BY KURT HANSON AND PAUL MALONEY
Speaking yesterday on a Boston Bar Association/Muziklab panel at the Suffolk Law School called "Webcasting: A Tangled Issue," SoundExchange executive director John Simson expressed a hope that a compromise royalty rate option for smaller webcasters may be announced in the next week or two.

Simson revealed that a group of about ten webcasters met with a team of record industry executives in what he called a "marathon" negotiating session last Friday in an effort to work out the key issues.

We had previously reported that earlier meetings (see RAIN story from 9/6/02 here on those negotiations and our analysis here) had resulted in little progress towards a compromise, according to the webcasters involved.

Simson (pictured above on the right, speaking with Muziklab president and founder Jason DeGeorge) said that out of "about ten" issues of contention between the two sides, all but two were settled.

Webcasters who participated in the negotiations, however, have varied feelings about the progress of the talks. Based on interviews with RAIN today, some webcasters apparently agree with Simson that a deal is coming together, while others believing that the labels' position is still not far from the "sweet spot" negotiating position they were asking for two years ago.

"They have not said 'no' yet"
"There is an counteroffer on the table from our side that they have not said 'no' to yet," Beethoven.com executive Kevin Shively (left) told RAIN.

He noted, "I think it's important to realize that the only kind of deal the RIAA is even allowed to negotiate is a statutory deal," Shively noted. "Because of antitrust concerns, they can't make deals with individual webcasters. They can help coordinate the negotiation process, but they can't sign it."

(As we understand it, the RIAA can only represent its member labels -- the "Big 5" and the smaller labels in its group. The goal of these negotiations is to construct a deal that could cover all labels, including non-RIAA members, if approved by the Copyright Office.)

"We're talking about going to the Copyright Office together with a royalty rate option that we both agree we'd like included as an option within the statutory license. And the general belief is that if both sides wanted it, they'd approve it pretty quickly."

Just two points left,
but they're the big ones
While President of IO Media Partners (and Radioio founder) Mike Roe (below) came away from the meetings with generally the same conclusions as Shively, he doesn't share Simson's or Shively's optimism.

Roe calls Simson's suggestion during yesterday's webcast that the record industry and small webcasters are very near an agreement a "mis-characterization" of the real situation.

It's "absurd," says Roe. "The 'two points out of ten' that we're still working on are by far the biggest two points — the percentage-of-revenue and the small business definition. And we're nowhere close."

The first point to which he's referring is the discussion of exactly what percentage of a webcaster's annual revenue should be paid to the owners of sound recording copyrights for the use of those recordings in webcasting. The recording industry, before the issue went before government-appointed arbitrators, was offering webcasters a 15% of revenue deal. While he can't be specific on where the discussions are now, Roe told RAIN that the RIAA's latest offer "isn't near where we need it to be."

The second point is the revenue "threshold" under which webcasters would qualify for the special royalty rate to be allotted to "small businesses."

"I'm insisting on six million," Roe told RAIN, meaning that webcasters with less than $6 million in annual revenue should be eligible for the percentage-of-revenues royalty rate, while higher-revenue firms would pay the Librarian's rate of $0.0007 per performance.

Indeed, the Small Business Administration defines a small business as one with annual revenues below $6 million. And again, while playing it close to the cuff on the RIAA's offer, Roe said of the negotiations on this point, "We're not close."

"They're more interested in setting precedent (for the next rate-setting arbitration) than they are in making a realistic deal with us. They've even said that," explains Roe.

Roe is discouraged by what he sees as less-than-good faith in the record industry's negotiation.

"They want a deal that will exclude Radio Free Virgin and Live365, even though they fit into the SBA 'small business' definition. That six-million figure is the only one with basis in law, any other number is arbitrary."

RAIN had not been able to reach Simson as of press time for additional comments.

...

