rate is “per play,” what that means is that it is calculated per play, *not* total listening hours. The only place in which total listening hours are involved there is in determining whether a non-commercial webcaster is responsible for paying a flat fee or the per play rate.

    I don’t know how to make this any clearer. If you haven’t yet read the actual ruling, I recommend you do so ASAP; it may be found at http://www.loc.gov/crb/proceedings/2005-1/rates-terms2005-1.pdf . And if you are taking advice from anyone who’s telling you that the rates are calculated by total listening hours rather by plays, I strongly recommend that you find someone with a better grasp of what the determination actually says.

  • Hi Jon:

    I see we are not going to come to mutual agreement on what this means. I will take the advise of a Washington attorney over yours any day.

    I think Brance explained it best.

    This doesn’t look to bad until you realize that a “performance” is defined as “the streaming of one song to one listener.” That little piece of news sheds new light on these rates. If a broadcaster had 1000 listeners, then the royalty due would equal $1.10 for each song played. There is a $500 minimum fee imposed per channel per year as well.

  • Jon Weisberger

    Right. A webcaster with 1000 listeners to one song would owe a royalty of $1.10 for that song – 1000 x $.0011. That’s called “multiplication.” 500 listeners would mean a royalty of $.55; 2000 listeners would mean a royalty of $2.20. The rate remains the same – $.0011 per play. If you play 10 songs in an hour to those 1000 listeners, the royalty bill will be $11.00; if you play them 20 songs in that same hour, the royalty bill will be $22.00; play them 5 and it will $5.50.

    The number of plays per hour will change, depending on the number of listeners and how many songs are played in an hour, but the rate per play won’t. The royalty rate for 2007 is $.0011, or 11/1000ths of a cent. Period. It is not based on listening hours. Listening hours come into the picture only as a measure of the threshold below which a webcaster pays a flat fee of $500 per channel per year, and above which the per-play royalty is due (and while it’s not clear from Brance’s quote, that $500 fee is recoupable by a webcaster who’s paid it and then crossed the threshold). You can’t derive an accurate royalty bill from a number of listening hours because there’s not a fixed number of plays per hour, and the royalty is based on plays.

    If your attorney tells you otherwise, s/he’s not doing a good job for you.

  • The technology is not presently available to track such things. I can only track the number of listeners online at a given time and the length of time they listen,. This is through a company that vows to close shop if this ruling stands.

    I think internet radio has a good chance of getting this ruling overturned. NPR and CPB have a huge hammer and they are ready to swing it. The lawsuit may have already been filed. Now, all we need is a clear thinking judge to stay this ruling until it is overturned. I just suspect that will be easy to find.

    BTW, $22.00 per hour to stream music is a little high don’t you think.

    Oh well, I’ll just keep my TLH’s under the magic # and won’t grow my station. Bluegrass music and Bluegrass artist will loose..!

  • Am I understanding this correctly ?? …. If you played 20, 3-Minute songs per hour with and average of 1000 listeners … the cost is $192,720.00/Year ($22/hour, 24 Hours, 365 Days) ??? Just in Royalties, That is crazy !! Granted you’re not going to have 1000 listeners 24 hours a day, but some hours there may be 3000 and others there may be 300, so I think it balances out by using 1000 listeners for 24 hours a day.

    I just wanted to add that I SIGNED the petition over a week ago !!! Let em’ have it Clyde !!!

  • Jon Weisberger

    In the first place, Clyde’s not averaging 1000 listeners 24/7/365, he’s averaging well under half that (he posted last week that he was approaching 300,000 total listening hours per month).

    And in the second place, what seems crazy to me is the idea that someone who thinks that listening to bluegrass non-stop for an hour isn’t worth 2.2 cents (that goes to the people actually providing the music) can or should be called a bluegrass fan.

  • Tamgrass

    I have been following these threads for weeks and as a huge fan of bluegrass I find it “crazy” that someone that holds a position on the IBMA Board is constantly degrading those that promote and support this genre.I think a refresher course should be taken on the IBMA’s mission and goals.

    I am more than willing to financially support the genre, and often do! Additionally, until internet radio, I have never had the opportunity to listen to bluegrass 24/7/365, because it is rarely played on traditional stations in my area!Thank you Clyde Scott for the service you provide your listeners and the bluegrass industry. Long live Bluegrassradio.org.

  • Jon Weisberger

    It’s no more “degrading” to suggest that bluegrass webcasters ought to be paying royalties to bluegrass musicians and labels for airing their music than it is “degrading” to suggest that bluegrass promoters ought to be paying fees to bluegrass musicians who perform at their events.

    There are many areas in which the interests of all of the different components of our bluegrass industry coincide, but there are some areas in which they don’t. This is one of the latter – the interest of webcasters and musicians diverge here, because it’s in the interest of musicians to get paid for their music, and it’s in the interest of webcasters not to pay them for it. The IBMA hasn’t taken a position on the CRB’s ruling, nor is it likely to, nor would I ask it to, for precisely that reason.

    As an individual, though, I can take a position, and as a musician, my position is this: 2.2 cents per hour per listener seems like a reasonable cost for the music that I make. And if it is really so unreasonable as to force most webcasters out of business, it ought to be easy to show that. But I have yet to see a financial analysis of a webcasting operation that demonstrates that – that shows how royalties compare with other expenses and with revenues.

  • Hi Tim and Tamgrass:

    My thoughts are that Jon is more likely then not an embarrassment to the IBMA, so I will not condemn the entire board over this one member.

    If Jon want to talk fairness, maybe radio people should start send the musicians a bill for every CD we sell for them. Why would that be unfair? Basically the same thing..!!I received 17 different CD’s in today’s mail wanting play on BluegrassRadio.org. I’m thankful that most artist and record companies are clear thinking people.

    For all the bluegrass fans that support our efforts, I want to personally thank you.