The SaveNetRadio coalition is a response to the royalty increase in the March 2007 Copyright Royalty Board (CRB) ruling. The coalition consists of artists, labels, listeners, and webcasters that believe another solution must be created in order to prevent internet radio stations from shutting down. The CRB decision will harm millions of music listeners, performers who depend on the internet radio to increase their audience, and webcasters who make a living from streaming music online.
SaveNetRadio exposes the unreal myths and harsh facts about the cost of webcasting. While the internet radio is the smallest medium within the radio business, it pays the most royalties. Broadcast radio and satellite radio are subject to small or no royalties at all. The predicted combined revenue for internet radio services is $73.6 million, but 58% of that revenue will be used for royalty payments. Internet radio is one of the most important sources for music listeners. About seven million Americans a days use internet radio. Although the popularity of internet radio has increased tremendously, it is still a small, growing industry. Most webcasters do not generate enough revenue to cover the royalties since they do not have enough sponsors or advertisements to sustain them.
Another myth concerning royalty rates is that artists and record companies were not being fairly compensated for their work prior to the CRB decision. The reality is that if royalties are too high, internet radio will go out of business, and then performers definitely will not be paid for their work. The high royalties will not allow small or large webcasters to survive, and even if large webcasters can afford the royalties, it will not promote competition and diversity in the internet radio services. While the increase in royalties may seem negligible, tripling the per-song royalty rate adds up to an enormous royalty payment. Besides the per-usage rate, webcasters are also subject to a minimum fee per station and have no option to opt for a revenue-based royalty system.
SaveNetRadio is an important topic in my paper. It demonstrates the outrage of the music community to the CRB decision. The myths and facts of the cost of webcasting clearly describe the toll that increased royalties will have on small and large webcasters. SaveNetRadio.org is an extremely useful and interesting source. I think it is an excellent way to bring music fans together to fight the unfairness in the royalty system for internet radio stations.
Tim Westergren, founder and chief strategy officer of Pandora, spoke on behalf of the Digital Media Association (DiMa) at the hearing on “The Future of Radio.” His testimony first introduces Pandora and the Music Genome Project. He emphasizes that Pandora is unbiased in the song selection for its listeners. Through a completely democratic process, listeners can vote “thumbs up” or “thumbs down” if they like the song, and that respective song will gain or lose more exposure. Pandora plays songs from a wide range of artists with about 70% of the sound recordings belonging to artists not affiliated to major record labels. It equally reviews any CD that is delivered to them and selects songs solely based on their musical composition.
Westergren’s statement focuses on the benefits of the internet radio technology. Internet radio offers more stations and diversity content than broadcast, satellite, and FM radio. Virtually any artist or song can be found on the internet. Westergren reports that in a study “Pandora listeners are three to five times more likely to have purchased music in the last 90 days than the average American.” He emphasizes that internet radio is the best way to promote artists and music.
On the issue of royalty rates, Westergren highlights that internet radio has the smallest of all radio revenues yet it pays the highest royalties. The increased rates are not economically sustainable, and unless a new resolution is made with SoundExchange, Pandora and other internet radio companies will immediately shut down. Pandora and DiMa have supported the SaveNetRadio campaign, which has urged support for the Internet Radio Equality Act. Westergren provides words from listeners and musicians who are extremely grateful to internet radio. In his own words, Westergren states, “It is my hope, indeed the reason I started this company, that we are at the beginning of the development of a musicians’ middle class, as radio services like Pandora allow musicians to find a fan base and maintain a steady career making music, which is a real alternative to the major-label system that makes you an enormous star or leaves you unemployed.”
Westergren’s statement is important for my paper, since my argument completely supports his ideas and beliefs. The internet radio is extremely beneficial to the public and I agree that it is the best way to promote an artist’s work. If the royalty rates are increased, this will put a halt to the promotion of cultural diversity. Although not all listeners end up purchasing CDs or songs, the word-of-mouth advertisement for performers is tremendous, this benefits them in the long run. Westergren’s ideas and beliefs are fair and justified. He is not completely against the payment of royalties, but he demands a fair standard to be used for the rate determination, which is what my paper will discuss.
Pandora has become one of the nation’s most popular internet radio stations. It has about one million listeners daily and 40,000 new customers a day. Pandora has made it to the top ten most popular applications for Apple’s iphone. Listeners can create their own stations according to their musical tastes. All of Pandora’s success, however, may soon reach an end with the increasing royalty rates.
Royalty fees are paid to a single agent SoundExchange, Inc. The organization represents performers and record companies, and it supports the higher rates on the basis that musicians deserve a larger fraction of internet radio profits. “Our artists and copyright owners deserve to be fairly compensated for the blood and sweat that forms the core product of these businesses,” said Mike Huppe, general counsel for SoundExchange. The organization also believes that internet radio has not done enough to profit from streaming music.
