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Minimum Fee:  Each broadcaster must pay a yearly minimum fee of $500 per channel.  A "channel" is either the stream of a single station, or an Internet-only subchannel, or any other unique on-line stream (e.g. the stream of an HD subchannel).  For any group owner, the per-channel minimum fee is capped at an annual $50,000.  The deal does not consider different streams of the same station, originating at the same website, to be different channels (e.g. where you provide different streams of the same station at different speeds - slower speeds for those who are on dial up or mobile connections and higher bit rate streams for those on broadband connections).  The minimums are applied against the per performance fees set out above.

Recordkeeping: For most broadcasters who are streaming, the settlement requires “census reporting” of the music that they stream. Census reporting means that the webcaster has to report monthly to SoundExchange information about each song that they play – including the song title, artist, album, and the ISRC code or marketing label for that song. The reports also have to include not only how many times each song played, but also how many listeners there were for each song. SoundExchange has long sought census reporting from webcasters, who are currently required to report only on the music played for two weeks each quarter (though the CRB has been considering extending the obligation to include census reporting)

In this deal, there are some exceptions to the recordkeeping requirements that have been adopted to accommodate broadcasters, which also have ramifications for the per performance fees. Broadcasters can avoid total census reporting for a limited percentage of their programming, having to report only the aggregate tuning hours ("ATH") streamed during this programming, and provide a playlist of the songs that were aired during those hours. For these limited hours, there would be no need to report on the number of listeners to each song. This exception has presumably been raised to address the issues that some broadcasters have arisen with syndicated programs that do not run through their music scheduling software, and cannot be linked up with some of the audience measurement tools that are available to broadcasters to provide the number of listeners who had heard each song. However, the amount of programming where complete census reports do not need to be provided will diminish over time, so that, by the end of the period that is covered by this settlement, it will be the expectation that complete census reporting can be provided. The amount of programming exempt from census reporting is as follows:

2009 .......................................... 20%

2010 .......................................... 18%

2011 .......................................... 16%

2012 .......................................... 14%

2013 .......................................... 12%

2014 .......................................... 10%

2015…………………………… 8%

As broadcasters may submit reports either together, for all of the stations that they own, or on a per station basis, this alternative can be very important for stations with multiple stations.  If, for instance, a broadcaster owns 10 stations, and one of those stations is programmed primarily by a syndicated programming service where per performance calculations are difficult or impossible, while the other 9 stations are programmed by the broadcaster through its own music scheduling software, the calculations above can be made on a group-wide basis if all stations are reported together.  Thus, the usage may be reported on an ATH basis for the hours programmed on the one station that receives the syndicated programming, and on a per performance basis for all of the other stations in the group, and the broadcaster would remain under the limits set forth above.  This one calculation is done based on hours programmed, not based on listnership, so the fact that the station programming syndicated music is in Anchorage and has a small on-line audience, while the other 9 stations are in major markets with large on-line audiences, does not matter for the purposes of calculating the broadcaster's compliance with these percentages on a group-wide basis.

For broadcasters who choose this option, they also pay their royalties based on ATH figures, instead of on a per performance basis. Instead of counting how many songs were played in these hours, they can assume that 12 songs were played each hour, and royalty based on the assumption that there were 12 songs played in each of the tuning hours in those programs for which no census reports are provided. A “tuning hour” is the equivalent of one listener listening for one hour (or two listeners for a half hour each, or 4 for 15 minute, etc.).  In other words, for the hours in which a station chooses an exemption, they would compute the number of aggregate tuning hours streamed, multiply that by the 12 songs that were assumed to have been played in those hours, and multiply that times the per song rate for the year in which the streaming was done, as set out above.  The number of Aggregate Tuning Hours streamed by a broadcaster should be available from the broadcaster's content delivery network who provides the bandwidth for the streaming.

Small Broadcaster Exception:  For broadcasters with stations that stream less than 27,777 ATH per year (essentially the hours that would result in it paying only the $500 minimum fee), an election can be made to exempt it from the recordkeeping requirements set out above.  The broadcaster need only pay the $500 minimum fee and submit the playlist for the songs that it played, without tracking the number of listeners it had to each song.  In addition, for the payment of an additional $100 fee, the broadcaster can be totally exempt from all reporting requirements.  This may be an attractive option for many small broadcasters.

