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RAIN 7/8: Agreement ends royalty battle, though no one's declaring "victory"

Posted on: 07/08/2009

SOME WEBCASTERS SAY DEAL ENSURES THEIR SURVIVAL, OTHERS SAY IT “KILLS INNOVATION

As reported in RAIN yesterday (here), SoundExchange and a set of “Pureplay” webcasters have announced an agreement for sound recording royalty rates for the period of 2006-2015. The news has been sweeping the Internet, with publications like Bloomberg, Wired, Billboard, Rolling Stone and the Wall Street Journal declaring an end to a royalty battle that has lasted nearly a decade.

As the news spreads, analysis and reaction to the deal begins with everyone picking up the question: Is Internet radio saved?

INTERNET RADIO LIKELY TO SURVIVE

Though noting that perhaps no deal would be ideal for webcasters, industry attorney David Oxenford (pictured left) — who represented the “Pureplay” webcasters in the deal’s negotiations — writes at his Broadcast Law Blog (here), that “the settlement does provide significant benefits over any other existing option for any webcaster who qualifies under its provisions.” One of those benefits is certainty, “eliminating further litigation and negotiation costs while setting rates at which a class of webcasters can go on with their operations.” That said, it’s “far from a perfect deal.”

Much of the commentary on the royalty agreement follows along these lines, declaring a step in the right direction for the battered webcasting industry.

Pandora’s founder Tim Westergren (pictured right), who has been outspoken in the past about how damaging the CRB-set royalty rates would be to Internet radio and Pandora (RAIN coverage here), praised the new deal. “This is definitely the agreement that we’ve been waiting for,” he said. “If it hadn’t been resolved, we would have been done.” But, like Oxenford, he indicated the deal is far from perfect. “Nobody got exactly what they wanted,” he said, pointing to the fact that even with the new deal Internet radio pays higher royalties than terrestrial and satellite radio. “We’d all be dancing in the streets if we eventually paid the percent of revenue, but it’s going to take a long time to get there.”

DiMA executive director Jon Potter indicated his support for the deal in a statement, saying that “DiMA anticipates that some of our members will take advantage of this new license.”

A2IM President Rich Bengloff said the agreement is “fair to the pure play broadcasters, most of them small businesses like the members of A2IM, allowing them to continue to stream music to listeners and still make a profit. These pure play webcasters are vital to independent artists and labels as they play almost triple the percentage amount of independent music compared to that played by traditional AM/FM radio.”

“Internet radio, once on its deathbed, is likely to survive after all,” summarizes Claire Cain Miller of The New York Times (here). Not everyone sees it this way, though. Some commentators view the deal less as a triumph for Internet radio than a brief reprieve.

HARDLY A VICTORY FOR WEBCASTERS

“It’s a stunningly large percentage of revenue that will make things prohibitively expensive for most webcasters to really stay in business,” argues Mike Masnick of TechDirt (here), looking at the agreement’s “astounding” 25% of revenue component. “You now have to have huge margins to get anywhere in a notoriously competitive business.” He goes so far as to ask why Internet radio is even paying artists in the first place: “The idea that webcasters/broadcasters should need to pay artists for the right to promote them to fans just seems bizarre and borderline incomprehensible in the first place.”

Radio Paradise founder Bill Goldsmith (pictured left) sees the agreement as too damaging to Internet radio as well. “This is hardly a victory for webcasters,” he said. “It perpetuates a situation where the ability for the Internet radio industry to grow and prosper is hampered — to a nearly fatal degree — by the record industry’s blatant attempt to recoup some of the money lost by their mismanagement of all things digital.”

“This compromise stinks,” writes Jerry Del Colliano at his Inside Music Media blog (here). “If webcasters were dead with the last iteration of SoundExchange’s taxation, they are only half dead now. Dead nonetheless.”

Other observers look to the new tiered system of royalty rates and see disincentives to growth and fear innovation will suffer. “The incentives to grow are now gone. The more the company grows, the more it pays,” argues SatWaves (here). “The fees impose an artificial constraint of funding upfront to innovate,” writes Inquisitr.com (here). “[The agreement] will kill innovation and smaller providers.”

CONCLUSIONS: ROYALTY BATTLE LARGELY OVER, FOR NOW

Whether the deal is a victory for Internet radio or not, one thing that many commentators can agree on is that the royalty battle is over, for now. For better or for worse, webcasters that choose to elect to the agreement have royalty rates set until 2014 or 2015. However, with a battle still raging in Congress over terrestrial radio royalties, and some groups of webcasters still without a deal with SoundExchange, disputes over performance rights and royalties will not go away any time soon.

“There’s a simple and fair way out of this,” writes Rob Pegoraro of the Washington Post (here). “And that’s to standardize royalties — to composers and performers alike — on broadcast music outlets, whether they use a satellite, the public airwaves or an Internet connection to reach your ears.”

For now though, as Ars Technica eloquently summarizes (here), “The long, strange saga surrounding webcaster royalty payments is (mercifully) over.”

PANDORA TO CHARGE $1 TO THOSE WHO LISTEN MORE THAN 40 HRS./MONTH

Even as Pandora founder Tim Westergren praised the new royalty agreement announced yesterday, there’s no getting around the fact that “the revised royalties are quite high.” As a result, he writes in a blog post (here), Pandora will begin limiting users to 40 hours of music listening a month. Listeners who want more time can pay $1 for the month. “We hope this is relatively painless and affordable,” writes Westergren. “We hate the idea of limiting anyone’s listening, but we have no choice but to react the economic realities of the new rates.”

Users paying this $1 fee will still sit through ads, while subscribers of Pandora’s premium “Pandora One” service will not. That service costs $36 a year ($3 a month) and also comes with unlimited listening, higher stream quality and many other features (RAIN coverage here).



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Comment

  1. 25 percent? Are we nuts?

    Rick · Jul 8, 03:52 PM · #

  2. I think it is complete crap. With Windows Media no longer allowing webcasters to include html view, banner ads are a whopping $0.02 CPM, and TargetSpot and Katz Media only wants the larger webcasters.. there is no room for the smaller guys to survive.

    This is simply another case of the rich get richer and the poor get poorer.

    No person in their right mind is ever going to try internet radio now. Only the big scumbag corporates who can afford millions of dollars will be able to which will hurt the internet radio industry as a whole.

    I understand that Pandora and Slacker and CBS and AOL and Yahoo, etc can afford this but what about the GOOD/GREAT web stations such as 181.fm, 1.fm, accuradio, di.fm, 1club.fm, bigrradio, 202.fm, .977, etc – These stations are far superior than the big time corporates but they are the one’s getting screwed massively!

    It’s a disgrace to watch this industry go up in smoke.

    It reminds me of a Wal-Mart opening in a small town. Once it is built only the big huge companies can hang but the small mom and pops (who have worked their asses off for their entire lives with blood, sweat, and tears) are the one’s who have to close up shop – If Wal-Mart would have never came… they would all still be living the American Dream! Typical America.

    mallan · Jul 9, 06:03 AM · #

  3. Once again I need to ask this question because RAIN or anyone else for that matter will address the $25,000 minimum yearly payment. Kurt, Ari, David, etc. What were you guys smoking when you agreed to that part of the deal? You just killed off some of the medium and small Internet broadcasters, the same one’s you claim to represent with your newsletter.

    Mark · Jul 10, 02:09 PM · #

Commenting is closed for this article.


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