Webcaster Settlement Act: Can it Really Save Internet Radio?

by: Adam Denhoff, Associate Editor, MTTLR

Image this is podcasting by Thomas Kamann. Used under a Creative Commons BY 2.0 license.

Internet radio broadcasters were given renewed hope of long-term stability when President Bush signed the Webcaster Settlement Act in October. The Act allows webcasters and record labels to continue negotiating for a reduced performance royalty rate while Congress is in recess, as it extends the deadline for a new deal to February 15, 2009. The issue stems from a March, 2007 decision by the Copyright Royalty Board (CRB), which would force webcasters to pay for each song streamed to each user at a retroactive rate as follows:

2006: $0.0008 per song, per listener
2007: $.0011
2008: $.0014
2009: $.0018
2010: $.0019

SoundExchange, the organization that represents artists and record labels, favors higher performance royalties because it believes that musicians deserve their fair share of Internet radio profits. The Digital Media Association (DiMA), a trade organization that represents a number of prominent webcasters including AOL Radio and Yahoo! Music, believes that the decision of the Copyright Royalty Board would bring about the end of Internet radio by forcing webcasters to pay outrageously high performance royalties at rates that they simply could not afford.

The Radio and Internet Newsletter (RAIN) calculates that, assuming the average Internet broadcasting station plays 16 songs per hour, a webcaster would have a royalty obligation of 1.28 cents per listener hour in 2006 (which would skyrocket almost three-fold by 2010). These royalties would only cover use of the sound recording, and webcasters also have to pay an additional fee to holders of copyrights in the composition. Using the CRB’s proposed royalty structure, it would be nearly impossible for an Internet radio station to remain profitable, and most, if not all webcasters would be forced out of business. Tim Westergren, the head of Pandora (one of the nation’s most popular Web radio services), believes that its royalty fees for this year could represent 70% of its projected $25 million dollar revenue. According to David Oxendide, a lawyer representing many smaller webcasters, CRB’s royalty structure would be a fatal blow to small and medium sized stations whose royalties would be between 100% and 300% of annual revenues.

Traditional radio broadcasters, like those represented by the National Association of Broadcasters (NAB), have seen web-based radio as a serious threat to their dominance. They lobbied against the Webcaster Settlement Act. However, they retracted their aggressive opposition to the Act when the negotiating deadline was extended to February 15; the extension will allow the NAB to negotiate its own performance royalty structure with SoundExchange. Today, terrestrial radio broadcasters pay licensing fees only, but SoundExchange is working to change that.

What does all this mean for Internet radio? Well, even SoundExchange acknowledges that the royalties in CRB’s model might be unworkably high. Nonetheless, SoundExchange officials complain that Internet radio stations have done too little to turn a profit from streaming music on the web. Webcasters counter by arguing that advertisers have yet to embrace Internet radio which makes it nearly impossible to get investment funding.

Although the music is industry is in shambles and record labels are desperate for new sources of revenue (i.e. performance royalties from online radio stations), perhaps biting the hand that feeds is not the right approach. A thriving source of online music is essential for the survival of the music industry. Surely record companies would prefer that new music be spread via web-based radio rather than on illegal file sharing networks? Introducing performance royalties into both the digital and terrestrial radio schemes makes sense; why should radio stations be required to compensate the songwriter, but not the performer or record label for use of copyrighted material? However, the Recording Industry Association of America, SoundExchange, and DiMA should negotiate a performance royalty rate that benefits all parties by ensuring that Internet radio lives on. The impossible-to-interpret “willing buyer, willing seller” model utilized by the CRB is not a transparent approach. The Webcaster Settlement Act, which allows the parties to negotiate further, is a step in the right direction.

Free Online Music - That's Legal

by: Bill Andrichik, MTTLR Associate Editor

The next round of the ongoing legal battle between the music industry and online music providers is here. This time the new MySpace Music (launched September 25, 2008) has taken several key steps to avoid the legal issues that plagued peer-to-peer filesharing services like Napster, Aimster, Grokster and others. The new site allows users to listen to the music of their choice, at no monetary cost, funding the mechanical royalties required for streaming audio through advertising directly to users. It limits personal use of the songs, only allowing music to be played if a user is connected to the MySpace site. If a user wants to use a song independently of the site, as on a personal mp3 player, he or she can link to the Amazon mp3 site and purchase it.

Though it is no more or less “legal” than the popular online music source iTunes, MySpace music does get one step closer to giving users what they have been missing since the legal collapse of Napster, Kazaa, and the like. “The goal is to make it as easy and compelling as stealing,” says one site representative Steve Pearman. Though the site is clear about its objectives on that front, the timing of the release is also advantageous for them. It coincides with rival Facebook’s redesign that has left many users disgruntled. A potential wave of users looking for a new social networking site, coupled with a number of twenty-somethings feeling nostalgic about getting free music without worrying about legal troubles might just make MySpace Music a serious competitor.

The biggest step that MySpace has taken to prevent the legal actions faced by past online music providers is its cooperation with the music industry and individual artists. MySpace has long been a forum for new and established artists to advertise and release music, but it went one step further before launching the new site by partnering with the “big four” of the music industry (Universal Music Group, Sony BMG Music, Warner Music Group, and EMI Music) as well as indie aggregator the Orchard. Partnering with the major record labels before launch ensures that all use of music is legal and approved by the artists/record labels. MySpace also avoids legal risk by paying the necessary royalties each time a song is played by a user.

Even with these initial precautions, MySpace may not entirely avoid legal risk. It is very easy to imagine certain users of the site overriding the safeguards and somehow using the site to download free versions of songs onto their computers without paying the fee to Amazon. The site’s biggest defense against liability in that instance lies with their partnership with the music industry and the fact that they would likely be a victim rather than an enabler in that instance. Another potential source of strife is the lack of partnership with most indie labels. It remains to be seen whether the site will be able to eventually add these labels or have to face the backlash from artists feeling they have been left out of the deal.

Observations

Though the site is only a few days old and MySpace promises to constantly change it to keep up with user input and demands, below are some observations from my first experience with the site:

Pros
+ The music service is very user-friendly (even for someone like myself who did not previously have a MySpace profile).
+ The site integrates the benefits from its previous music siteby allowing users to add songs to their playlist via a database search, sharing with other friends on MySpace or through the artists’ profiles themselves which also offer music videos, blogs, and tour updates as you listen to the music.
+ MySpace still allows established or up-and-coming artists the freedom to promote themselves and their music in they way they want to.

Cons
- The advertising causes a slight delay and the music is occasionally interrupted when adding new songs to the play list.
- The initial lack of indie labels leaves some users wanting more variety.
- The search feature returns songs from all users on the site (not just professional artists) so it is a partial return to the days of Napster and Kazaa where it is sometimes hard to find a non-remixed version of a song or one that has not been edited for the radio.