Is A Settlement on Internet Radio Royalties Near? Will All Webcasters Be Included and Will They Be Able to Afford It?
The Webcaster Settlement Act, about which we write here, has been signed into law by President Bush, giving parties to the Internet Radio royalty dispute until February 15 to enter into a settlement and have it become effective, without the need for any public comment or any further government approvals. Several recent articles have indicated that a settlement is close - for at least some of the webcasters. In several recent statements, Tim Westergrin of Pandora has indicated that the webcasters in DiMA (the Digital Media Association), in their negotiations with SoundExchange and the record labels, were getting very close to results. At a the Digital Music Conference held in Los Angeles last month, Jon Potter, the President of DiMA, seemed to echo that sentiment. However, neither could state with absolute certainty when the deal would come, or what its terms would be, though in Westergrin's comments at that conference, available here, he stated that webcasters probably would not be happy with the likely outcome of the settlement, implying that there would be a high rate that would be agreed to by the parties, though it would be one less than what the Copyright Royalty Board ordered (and one which would allow companies like his to survive). However, he indicated that perhaps not all webcasters would be able to survive at the rate being discussed, and some might have to try to enter into their own agreements to fit other types of webcast operations. In fact, the Webcasters Settlement Act is not limited to a single settlement, so various other parties who participated in the CRB proceeding - including broadcasters who stream their signals online, small commercial webcasters, and NPR and other noncommercial groups - could negotiate settlements as well, though there have not been any recent public statements that these negotiations were close to bearing fruit.
At a panel that I moderated at the CMJ Music Marathon later in October, which included a SoundExchange representative and a member of its Board, there was a suggestion that further settlements with groups other than DiMA might follow if and when the deal with the large webcasters is concluded. This approach may make some sense as the copyright holders don't want any deals that they cut with small webcasters or noncommercial parties that could affect their negotiations with larger webcasters, from whom the vast bulk of their revenues are derived. Copyright holders naturally want to address the interests that will be the most lucrative. However, this approach does put smaller parties, who are often most worried about potential liabilities and most sensitive to uncertainty, into a very uncomfortable position. As we've written before, the statutory license that is administered by SoundExchange was granted by Congress at least partially to make access to music possible, especially to smaller parties with little bargaining power and little ability to cut deals with thousands of copyright holders, which would be required without this license. Yet these are the parties most in need of relief from the rates imposed by the Copyright Royalty Board, so we hope that the talks of future settlements in fact are accurate.
If and when the settlement is reached, the next major question will be how the Internet radio service will be monetized. A recent New York Times article asks that question, interviewing a number of operators about the difficulties in attracting advertisers to the service. A new blog, Audio4cast, covering the business side of the Internet radio and digital music industry, looks at the question of how the industry can benefit from the current economic crisis. The New York Post has run an article highlighting the fact that, more and more, Internet-only webcasters are cutting back on their services due to the high royalties, while broadcasters are able to grow their on-line listeners by subsidization from their over-the-air business. Recognizing that the industry still has not figured out how to make money from their operations is an important issue in any discussion of royalties, as royalties have to be realistic in light of the real-world business conditions for a vital Internet radio business to exist. We will all have to see if any settlements which do result from the Webcaster Settlement Act recognize these realities and set rates that allow the Internet radio industry to survive and thrive.
