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SX offers 12%-of-revs rate to small webcasters

Posted on: 05/22/2007

SoundExchange announced this morning that, in response to a request from key members of Congress, it is has made an offer to extend the rates and terms of the Small Webcaster Settlement Act (SWSA)-related license agreementSX  to "small webcasters" through the end of 2010.

According to the SoundExchange press release, the offer comes as a direct response to a request from the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property to “initiate good faith private negotiations with small commercial and noncommercial webcasters with the shared goal of ensuring their continued operations and viability.”

The press release also states that the subcommittee’s request was sent to SoundExchange howard bermanlast week in a letter co-signed by Representatives Howard L. Berman (D-CA) [pictured left] and Howard Coble (R-NC) [pictured below right], the Chairman and Ranking Minority Member respectively of the Subcommittee on Courts, the Internet and Intellectual Property.

"As suggested by the Subcommittee," the release states, "SoundExchange howard cobleis proposing that the subsidy be based on a percentage of revenue model and is proposing the same rates that prevailed under SWSA: small webcasters would pay royalty fees of 10% of all gross revenue up to $250,000, and 12% for all gross revenue above that amount. The proposal includes both a revenue cap and a usage cap to ensure that this subsidy is used only by webcasters of a certain size who are forming or strengthening their business."

No details on proposed revenue cap
The release did not give any details on SoundExchange’s revenue or usage cap. The SWSA-related license for 2005 set a revenue cap of $1.2 million to qualify for the rate. [Previous RAIN coverage of here.]

SoundExchange Executive Director John Simson [pictured below] noted that the proposed extension of rates would only be made available to webcasters who comply with reporting requirements and do "not avoid" lawfully-owed payments.

The press release states that, "Indeed, in their letter Representatives Berman and Coble noted that, ‘In return for compelling sound recording copyright owners to make their works available, the qualifying services agree to meet the terms and conditions of the compulsory license, which, inter alia, requires the periodic filing of statements of account and the timely payment of statutory royalties to the copyright owners whose works they have elected to perform.’"

David Oxenford, the lawyer for the Small Commercials Webcasters group to whom such an offer would most likely have been extended, has not yet responded to RAIN‘s requests for comment.

RAIN will continue coverage of this issue in an afternoon edition later today.

A step in the right direction,
but not a long-term solution

SoundExchange’s proposal today may take some political pressure off of them, and it does relieve a couple of dozen small webcasters from the threat of imminent bankruptcy, but it addresses only a tiny portion of the big picture.

For example, webcasters like Live365 and Pandora are "small businesses" by most standard definitions of the term, but may not qualify for this offer. (SoundExchange’s proposed revenue caps have not been publicly released yet.)

Launched 18 months ago, Pandora employs 100 people in an enterprise zone in Oakland, California, and under every reasonable definition is a “small business” trying to grow into a large business.

Similarly, Live365 employs 35 people in Foster City, California, and provides the platform for 10,000 individual webcasters to create their own micro-businesses. If this offer is not made available to them, those thousands of individual webcasters would lose their ability to stream..

By broadcast radio standards, even the largest webcasters (i.e., the Internet radio divisions of Yahoo! and AOL) are small broadcasters. (A few years ago, broadcast groups that didn’t even make the list of the 40 largest radio companies — Fisher, Service Broadcasting, Arso Radio, Curtis Media, Mid-West Family, Hubbard, etc.— all had annual revenues of over $20 million, making them larger than the largest webcaster.)

Furthermore, let’s not forget
the streaming initiatives of terrestrial broadcasters, which are a critical segment of the world of Internet radio and are essentially ignored by this proposal.

Insurmountable barrier to growth for small webcasters
Another problem: Under the old SWSA terms, there has been an insurmountable barrier to growth for the SWSA webcasters (e.g., Digitially Imported, AccuRadio, Radioio, etc.).

Let me explain: If a webcaster’s annual revenues fell just under the $1.2 million SWSA revenue cap, they would have owed $144,000 in royalties (and might have just about broken even overall). But if they were to sell an additional $100 in advertising, their royalty bill for the year would leap to $1,800,000!

It would be an impossible transition.

SWSA doesn’t fix the real problem:
"Willing buyer / willing seller"
Large or small, it doesn’t matter — the inclusion of the "willing buyer / willing seller" standard in the 1998 Digitial Millenium Copyright Act (DMCA), which set this whole process in motion, combined with the arbitrators’ and judges’ interpretation thereof, is the core problem.

It led to an unexpected consequence: A royalty rate was set by the CARP and, subsequently, the CRB that COULDN’T have been in the ballpark of what Congress had in mind— effectively 15x to 50x the composition royalty!

A special royalty deal for a certain class of small webcasters, despite being a step in the right direction, keeps the industry small, constricts competition,  curbs music diversity, hurts working musicians, and limits consumer benefit. — KH

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