SoundExchange Open to Bill Targeting Small Webcasters

The “tiered system” created by 2002’s Small Webcasters Settlement Act could be a template for revised rates, Simson said -- “I don’t have a problem with it” -- but that’s a policy issue, not the CRB’s legal issue. He agreed the new rates would hurt the 49 small commercial webcasters from the proceeding, vowing negotiations, but said 25% don’t comply with the law and many don’t even play non-mainstream music, their supposed raison d'etre. A similar percentage of the SaveNetRadio Coalition doesn’t pay SoundExchange either, Simson said. The statutory license has stifled creativity, distracting artists from going directly to webcasters and likely offering lower rates than the CRB set, Simson added, pointing to Soma.fm as a niche webcaster that could benefit from private deals.

HR-2060 by Reps. Inslee (D-Wash.) and Manzullo (R-Ill.) is a “landgrab” for large webcasters, who would get back $12 million from 2006 and a new rate 70% below those expiring, Simson said. He said the 7.5% satellite royalty cited by bill backers as appropriate for streaming “has no precedent” and was simply a transitional rate set for an industry that hadn’t even started. Small webcasters account for 2% of royalties paid, he added. Platform parity may not make sense because of differing economics and regulation, Simson said. An FCC license costs more than “someone turning on servers… or launching satellites” and different platforms make more per listener, with satellite leading. Subscription webcasters will have 60-80% profit margins under the new rates even charging “very modest monthly fees,” he said. “I wish we were a profitable business,” joked XM Exec. Vp Eric Logan.

The idea that webcasters were “out-litigated” at the CRB “isn’t exactly the reality… Nobody got beat up on” and everyone had expensive lawyers, said Patricia Polach, assoc. gen. counsel for the American Federation of Musicians. Webcasters played “hardball” at times, requiring some artists testifying to reveal their music-related income going back 7 years for discovery purposes, she said. Live365 CEO Mark Lam spoke from the audience, complaining that both sides at the CRB required too much discovery but blamed SoundExchange for demanding “boxes and boxes [of Live365 information] they probably never looked at.” He wasn’t happy with his Digital Media Assn. lawyers, Lam added.

The rate debate is “not purely a function of small versus large,” said Pandora Pres. Joe Kennedy, putting his firm at 3rd or 4th in royalty payments, having grown so quickly it never paid the small-webcaster rate. “There is no exaggeration -- we will not continue to exist” under the new rates. Simson noted Pandora’s intent to launch in the U.K., citing rates nearly identical to those the CRB mandated. There won’t be “any appreciable increase” in payments for noncommercial webcasters,, including 95% of NPR stations, Simson said, acknowledging that “a handful” of such stations with large music audiences will be in trouble. The 27 subscription services in the proceeding can “easily afford” the new rates, as can the 294 simulcasters; of the 106 commercial webcasters, “a few… may have some trouble” but SoundExchange will negotiate with them, he said.

Panelists challenged Simson’s claim that radio play has little promotional value. Nine in 10 terrestrial radio listeners are “passive,” not buying music after listening, Simson said: “We don’t sell 250 million CDs a week.” Internet radio audiences have skyrocketed but CD sales still are falling, as listeners simply want “ear candy… The consumption is now the listen.” Record labels would disagree on the promo/sales relation, Logan said. Certain markets, like country music, depend heavily on touring driven by radio play, making CD sales a misleading indicator, the Country Music Assn. board member said. Independent musician Mike Holden said his music has enjoyed a “huge increase” in iTunes downloads since last fall, when Pandora added his music, and though downloads are a small percentage of overall sales, “I know that it’s coming from Pandora.” If Pandora folded he would resort to “hustling” with hordes of webcasters to get his music played, Holden added.

Terrestrial radio’s exemption from royalties unites everyone, Polach said. Broadcasting was “entrenched” when the sound recording right was enacted in 1972, she said: “People think the RIAA is strong… but the NAB is really strong.” A separate problem is missing reciprocal rights for artists whose music is streamed abroad and who are denied royalties because the U.S. doesn’t send royalties abroad, she said. Simson said that costs U.S. artists “hundreds of millions” of dollar a year.