... Although a compromise deal for small commercial webcasters is by no means done, it does appear that the future of Internet radio may in fact be slowly coming together. First, you have the large webcasters (e.g., Radio@AOL and MSN Music), who are generally offering Internet radio as a part of a larger package of services and who have the ability to bundle spot sales into large cross-platform advertising packages. They may be able to live with the Librarian of Congress's $.0007/performance royalty rate for the 1998-2002 time period. Second, you have the broadcasters who want to stream their radio stations on the Web may also find that the fixed-rate royalty (which works out to about a penny per listener-hour). They may find that to be a cost they can recover from local ad sales on their streams. (See Monday's story on Clear Channel/Orlando here.) Meanwhile, however, they should continue to advance their argument in court that Congress did not intend for this particular royalty to apply to the simultaneous Internet streaming of broadcast stations at all. Thrid, you have Corporation for Public Broadcasting- member stations, which have their own deal with the RIAA that should allow them to stay on the air. (Other public and noncommercial radio stations, on the other hand, are in trouble, even at the Librarian of Congress's reduced $.0002/performance rate, unless the RIAA extends better terms to them.) And, finally, you have the smaller commercial webcasters. They will be able to survive if there's a percentage-of-revenues royalty rate alternative available to them (assuming that it's at a low enough percentage that they can have a viable business). In other words, if this deal comes together, we're very close to having an industry that can move forward! Last time, I made a math error It's clearly in record companies' interests to keep this set of small commercial webcasters alive, as they are the heart of the diversity of Internet radio, giving valuable exposure to dozens of genres of music and thousands of artists that don't get signficant AM or FM airplay -- e.g., folk, blues, electronica, pure jazz, Americana, Broadway, pop standards, bluegrass, Hawaiian, trance, etc. In the 9/9/02 issue of RAIN (again, here), I argued that the record industry should be embracing small webcasters, not trying to drive them out of business! And as part of that argument, I noted that this royalty debate was over what is from the labels' perspective a tiny amount of money. Here's what I wrote: Let's do the math: Perhaps there are 300 serious, viable small commercial webcasters, currently, given that the advertising economy hasn't recovered from 9/11 yet, with average revenues of, say, $20,000 each. (Plus there are another few thousand small commercial webcasters who are music fans with almost insignificant revenues.) At, a 10% royalty rate, plus or minus 5%, with 50% of that going to labels, and generously assuming that's just split among the five majors, we're talking about a total take of $300,000 per label per year, plus or minus $150,000. In other words, the potential upside for labels for being tough negotiators...and possibly decimating the Internet radio industry...is probably less than the cost of the attorneys' fees involved! The potential upside for them is less than the cost of working one single at CHR! A couple of alert RAIN readers pointed out that I made a mistake in the math above. I should have said "a total take of about $300,000 to be split among the five labels, or about $60,000 per label per year, plus or minus $30,000." That's the upside for EMI or for Sony Music! That's what they're fighting over! If they insist upon, say, a 5% higher royalty rate than webcasters can afford, and they kill this vibrant segment of the industry, they're doing it in an effort to try to collect an extra $30,000 per label -- i.e., about what they spend on the catering and hairdresser costs for one music video! And in that attempt to wring that last $30,000 per year out of the industry, they're alienating music fans, doing massive PR damage to themselves, and destroying what could be, if the two sides could only work together, a incredibly-wonderful promotional vehicle for niche genres of music! — KH ...

[an error occurred while processing this directive]

From Swathmore College's The Phoenix: "A new addition to the WSRN Web site invites visitors to 'listen…online.' No longer confined to the FM dial, WSRN is now 'webcasting,' making its programming available over the Internet. But not without difficulties...

"The station began webcasting several years ago, then yanked the Web broadcast because of legal concerns...

"On June 20, 2002, the [Copyright Office] finally set fees for webcasting. The fees themselves are lower than anticipated and work out to a $500 annual cost for WSRN...far from the $10,000 annual payment some speculated...

"The copyright office’s decision has made it possible for WSRN to resume its webcast, but regulations still make the process both expensive and dangerous...

"The worst part, in ’s view, is not the money but the 'ludicrous restrictions placed on programming...'

"For stations like WSRN, the licensing standards are a nightmarish collection of complications. These standards preclude everything from hosting shows based around single artists to rebroadcasting programs, meaning the station could lose its license over a single DJ’s mistake.

"More worrisome than the regulations already made [WSRN technical director Branen Salmon says], are the regulations yet to come. Among the licensing requirements for webcasts listed by the RIAA is a demand that stations make a quarterly report detailing various kinds of information concerning every song played...The details have yet to be worked out...[as some] considerations would require stations to report the international standard recording code of every track played, which would require WSRN to invest in new CD players capable of reading the codes..."

Read this entire column from Swathmore's Phoenix here.