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SoundExchange tries PR tack of "our poor artists will suffer"

Posted on: 04/30/2007

Friday morning, in response to the announced introduction of the Internet Radio Equality Act (see RAIN here), SoundExchange issued a press release (here, in .pdf format) claiming the bill would force artists to "write sxchecks to cover refunds to corporations whose CEOs and top executives are paid millions of dollars per year."

SoundExchange is the RIAA-created royalty collection agency whose webcast royalty proposals were accepted and used by the CRB for the Internet radio industry.

Executive director of SoundExchange, John Simson, and the collection agency’s General Counsel, Mike Huppe, offer several colorful yet easily-refutable quotes in the press release. Here are a few quotes, and our responses:

SoundExchange press release Webcasters’ counterpoint
"Artists would have to write checks to cover refunds to corporations whose CEOs and top executives are paid millions of dollars per year." This is ludicrous! No one has suggested that checks already written to musicians would have to be recalled. (Furthermore, come on! There are a lot more highly-paid CEOs and top executives and superstar musicians in the music industry, on the SoundExchange side, than there are in the world of Internet radio.)
"The bill would also result in a windfall of more than $50 million to mega-corporate webcasters like Clear Channel and Microsoft…"

No $50 million windfall exists; it’s imaginary. It’s money that SoundExchange hopes to see but never will, since, If the CRB royalty rate decision stands, most webcasters will most likely pull their streams down.

Microsoft, incidentally, is no longer a webcaster at all; they now offer a white-label version of Pandora, a service that would be bankrupted by the CRB decision.

"This bill, introduced by Representatives Jay Inslee (D-WA) and Donald Mazullo (R-IL), would arbitrarily reverse the painstaking work of the CRB, the three-judge panel created at the request of the webcasters three years ago."

This is deceptively-worded. The only minor change that webcasters requested three years ago was to change from a three-arbitrator panel (indepdendent contractors to the Copyright Office) to a three-judge panel (salaried employees of the Copyright Office), under the theory that judges would be more experienced in copyright law.

Unfortunately, this was the three-judge panel’s first case, so they were as equally inexperienced as one-time-only arbitrators would have been.

In any event, all of the "painstaking" work on both sides was based building a case for a flawed standard ("willing buyer / willing seller") which does not even pretend to balance the needs of copyright owners, copyright users, and the general public. And the language of that standard was created at the request of the RIAA when the DMCA was written in 1998.

"The CRB panel listened exhaustively for 18 months to all interested parties, heard from dozens of witnesses in weeks of live hearings, read countless depositions and examined tens of thousands of pages of evidence focused on, among other things, the services’ ability to pay and the value of music in the marketplace. .It was a daunting and wildly-expensive process, yes. But the judges’ decision was that based on their position that since Congress had set "willing buyer / willing seller" as the standard they were to use, the services’ ability to pay was irrelevant.
"The CRB… fulfilled the intent of Congress to issue appropriate market-based rates for webcasters." The experience with the CARP five years ago and the CRB now has taught us that the "willing buyer / willing seller" verbiage in the DMCA, which has lead to decisions based on dueling economists’ hypotheses, has not lead the judges or arbitrators to an actual, real-world, sustainable market-based rate.
"The proposed bill presents no factual or economic basis for rejecting the reasoned decision of the CRB."

Subcommittee hearings, not the language of the bill itself, are the proper venue for describing the economic basis behind the bill.

But the factual and economic basis has alrady been made clear in the press — the fact that the royalty is currently the equivalent of 80% to 300% of revenues for most webcasters (i.e., once other expenses are taken into account, a bankruptcy rate), compared to the 0% royalty the broadcast radio pays and the 7.5% royalty that satellite radio pays).

"This legislation, if passed, would come at the expense of hard-working artists, who, on average, received just $360 each in royalties from webcasting in 2006."

SoundExchange fails to mention the multi-million-dollar royalty checks they are trying to obtain for the big four record labels, using the cover of "hard-working artists" as their PR stance.

Furthermore, that $360 average is deceptive — it’s an average that includes both (A) largrer royalty checks to superstar artists and (B) checks that are probably more in the ballpark of $120/year to the artists that you and I would think of as "working musicians."

Those working musicans, as shown by the tens of thousands who’ve signed up for the SaveNetRadio Coalition, would rather have a thriving world of Internet radio airplay than the potential chance of a $10/month check.


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