Two press releases on the Internet radio music royalty controversy were issued late last week from groups appealing to musicians – and they couldn’t have been more different in tone. The Future of Music Coalition, a group dedicated to voicing the opinions of musicians and citizens on Washington policy decisions regarding copyright and technology issues, released a well considered position statement finding that webcasters – especially small commercial webcasters and noncommercial entities – "represent a rich and diverse set of listening opportunities" which provide opportunities for musicians by exposing listeners to music that is not heard elsewhere. FMC suggests that multiple tiers of licensing are necessary so that all kinds of webcasters can continue to exist (unlike the one size fits all scheme adopted by the Copyright Royalty Board). FMC urges SoundExchange and the webcasters to come to a settlement that will preserve webcasting while fairly compensating musicians.
By contrast, SoundExchange argues in its press release that some webcasters are acting in bad faith in arguing that the rates are too high – and are "engaged in a campaign of misinformation about the process, the decision itself, and the impact of the decision on the participants." The Press Release itself is subtitled "Suggests Some Webcasters Not Telling the Truth About the Royalty Process." The release promises an attached summary of the Board’s decision but, at the time of this posting, that summary was not apparent on the SoundExchange website. The only misrepresentation cited by SoundExchange is the claim by webcasters that the process which arrived at the rates was unfair. However, as pointed out by editor Kurt Hanson (a client of mine in this proceeding) on the Radio and Internet Newsletter site, here, a decision that overlooks its real world effects can fairly be characterized as being unfair. Information about the real economics of the industry, which SoundExchange may not have appreciated, demonstrates that unfairness.
In other forums directed to musicians, SoundExchange President John Simson has posted a more detailed statement, arguing that the music industry is changing through the digital revolution, and that music is an important portion of most webcasting operations – points with which no webcaster can argue. But where there is an argument is the further claim made by SoundExchange in these postings – that Internet radio revenues have increased in recent years from $50 million to $500 million (implying that these revenues allow webcasters to pay the new royalties). That $500 million figure apparently came from a widely quoted report recently released by an analyst at JP Morgan. However, that analyst, John Blackledge, last Thursday stated at a Jupiter/Kagan Conference on Radio and Television Values and Finance that the actual revenues from Internet Radio were in the $50 to $100 million dollar range, not the $500 million dollar number that many press reports seized on. That higher number included all sorts of revenue not attributable to the types of digital audio music services subject to the statutory license. In fact, there is nothing in the CRB’s decision that would demonstrate that any Internet radio company is making money off of its nonsubscription streaming operations – and Blackledge’s clarification may show why – that royalties alone eat up the industry’s revenues even at the levels in place prior to the release of the CRB decision.
Another interesting take on the impact of the decision on musicians comes from an interview with Jonathan Potter, the President of the Digital Media Association, in the March 27 issue of Royalty Week Magazine, particularly the section excerpted in today’s edition of the Radio and Internet Newsletter. While Jon is clearly an interested party in the CRB litigation as his organization represents the largest webcasters, his point is one that is difficult to argue with – that the royalty decision will drive webcasters to cut direct licensing deals with the holders of copyrights in sound Recordings. We suggested the same thing, here. However, Jon makes the good point that such deals would be outside the SoundExchange process, and thus the statutory requirement that half the royalties go to the musicians on the recording, would not apply. The copyright holder – usually the record company – would get to keep 100% of any directly-negotiated royalty. In essence, a webcaster could get a deal from a copyright holder at just over half the current royalty, and the record company would recognize more from the deal than from the statutory royalty. A win-win for the record company and webcaster who can afford to deal with each copyright holder, but a loss for musicians and small webcasters who can’t afford the transactional costs of negotiating with all the copyright holders whose music is necessary for their service i.e. the very webcasters that the statutory royalty was meant to protect.
Wheels within wheels, but it would seem that musicians should carefully consider where their loyalties really lie……