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Internet Radio Survival Update:
More than 14 Million Net Radio Listeners Turn Up the Volume In Congress
National Day of Silence a ‘Tremendous Success’
WASHINGTON D.C. – Organizers of yesterday’s national Day of Silence – observed by more than 14,000 webcasters – reported today that more than 14 million net radio listeners visited SaveNetRadio.org, and over 350,000 thousand phone calls were placed to Members of the House and Senate calling on Congress to enact legislation that would preserve the future of Internet radio during the day long protest.
The Day of Silence was initiated by the Radio and Internet Newsletter (RAIN) and sponsored by the SaveNetRadio coalition.
“The silence that greeted millions of Internet radio listeners yesterday certainly turned up the volume in Congress,” SaveNetRadio spokesperson, Jake Ward said. “Yesterday’s day of silence was a tremendous success but the clock continues to tick on the future of Internet radio, and with more than 14 million hits on the SaveNetRadio website and almost 400,000 thousand phone calls made to Congress yesterday alone in support of the Internet Radio Equality Act, it is time for Congress take action.”
To date more than 400,000 emails and letters have been sent to Capitol hill by supporters of Internet radio and an estimated half a million phone calls have been made to individual offices.
“SaveNetRadio would like to thank every listener for their contribution to saving Internet radio and for their patience while the music they love and enjoy was temporarily disrupted. The coalition also thanks every webcaster who participated in yesterday’s Day of Silence, many of whom made financial sacrifices to ensure their listeners were aware of the threat looming over the industry,” Ward continued.
The Internet Radio Equality Act would vacate the CRB’s decision and set a 2006-2010 royalty rate at the same level currently paid by satellite radio services (7.5% of revenue.) The bill would also change the royalty rate-setting standard used in royalty arbitrations, so that the standards applying to webcasters would align with the standard that applies to satellite radio royalty arbitrations. The bill also re-sets the royalty rules for noncommercial radio such as NPR stations that offer Internet radio music.
Webcasters' Plea Falls on Deaf Ears:
Internet radio broadcasters will need to fend for themselves in the face of efforts by the music industry to raise royalty fees, as Congress holds off on intervening
by Olga Kharif
Small Webcasters intent on keeping Internet radio stations from going out of business best not look to Congress for help. That's the message from a June 28 House of Representatives hearing aimed at resolving a dispute over efforts to increase the royalties paid by Web radio stations to musicians and record labels for spinning their songs.
At issue is a move by the recording industry and SoundExchange, the company that collects royalties on behalf of music labels, to increase the fees paid by Internet radio stations to play songs (see BusinessWeek.com, 3/7/07, "The Last Days of Internet Radio?"). Small Webcasters say the fee hike will put them out of business and were looking to Congress to intervene, as it did the last time royalties were headed higher. The increase kicks in July 15.
No can do, said House Small Business Committee Chairwoman Nydia Velazquez. The New York Democrat said she'd prefer Webcasters and the music industry come up with their own compromise. "I really don't think Congress would be the best type of vehicle to resolve this type of issue," she said after the testimony of seven witnesses, including independent record-label owners, musicians, and Webcasters. "July 15 is just around the corner, and I hope the two parties can come together and resolve this issue."
Nitty-Gritty Negotiation
Some legislators said they're genuinely puzzled about how to come up with a decision that would appease both parties. "I have not heard what the win-win is," said Representative Yvette Clarke (D-N.Y.) after hearing the witnesses' testimony.
The remarks may serve as a barometer of Washington's attitudes toward Internet radio at a critical juncture for the broadcasting industry. Bills relating to Web radio are making their way through committees in the House and the Senate, while the recording industry plans to impose new royalty fees on traditional radio, also referred to as terrestrial radio.
Meantime, representatives of Web radio, listened to by 57 million Americans each week, will redouble efforts to reach a compromise. "We might now be at the beginning of real negotiations with SoundExchange," says Ian Rogers, general manager of Web radio leader Yahoo! (YHOO) Music. Webcasters and SoundExchange had reached an impasse. SoundExchange offered a compromise in May allowing small broadcasters to enjoy the existing lower royalty rates, set by Congress in 2002, through 2010.
