30 Days And Counting Down to the New Internet Radio Royalty Rates
With July 15 now less than a month away, the new Internet Radio music royalties are still scheduled to go into effect. Congressional legislation is slowly being considered, and a Motion for Stay to put the regulations on hold pending appeal has been filed (see our post here). Some discussions on settlement have also taken place, though no deals have been done. Without some action, payments under the new rules will soon be due. See our memo, here, for more details on the CRB decision, and all of our posts on this issue, here. While the legal and legislative actions are still proceeding, and the clock is counting down, the coverage in the popular media continues to grow. In two recent discussions of the issue, SoundExchange spokesmen seem to blame Internet Radio for the current woes of the recording industry and to justify the high royalty rates through comparisons to the illegal pirating of copyrighted music. All of these issues will be discussed at a seminar that I am moderating later this week at the Digital Media Conference in the Washington DC area.
One example of SoundExchange's recent claims can be found in a series of articles found on the Los Angeles Times website featuring a "Dust-up" exchange of viewpoints on the Internet radio issue, between Kurt Hanson, owner of Internet radio broadcaster Accuradio and the publisher of the Radio and Internet newsletter, and Jay Rosenthal, a Board member of SoundExchange. Mr. Rosenthal, in attacking the value of Internet radio as a promotional tool, said that while webcasters might excite people about new music, most new music is now illegally downloaded so that the promotion doesn't actually help the artists. But, as Kurt Hanson points out, that would essentially be an excuse for never promoting any music in any venue - in fact it seemingly would be an excuse for shutting down the recording industry. If music promotion just leads to illegal file sharing sites, and little or no music is ever to be sold again, why bother? Does the recording industry really expect to make up for lost sales by receiving royalties from Internet radio? Yet the same point seems to be made by SoundExchange President John Simson in a piece done by the PBS program NOW. That program focused on the Internet Radio station Radio Paradise and how its popular, eclectic music mix will be silenced if the new royalties go into effect. In that story, Simson also points to illegal downloading as causing the woes of the music industry, seemingly implying that this justifies outrageous royalties - yet offers nothing to tie downloading to Internet radio.
SoundExchange's recent discussions of the issues seem to accept the fact that the royalties will put much of the advertising-supported Internet radio industry out of business. Initially, when the decision was first released, the public responses of SoundExchange seemed to be that the industry was crying wolf - that it could really afford these rates. That claim is not heard as often any more. As more evidence was advanced to show that the royalties would exceed the revenues of most ad-supported webcasters, the next argument advanced by SoundExchange seemed to be that it accepted that most webcasters would go out of business, but it was the webcasters' own fault because of their lousy business models. That too seems to have quieted, as Congress seems to want there to be diversity among webcasters(see our article about the settlement offer made to small webcasters after Congressional pressure). Now, it seems that illegal file sharing has become the principal justification for the rate - almost as if the claim is that if the record industry is suffering so should the Internet radio industry.
Of course, there are other justifications offered for the rate - that the decision is one that was legally arrived at and should therefore be followed, that big webcasters can indeed afford the high rates, that the copyright belongs to the artists and labels and they ought to be able to do what they want with it. We will see in the next 30 days how all these arguments play out. We will be exploring these issues on a panel I will be moderating at the Digital Media Conference in Silver Spring, Maryland on Friday, June 22. The panel will feature representatives from SoundExchange, from NPR and DiMA, and Kurt Hanson from Accuradio and the Radio and Internet Newsletter. If you plan to be in the DC area on Friday and are interested in this issue, you may want to attend.
"Mr. Rosenthal, in attacking the value of Internet radio as a promotional tool, said that while webcasters might excite people about new music, most new music is now illegally downloaded so that the promotion doesn't actually help the artists"
So musicians should not promote their work? Not make it in the first place? It sounds like internet royalties are the wrong solution for the wrong problem.
On a optimistic note, Mr. Rosenthal did admit their may be some promotional value to internet streaming. The rest of that quote- that it does not matter- is not a valid reason to increase royalties for internet radio stations.
I just wanted to share some feedback I sent to Kurt Hanson in response to the "Dust-Up" feature in the LA Times. This was in response to the dustup for Day 5:
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Oh, where to begin. When I read statements like this:
"Do webcasters really want to emulate Napster and Grokster? Do they want to turn webcasting into a form of "fair use" that will contribute to further bankruptcy of modern recording artists?" Do they really want to be part of a movement that has turned a generation of kids into a bunch of morally bankrupt punks who think they are entitled to free music? I don't think so, but sometimes I am not sure."
...it just further convinces me that Jay Rosenthal lacks experience and credibility to speak to this issue.
I want to dissect this piece by piece:
I have yet to find an example anywhere on the Internet where a webcaster is asking for totally free access to catalogs of music. What's more, Internet Radio and the likes of Napster and Grokster are NOTHING (and I do mean ABSOLUTELY NOTHING) alike. This in itself shows that Mr. Rosenthal simply does not understand the underlying technology.
First, no one in the Internet Radio industry is providing perfect digital copies of music that users can copy and share at will.
Second, Interent Radio cannot possibly be compared to a peer-to-peer sharing network. There are absolutely NO SIMILARITIES WHATSOEVER. From the underlying technology to the method of access...this is an apples to space-cheese comparison.
Third, Napster and Grokster never paid artists A DIME. To my knowledge, webcasters have been paying performance royalties since the SWSA, have they not?
Fourth, to suggest Internet Radio fosters copyright infringement is such a baseless accusation, I cannot believe Mr. Rosenthal uttered it.
âDo they want to turn webcasting into a form of "fair use" that will contribute to further bankruptcy of modern recording artists?" -- Exactly WHO has bankrupted more artists? The public that purchases concert tickets, buys LPs, CDs, Audio DVDs â" all based on music they heard on the radio or from friends; OR the Record Labels, who have time and again been caught in overly burdensome (if not illegal) contracts; who have failed to hear new artists and musicians because they did not fit the cookie-cutter mold of mega-artists; who have failed to more quickly adapt their business model to support legal download efforts when napster was approaching itâs prime; who were caught in price-fixing and other anti-competitive behavior; who have not adjusted the price-point of CDs in over a decade. From my point of view, the responsibility for the current plight of artists rests more with the music industry than with the fans.
âDo they really want to be part of a movement that has turned a generation of kids into a bunch of morally bankrupt punks who think they are entitled to free music? â" Yep, thatâs usâ¦morally bankrupt punks. Last time I checked, teenagers and young adults were the ones buying the lionsâ share of music, concert tickets, artistsâ ancillary products, like T-shirts, automotive window stickers, etc. The labels have raped artists for years on profits, and itâs us punk kids that are morally bankrupt?
Man, that just getâs the blood going. Moving onâ¦
I noticed that Mr. Rosenthal STILL has not explained how he can justify the rates set by the CRB, when a similar CARP proceeding for Satellite Radio set a rate of 7.5% of gross revenue. I think itâs time to abandon hope on getting a straight answer to that question.
âA good smack in the head is what you needâ?.
--- Yeah! Right back at ya Mr. Rosenthal.
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As another commenter noted, it is ironic that the Music Industry has the gall to lecture the Internet Radio industry on effective business models.
Just thought I'd share.