Webcasting Streams On

Last February 2002, the US Copyright Office released its recommendations on webcasting rates and reporting requirements. Following the release, both webcasters and copyright holders (i.e. labels) mounted campaigns to express their often opposing views on the recommendations, urging their supporters to register their opinions with the Copyright Office and their elected representatives.

The FMC filed a number of papers with the Copyright Office during this period, urging the agency to develop a multi-tiered rate and licensing structure that distinguished between the various webcasting business models and encouraged the growth of this emerging media. We also proposed payments based on percentage of revenue instead of a per-listener payment. This not only reflected payment models currently under use in the terrestrial world, but was also scalable according to the abilities of webcasting stations to generate revenue.

Read our summary proposal filed with the Copyright Office here:
http://www.futureofmusic.org/news/CARProundtable.cfm

Then last June, the Librarian of Congress released his decision on the webcasting rates based on the findings of the Copyright Arbitration Royalty Panel (CARP). Briefly, the Librarian rejected the CARP’s findings and cut the performance royalty rate in half; from .14 cents to .07 cents per "performance".

Overall, reaction to this decision was negative. The RIAA denounced the rate reduction, saying that is “simply does not reflect the fair market value of music as promised by the law”. Small webcasters, on the other hand, argued that the installation of this per-performance rate, which was retroactive to October 1998, would set rates so high that they would hasten the destruction of the emerging webcasting world and force many small webcasters out of business. Indeed, hundreds of small/college webcasters took down their streams following the June 2002 decision, unsure about their ability to pay the performance royalties.

Then in November 2002, based on the request of small webcasters for relief, Congress passed the “Small Webcaster Settlement Act”. The Act:

allowed copyright owners [labels represented in negotiations by SoundExchange] to offer webcasters a percentage-of-revenues royalty rate, essentially allowing the parties to mutually agree to override the “per-performance” rate handed down by the Copyright Office in June 2002.
suspended all royalty payments due from noncommercial webcasters until June 30, 2003, giving both sides time to work out a new voluntary royalty structure.
added a new definition of "noncommercial" that permitted webcasters who were for-profit entities to file for nonprofit status, as long as they had a "commercially reasonable expectation that such exemption shall be granted."
permitted "hobbyist" webcasters to make a choice of whether they would like to classify themselves as a for-profit business or a nonprofit.

Since November, groups of webcasters and copyright owners [labels and SoundExchange] have been negotiating privately to come to reasonable terms of payment for the use of music. But, instead of setting a rate that applies across the board to all webcasters, rates have been set on various tiers that take into consideration the size of the webcasters’ audience, their revenues, and their status as a commercial or nonprofit entity – a lot like what the FMC was proposing last spring.

Below are a number of charts prepared by Michael Papish that indicate the agreements that the variety of webcasting parties have negotiated with the recording industry from November 2002 — June 2003.

Webcasting Agreements

by Michael Papish, CEO of MediaUnbound and Technology & Policy advisor for WHRB and IBS
July 11, 2003

So far, the deals with the RIAA (except for the one with the Corporation for Public Broadcasting) are public deals and open to all webcasters in a given class regardless of their participation in the negotiations.

For parsing purposes, it makes sense to divide the webcasting world along two dimensions: size and commercial status. Below, I will list the class and the negotiated deal for the category. Remember, it is up to the individual webcaster to opt-in to a negotiated deal, otherwise their rates/terms fall back to those promulgated via the CARP process last year.

Class	Large, commercial webcasters
Members	AOL, Yahoo!, etc.
Represented by	DiMA
Deal	Negotiated by DiMA. Basically the same as the CARP (e.g. $.0007/song/listener) except minimum fee of $2500/year instead of $500. Also includes rates for subscription internet radio services. Works well for services with numerous channels, large listenership and businesses which see webcasting as a non-primary revenue source.

Class	Medium-sized, commercial webcasters
Members	RadioParadise, 3WK, etc.
Represented by	VOW
Deal	Negotiated by VOW. Text of deal here. Open to any "Eligible Small Webcaster" as defined in the Small Webcasters Settlement Act. For webcasters with less than $50,000/year revenues, a $2000/year minimum and a royalty rate of 10% of gross revenues or 7% of expenses. For eligible small webcasters with yearly revenue above $50,000 but under $500,000 a $5000/year minimum and a royalty rate of 10% of gross revenues of 7% of expenses. Works well for the larger, independent webcasters who receive a break on retroactive payments for a stable (if somewhat high) percentage-based rate in the years 2003-2004.

Class	Small to medium-sized, non-commercial webcasters
Members	The vast majority of college, community and hobbyist webcasters
Represented by	American Council on Education, IBS, CBI, NRBLMC
Deal	Text of deal here. Open to any non-comm webcaster with non-comm defined as a non-profit from a tax standpoint (e.g. a non-commercial webcaster can have commercials, revenues, etc. as long as it is designated as non-profit). For stations with less than 200 average concurrent listeners, a flat-rate of $250/year for educational stations and $500/year non-educational. For stations over 200 concurrent listeners, the flat rate plus $.0002/song/listener for performances over the 200 listener average. Since the vast majority of non-commercial stations have relatively few listeners currently, this deal works well in the short-term future. However, if internet radio actuallytakes off, the rates can spiral out of control rapidly.

So, who is left out in the cold. Contrary to popular opinion, it is not the smallest webcasters (e.g. small, non-commercials). Instead, the following groups still have grievances:

Class	Small, commercial webcasters
Represented by	Webcaster Alliance
Context	Small, commercial webcasters are too small to afford the $2,000/year minimum but are for-profit ventures unable to join in on the reduced rates for non-comms.
Solution	Personally, I don’t understand why most of the hobbyist webcasters and members of the Webcaster Alliance don’t opt for non-profit status. Certainly, the music they play could be considered a "community service" and given the current market for acquiring internet radio operations, for-profit status has few to no benefits. Non-profits can sell ads and offer subscriptions while paying employees and still qualify for reduced royalty rates. Seems a lot smarter than fighting a windmill with an anti-trust suit.

Class	Large, non-commercial webcasters
Represented by	NFCB (National Federation of Community Broadcasters)
Examples	WFMU
Context	Currently, this class is small. It consists of non-comm webcasters with extremely large audiences. However, it is most troubling because these stations represent the future for many webcasters. As audience-size grows, it becomes laughably obvious that valuing music at a per song/per listener rate does not properly scale with expected revenues.
Solution	CARP reform. Having covered the vast universe of webcasters, the RIAA feels no pressure to negotiate with this small class of webcasters. Hopefully, with a CARP process that allows non-commercial entities a place at the table, sound economic arguments can be made for the creation of licensing structure that scales with an operation’s revenues and not audience.

Class	Odd ducks
Examples	Live365, RadioIO
Context	These webcasters are in some cases too large to fit under the definition of a "small webcaster" but do not generate revenues or operate businesses like members of DiMA (e.g. AOL, Yahoo, etc.).
Solution	Direct negotiations or fall-back to the CARP rates. In addition, some are abandoning the ad-supported radio model in favor of subscription based offereings.

The situation now is stable, though not ideal. Work is still required if the medium ever hopes to become mainstream (both for audiences and as an actual business). If I were charting the future of the music industry, this exercise serves as a benchmark one shouldn’t ignore.

— Michael Papish

Michael Papish is the CEO of MediaUnbound and Technology & Policy advisor for WHRB and Intercollegiate Broadcasting System

Related Campaign:

On Artist Compensation

The Status of Webcasting in 2003

Webcasting Agreements

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