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. -- Greg Piper

Future of Music Coalition Notebook…

Rep. Doyle (D-Pa.) stopped short of endorsing the Internet Radio Equality Act (HR-2060) at a Wed. Future of Music Coalition event, but said he fears new webcasting rates by the Copyright Royalty Board “went too far.” Musicians in his district worry about the new rates’ effect on their craft, and Doyle believes “in the long run [too-high rates] would hurt most musicians,” he said. There must be a way to pay musicians for streaming music “without killing the goose that lays the gold records,” he said. There is “no way to get government out of the music and telecom industries even if we wanted to,” Doyle said, proposing a broad legislative agenda addressing them. Indie musicians’ success through online sales and webcasting -- where indie artists compose 40% of played music -- doesn’t argue against govt. help, Doyle said: “There’s limitations as to how far you can get going that route.” Indie artists get exposure via ads and TV shows like Grey’s Anatomy, but mainstream radio, only 10% independent, neglects them, he said. The Telecom Act prodded consolidation Doyle finds “disturbing on a number of levels,” making it more likely that a Denver-based radio company won’t provide local news at a Pittsburgh affiliate, he said. “New and different music” is being stifled, he said. Of the proposed XM-Sirius merger, “if both are at full capacity right now, what artists and what music is going to be cut to make room for Howard Stern at XM?” he said. Community groups and schools want to create low-power FM stations but the McCain-Cantwell bill hasn’t seen House action, he said, endorsing small groups’ right to run low-power digital stations if big broadcasters can do so without interference issues. College students and researchers may not get venture capital without net neutrality rules, which is a free-speech issue, Doyle said. FCC language on net neutrality in the AT&T-BellSouth merger sounds fine, and though neutrality advocates are “on the side of the angels… the devil is in the details,” which he'll keep an eye on to protect consumers, Doyle said. The U.S. should consider adopting a Canada-style agency to promote music and make it easier for DJs and small musicians to “take time off day jobs” to build audiences, Doyle said. The Canadian agency has created a “vibrant cultural renaissance in Montreal,” he said: “I want to explore such concepts” stateside. -- GP ----

Patents and trademarks are different from copyrights for piracy purposes, CEA Pres. Gary Shapiro said at the event. He saluted deceased MPAA chief Jack Valenti, who learned from the VHS fight and welcomed the DVD format, which Valenti “hashed out” with him. Shapiro voiced hope that the RIAA would mirror the MPAA’s change of heart and stop suing suspected music infringers, agreeing “we shouldn’t have been so broad in our opposition.” He added: “Being entitled to sue doesn’t mean you should.” Asked whether CEA members aggressively enforce their IP, Shapiro said they don’t sue over every potential infringement: “You don’t want people upset with you, or it’s trivial, or whatever.” Music creators don’t lose their actual product if people download illegally: “Yes, maybe they lost one sale.” But such downloading could stimulate more sales, if people “have any sense of ethics,” Shapiro said, citing his own son, who used to illegally download “a ton” but bought a proportionate amount of music as a result of hearing new music. Shapiro said he believes in right and wrong but “give people credit. They have a sense of ethics” that shouldn’t be legislated.