Webcasters rejected that proposal, saying the definition of a small broadcaster is so narrow that most Web radio businesses will soon outgrow it quickly and will be forced to pay regular rates. These regular royalty rates, set by the Copyright Royalty Board (CRB) in March, are triple what they are today. They will prevent even popular networks like Yahoo! Music from reaching profitability and drive smaller Webcasters out of business, according to broadcasters. SoundExchange believes the new rates are reasonable and fair.
Compromise or Disaster?
So, what alternatives might SoundExchange and Webcasters reach? In her closing questions, Velazquez seemed to suggest that the warring sides change the definition of a small Webcaster to allow larger companies to pay lower rates. Another possibility is creating a tiered royalty structure, suggests Dave Van Dyke, president of consultancy Bridge Ratings. Instead of differentiating only between small and large broadcasters, resulting in a steep rate increase for small stations that cross the line, the disputants could come up with different rates to be paid by the very small, midsize, and larger broadcasters, he says. Another option: broadcasters pay a share of revenue, as do satellite radio providers. Satellite radio companies Sirius (SIRI) and XM (XMSR) pay about 7.5% royalties.
That said, Webcasters and the music industry could yet leave crafting of the compromise to Congress or the courts. Webcasters are appealing the CRB decision and hope an appeals court judge will take the case before July 15, says David Oxenford, partner at law firm Davis Wright Tremaine , which represents Webcasters in the appeal. The appeals court, however, may not act on time—or in the Webcasters' favor.
In the House, 121 members have co-sponsored the so-called Internet Radio Equality Act, proposing charging Webcasters the same royalties as satellite radio broadcasters. Four sponsors of a similar bill going through the Senate include former Presidential hopeful John Kerry (D-Mass.). "Committee members are very concerned there's a train wreck coming," says Jon Potter, executive director of the Digital Media Assn., representing Webcasters. What they may not know is how to avert it.
New hope for webcasters?
SoundExchange, which collects digital broadcasting royalties for labels and performers, announced this morning what appears to be an important concession to webcasters specializing in customized playlists, such as Pandora and Yahoo's LAUNCHcast (download the press release here). The agency proposed to cap the administrative fees it collects at $2,500 per service. The move -- three days after hundreds of webcasters shut off their signals in a "day of silence" -- would eliminate one of the most perverse features of the new royalty regime announced in March by a panel of federal arbitrators, a provision that threatened to push even such powerhouse webcasters as Yahoo and RealNetworks out of the business.
Those webcasters face an insurmountable increase in royalties when the rates take effect July 15 (with the increase retroactive to Jan. 1, 2006). Not only did the copyright royalty judges call for a steady increase in the royalties owed per song (more than doubling the rates by 2010), but they also imposed a minimum fee of $500 per station. For companies that offer hundreds of channels -- a "nichecasting" approach that takes advantage of the Web's ability to personalize -- the new minimum amounts to a one-way ticket to bankruptcy. Pandora, Yahoo and RealNetworks alone would have to pay more than $1 billion a year just in minimum fees, their attorneys said in a court filing.
Many multi-channel webcasters face a total bill for minimum fees that exceeds their revenue from advertisers or subscribers. Capping those fees, however, would keep more webcasters in business, which means labels and artists would collect more royalties in the long run. In its press release, SoundExchange reiterated a point it's been making ever since the new rates were announced: under pressure from Congress, the agency is trying to fix a problem caused by the webcasters' failure to make a good case to the copyright royalty judges. Or, in the words of SoundExchange's general counsel, Michael Huppe:
“The idea that the per-channel minimum might have a disproportionate impact on certain Internet Radio stations was never presented to the Copyright Royalty Judges. Nonetheless, at the request of Congress, we are trying to work with the small subset of affected webcasters, and are offering this proposal in the hopes of addressing those concerns.”
That's a bit of revisionist history. The judges didn't invent the $500-per-channel figure -- the major labels proposed it. So there's plenty of blame to go around for this fiasco. Still, the good news for webcasters is that SoundExchange is now actively working on three of the major problems caused by the new royalty rates. In addition to the proposed cap of minimum fees, it also has offered deep discounts for non-commercial webcasters and a percentage-of-revenue alternative for small commercial online broadcasters. That's not to say that it's morning again in Webcasterville -- the steep increase in rates could still be ruinous to mid-sized webcasters and popular non-commercial stations -- but at least it's progress.
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