Background
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.
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.
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