Some musicians defend Pandora and other internet radio stations on the other hand. Webcasters argue that internet radio offers a larger range of music than traditional radio and also promotes independent musicians. While traditional radio does not pay royalties and satellite radio pay 6-7% of their revenue, webcasters must pay per song and per listener. With the new royalty decision doubling the per performance rates, Pandora and other webcasters may go out of business. Tim Westergren, founder of Pandora, predicts that royalty fees will amount to $17 million this year, which is 70% of the projected revenue. “We’re funded by venture capital,” [Westergren] said, “They’re not going to chase a company whose business model has been broken. So if it doesn’t feel like it’s headed toward a solution, we’re done.”
This newspaper article is important for my paper because it portrays the trememdous effect the new royalties will have on Pandora. Westergren repeatedly states that the company will go out of business, and this is important for my paper. Performers will not be paid more for their work if there is no internet radio station that will be in business to pay them. In order to ensure a fair royalty rate, the company must not be threatened to close down. My paper defends another model for determining the royalties and argues against the latest copyright ruling on the royalty rates. This article is important because it not only demonstrates the copyright ruling from Pandora's point of view but also from SoundExchange's perspective.
The Webcaster Settlement Act of 2008 was passed in September by the House and Senate. The act became law when it was signed by the President in November 2008. The bill provides time for agreements and negotiations to be made concerning the royalty rates for webcasters. The act amends section 114(f)(5) of title 17 of the United States Code. It allows for settlements to be entered into an 11 year period starting on January 1, 2005. This would nullify the Copyright Royalty Board decision of 2007. The bill also modifies the settlement deadline between webcasters and the receiving agent of the royalties. The new deadline is February 15, 2009. Although this act has no immediate impact on the royalty ruling, it is a step closer to reaching a final decision. The act also allows settlements to go into effect more easily. If any group reaches a settlement with SoundExchange before the February deadline, they can submit it to the Copyright Royalty Board and it will become effective.
The Webcaster Settlement Act is an important part of the research for my paper. It shows the progress being made regarding the royalty decision. The fact that this bill was signed by the President is evidence that the royalty ruling is a significant issue for the public. It demonstrates that there is some debate and doubt regarding the fairness of the royalties to the webcasters. This supports my argument that the Copyright Royalty Board’s decision is questionable and that there is a possibility for better models for determining royalty rates.
Section 801 of the Copyright Act determines the appointments and functions of the Copyright Royalty Judges. Section 801b is most important and determines the function of the Copyright Royalty Judges. The 801b standard of the Copyright Act is the standard that the Internet Radio Equality Act proposes. It is used for determining rates for satellite radio and digital cable radio. The 801b standard takes into account the relative value of the copyright work to the public, and it also considers a fair return to both the copyright owner and user. The judges must determine and adjust royalties with the following objectives:
1) Maximize the availability of creative works to the public.
2) Set a rate that gives the copyright owner a fair return for his/her work and allows the user a fair income given the economic conditions
3) Reflect the relative contribution of the copyright owner and user with respect to creativity, technology, and the market.
4) Minimize any disruptive impact on the industries involved.
This source explains the standard for royalty rates that my paper will argue is a better model for both the copyright owners and users. The Copyright Royalty Judges implemented a willing buyer/willing seller standard, which Pandora and other webcasters believe is ineffective and unfair. The 801b standard was used before the new royalty board decision and has proven successful until now. This source is concise, but it contains essential information necessary for my paper to argue that the royalty ruling was based on an unfair and unequal standard.
Matt Nathanson is a songwriter, performer, and recording artist. He is also the most played artist on Pandora.com. In his testimony at the hearing on “Music and Radio in the 21st Century: Assuring Fair Rates and Rules across Platforms,” Nathanson emphasizes the importance of internet music and internet radio. Before iTunes, Amazon, and other internet music sources were available, only a handful of artists succeeded. Nowadays, with internet radio stations, such as Pandora and Yahoo!, people are exposed to a variety of music and different genres. Nathanson relates how his own success was contributed by his exposure on internet radio. Internet radio has given independent artists and labels an opportunity to be heard by the public. Customers buy from a much broader group of artists thanks to internet music.
Nathanson also discusses the financial concerns behind the royalty debate. “When a song I write is played on broadcast, satellite or Internet radio, they pay me an amount which is reasonably related to their revenue. Higher revenue stations pay a bit more; smaller stations and services pay a bit less. But when a song that I perform is played, broadcast radio pays me nothing; satellite radio pays me a reasonable royalty that when combined with other artist payments effectively equals 6% of its revenue; but Internet radio services pay me and other artists a per-song fee that is unrelated to the revenue of the service, which when combined with other artist payments effectively equals 30 or 40 or 70 percent of their revenue or more.” Nathanson argues that it is wrong for the smallest industry to be paying the highest royalty rates. He reports that internet radio is the most important way for independent artists to be heard. He concludes his testimony asking that the royalties changes be made fair for internet radio and demanding that the board keep in mind the future generation of artists.
This source provides another perspective of the royalty rate issue for my paper. Nathanson's musical career and success demonstrate the tremendous benefit that internet radio has for the public. His testimony is important for my paper because it is supporting evidence that the copyright ruling is unfair. Nathanson, a musician who receives royalty payments, completely supports Pandora's fight against the increasing royalty rates. His testimony makes a strong case for my paper since he opposes SoundExchange's argument that performers need to be paid more on the basis of fairness.
