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Internet radio saved! Behind the new "Pureplay" webcaster license

Posted on: 07/07/2009

Finally, for the first time ever, Internet radio stations have a royalty deal that is reasonably viable and extends for a reasonably-long period of time.

The specific part of the Internet radio industry that this particular deal saves are the webcasters who are (A) larger than hobbyists — i.e., who have aspirations of earning more than $1.25 million in revenues per year — but (B) are not wholly-owned divisions of multi-billion-dollar companies (e.g., AOL & Yahoo and CBS & other terrestrial broadcast groups).

In other words, the set of webcasters who may be able to benefit from this agreement includes webcasters like Pandora, AccuRadio, Digitally Imported, Radioio, and potentially dozens of other companies — really, anyone who wants to get into webcasting as a real business.

For all of those webcasters, being stuck having to pay the CRB decision’s per-performance rates would almost certainly have been a death warrant — they were the equivilant of 70%, 100%, or even more of some webcasters’ total revenues. (In AccuRadio’s case for the first 6 months of 2009, the CRB rate would have been over 200% of our revenues!)

This agreement has three main benefits for those who choose to elect it:

  • It cuts the CRB per-performance rates for 2007-10 by approximately a third to a half.
  • It establishes per-performance rates for 2011-15 — with annual increases, to be sure, but nowhere near as huge as the kind of annual increases the CRB was coming up with, and without the risk and expense of participating in another CRB proceeding for that period.
  • And it gives smaller webcasters a chance to grow into these rates — with a “percentage of revenues” royalty rate for a webcaster’s early years (about 14% until they hit $1.25 million in annual revenues, and 25% for about a year thereafter). (Note, however, that this provision expires at the end of 2014.)

Given the fact that the deal for large pureplay webcasters is a “greater of“ the per-performance rate or 25% of revenues, that still means that Internet radio will pay a far, far higher royalty rate than broadcast, cable, or satellite radio pays.

Our hope is that, over the next few years, Congress will see fit to change the laws affecting radio royalty rates so that all forms of radio that have to pay a sound recordings performance royalty pay the same rates (and if those rates are set by a future CRB, the rates would be set under the same legal standards).

Thanks, everyone!

The people I’d most like to thank for helping put this deal together are our attorney, David Oxenford, of Davis Wright Tremaine; my fellow webcasters and CRB participants Ari Shohat (of Digitally Imported) and Michael Roe (of RadioIO); Pandora CEO Joe Kennedy and other webcasters who provided guidance and moral support during the most stressful parts of this negotiating process, including SOMA fm’s Rusty Hodge, and Radio Paradise’s Bill Goldsmith; DiMA’s Jon Potter and its members for fighting for Internet radio royalty parity; the SoundExchange board members and officers who saw the benefits of Internet radio airplay for independent artists and labels, particularly including Toolshed’s Dick Huey and A2IM’s Rich Bengloff; and SoundExchange general counsel Michael Huppe, who seemed genuinely motivated to try to negotiate a deal that would work for everyone.

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  1. What happens with the “per channel” costs that inhibit per user custom radio stations?

    Pepi Acebo · Jul 7, 08:29 AM · #

  2. To say that Internet radio is saved seems to be a large overstatement.

    You forgot another BUT in your second paragraph… but © Webcasters that generate any substantial syndication and/or subscription revenue. Which I believe includes Pandora, RadioIO, and D.I. So now you are operating at the NAB negotiated rates which don’t seem like that great of a deal. How does this save these guys?

    I am completely NOT getting where Pandora sees this as “Industry saving” let alone just “Pandora saving”. Seems the thinking there is not to dump the subscription business but grow it by adding a low end tier and use that to drive higher end subscriptions which seems a short term fix not an industry or company saving one…

    I understand how this benefits anyone that falls under the “Pureplay” definition, but the “Bundled” rates seem to be a very minor discount that actually grows drastically after 2011.

    So is everyone dumping their probably profitable subscription services in order to take advantage of the pureplay rates? Am I missing something?

    Jason Stoddard · Jul 8, 09:14 AM · #

  3. What about the $25,000 minimum that’s due back from 2006? Why is nobody talking about that? How could anyone in these negotiations agree to that? Unless this is a way to squeeze out the little guy which is what SoundExchange has always wanted to do. This deal let’s down alot of broadcasters.

    Mark · Jul 10, 04:22 AM · #

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