The status of "small broadcaster" is determined by the number of hours streamed in the previous year.  Thus, a broadcaster can continue to be a small broadcaster for the year that it exceeds the ATH threshold.  It can even elect to be a Small Broadcaster in the year after it exceed the cap, if it agrees to take steps to limit its bandwidth, or the number of people who can connect to its stream, so as to bring itself back under the 27,777 ATH limit in the subsequent year.

To elect this Small Broadcaster status, broadcasters must file this form by April 2 if they are already streaming. 

Performance Complement Exceptions:  NAB has also announced that they have entered into agreements with the individual record companies to waive certain aspects of the performance complement.  We summarized the performance complement here.  This restricts the number of songs by the same artist or from the same CD that can be played in close proximity to each other.  Violations of the performance complement would mean that the broadcaster would not be covered by the statutory royalty (the royalty summarized above that allows the webcaster to stream all of the songs that are legally recorded and released in the US, simply by paying the royalties, without needing to negotiate with individual copyright holders).  The details of the waiver do not yet appear to be public.   We will write about that when they are available.

Summary:  So what does this all mean?  Does it make steaming economical for the broadcaster?  Opinions differ.  The Audio4Cast blog suggests that this deal does represent a reduction in rates and certainty for the future, as broadcasters would otherwise have to pay the higher CRB rates or hope that the appeal of the webcasting case or the next CRB proceeding would bring lower rates, which would cost lots of money to litigate and has an uncertain result.  On the other hand, the Radio and Internet Newsletter provides other dissenting voices, arguing that the rates remain too high to make streaming a profit center for most broadcasters.  The Inside Music Media blog, which tends to be critical of the radio industry, criticized this deal as not providing any real relief to webcasters.  Each broadcaster will have to look at the economics of the deal for him or herself, and then decide what to do.  Seemingly, the options are to take this deal, or to stop streaming, as the CRB decision does not provide a better alternative, and there is currently no other deal out there that would help the broadcaster.

The complaint of the sound recording copyright holders (primarily the record companies), is that services like Last.FM use sound recordings as the building blocks of their business, and can amass large audiences based on the use of the sound recordings, yet the record companies don't get a share of the "windfall" that may result when these businesses are sold.  Of course, this argument assumes that the value of these services is primarily in their use of the music.  Under their theory, it would seem that all a service needs to do is start playing music, and audiences (and eventually riches) will result.  Instead, most digital media companies will argue that there is far more to creating a successful Internet service than simply starting to play music online.  If you just had to provide the music and watch the audiences roll in, Internet radio would be a huge business that anyone could enter - and the litany of failed or struggling Internet radio and digital music delivery companies should not exist.  To me, it seems that a service, to be successful, must offer something more than just music, whether it is the community aspects of a Last.Fm or iMeem, or the sophisticated music selection software provided by a service like Pandora.  These sorts of services take much investment and much time to develop audiences, and even longer to develop significant revenue.   And, while these companies may eventually be sold to a company that may better develop and monetize their audience, as happened with Last.FM, the record companies will receive significant royalty revenue if the new owners are successful in the development of the potential of the service.  If they are not successful, one wonder whether there really was any significant value received from the use of the music, and if there was no real value, should there be significant royalties?

The complexity of questions such as these, and the differing perception of the value of music (whether it has intrinsic value on a per performance basis, or whether it really only has value to the extent that it leads to the development of revenue) lead to the debates over the appropriate royalties that the services should pay - such as the debate over the Internet radio royalties that has been going on for the last year.  Given the inherently conflicting views of the value of the music, and the contribution of the other elements of a service, the arguments are difficult to resolve, as there may be no common ground on which agreement can be reached.  Nevertheless, as the industry matures, and there is more and more evidence as to how these services can monetize their use of music, perhaps more rational royalty models can arise - or so one would hope.