John Simson defended the new royalty rulings made by the Copyright Royalty Board in his testimony on "Music and Radio in the 21st Century: Assuring Fair Rates and Rules Across Platforms.” Simson is a former performer, artist manager, music attorney, and presently an executive director of SoundExchange. SoundExchange is the single receiving agent of royalties paid by webcasters. He supports the increasing rates on the basic principle that "the people who create music must be paid." He defends SoundExchange's concern over the business of webcasters but argues that revenues are predicted to increase over the future. SoundExchange currently represents about 31,000 artists and 3,500 labels. Simson emphasizes the hard work put into music creation, and he scorns at those who believe music should be free or those who devalue it. Simson argues that webcasters are contradicting the decisions by the Copyright Royalty Board solely based on their prospective financial gains. He strongly believes that the new rates are fair and that no further negotiations are required.
Simson’s testimony is important to my paper because it explains the royalty decision from the opposing point of view. Simson directly works for the company receiving the royalties, and so he represents SoundExchange’s opinions. Although Simson argues that fair rates must be ensured for the sake of the musicians, SoundExchange is also benefitting from the increasing rates. This testimony is important to my paper in order to prove that SoundExchange is biased in its strong royalty support.
On March 2, 2007, the Copyright Royalty Board (CRB) released its decision for 2006-2010 royalties for the use of sound recordings by internet radio stations and webcasters that stream music online. Musical works and sound recordings are the two categories of work eligible for copyright protection. The “Services,” as the CRB refers to them, are the internet webcasters or broadcast radio simulcasters that stream music. They are divided into commercial webcasters and noncommercial webcasters. In order to qualify as noncommercial, the webcaster must be a tax exempt organization under Section 501 of the Internal Revenue Code or a governmental unit.
The CRB determined the new royalty rates based on the willing buyer and willing seller standard. This standard requires that the willing buyers, which are the Services, agree upon a rate with the willing sellers in the marketplace, which is marketplace in which no statutory licenses exist. The two parties, however, disagree on the degree of competition in the marketplace. The CRB believes this standard is efficient since it encompasses the economic and competitive evidence presented by the parties and also takes into consideration the promotional or substitional effects of the use.
Another decision made by the CRB was to determine a single receiving agent for the royalty fees. SoundExchange, Inc. is a non-profit performing rights organization that represents record labels and artists who have specifically authorized SoundExchange to collect royalties on their behalf. It is controlled by an 18-member Board of Directors compromised of equal numbers of representatives of copyright owners and performers. The CRB eventually chose SoundExchange, Inc. over Royalty Logic as the receiving agent.
The CRB judges agreed on different royalty systems for commercial and noncommercial webcasters. However, both types of webcasters are subject to a $500 minimum fee rate per channel or station. The purpose of this minimum fee, according to SoundExchange, is to “protect against a situation in which a licensee’s performances are such that it costs the license administrator more to administer the license than it would receive in royalties.” Besides the minimum fee, commercial webcasters must pay a per performance usage rate. Webcasters will have to pay $.0008 per performance in 2006, $.0011 per performance in 2007, $.0014 per performance in 2008, $.0018 per performance in 2009, and $.0019 per performance in 2010. Noncommercial webcasters have a specified cap of 159,140 Aggregate Tuning Hours (ATH), where they are exempt from the performance rate. ATH means the total hours of music streaming; for example, an hour of streaming to ten listeners would equal 10.
This source is extremely important to my paper. This is the ruling that sparked all the conflict and debate between the Copyright Royalty Judges and the internet radio companies. This source demonstrates the point of view of the copyright judges, which is crucial to explaining why the new royalty rates were chosen. It also explains the new standard for determining the royalties, which is the main source of conflict for the new rates. My thesis opposes the new royalty rates and standard, and so this source is the copyright ruling I will prove is unfair and unjustified in my paper.
On April 25, 2007, the House of Representatives presented the Internet Radio Equality Act with the purpose of nullifying the March 2, 2007, Copyright Royalty Board’s ruling on webcasting and royalty rates. The act proposed a new standard of determining royalties according to Section 801b of the Copyright Act. It also established a transition rule for commercial webcasters for 2006-2010, which offers a choice between paying $0.33 per hour of sound recording to a single listener or 7.5% of the annual revenues received by digital transmission of sound recordings. For noncommercial webcasters, the act proposed a payment of 150% of the royalty fee paid in 2004. The act also proposed a study to determine the competitiveness of the internet radio marketplace. Research is also being conducted to study the effects of the proposed rates on local programming, the diversity of programming, and the entry barriers into the internet radio market.
The Internet Radio Equality Act is an important source for my paper. It demonstrates the efforts Pandora and other internet radio companies are making to fight the Copyright Royalty Board’s last ruling. It also argues that the standards for determining royalty rates should be the same as the ones proposed in the Copyright Act. This bill is important to argue the different sides of the royalty issue in my paper, since it offers the perspective of the internet radio companies. It also allows me to defend the point that there is a better model to determine the rates.