BY KURT HANSON
If webcasting is killed because artists want their royalty checks ("Artists are suffering! They deserve their royalties!"), it's going to be sad example of a combination of greed, shortsightedness, and bad math hurting everyone involved.

Apparently, the biggest potential block to HR 5469 — the bill that would have created a six-month delay and cooling off period — is the AFL-CIO objecting on behalf of recording artists.

And the L.A. Times reported yesterday, "Artists' representatives say that even though they appreciate the exposure Webcasters give them at a time of shrinking playlists on over-the-air stations, they are resisting cuts in royalties because these are direct payments that can't be confiscated by the labels."

But what the artists' representatives don't realize is that the checks involved are minuscule -- and maybe even turn out to be nonexistent!

As described here in RAIN last week, our estimate of the total potential revenue pool to be distributed to artists for the four-year retroactive period is $3.5 million dollars. Divided among all of the recording artists that get Internet radio airplay in all its dozens of genres of music, that works out to checks of about $2,000 for a platinum-selling artist and about $200 for the typical SoundExchange member artist.

But wait! The six-month delay they're objecting to would have little effect on the distribution of such royalty checks, because SoundExchange has no idea yet who to distribute the money to! The Copyright Office has yet to even announce the reporting requirements that webcasters will need to follow to tell SoundExchange which songs they've played. With or without a six-month delay, it will necessarily be months before the requirements are set, the reports are delivered, the tabulations are made, and the checks are cut.

But wait, there's even more! It is probable that the expenses of setting up and running SoundExchange (and possibly even half of all the music industry's legal costs in the entire CARP process) may be deducted from royalty pool. That seems actually logical and appropriate.

It's rumored that those costs may add up to as much as $18 million. For our purposes, let's say it's half of that, or $9 million. Say that half of that is assumed to be for the benefits of labels, and half for the benefit of artists. Subtract $4.5 million from the artists' royalty pool, and there is no money to distribute to artists at all!

In other words, the AFL-CIO (of which AFTRA, representing background musicians, is a member) is fighting to prevent a six-month delay in issuing checks when it will probably take six months before they could be issued anyway, and when the typical check might be $200 -- or more likely might be zero!

And for this they would decimate the best promotional venue that developing artists and niche musical genres have ever had in the history of music.

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From the San Jose Mercury News: "A measure designed to preserve the voice of small, independent Internet radio stations, while providing more flexible royalty terms for established Webcasters, is poised to be introduced in Congress.

"The recording industry, broadcasters and technologists have spent a week of intense negotiations seeking to address shortcomings of the widely criticized Webcasting royalty rate.

"In its current form, the tentative deal would allow small Internet radio stations, with gross revenue less than $1.5 million over the last four years, to pay music royalty fees calculated as a percentage of revenue. The rate would increase from 8 percent to 12 percent by 2006, sources say.

"Bigger Internet radio stations, such as Yahoo's Launch service or AOL's Spinner -- would pay a fixed rate of $11.20 for every 1,000 people listening in an hour. It would increase annually with inflation...

"Some mid-sized Webcasters, including Foster City's Live365 and Beethoven.com, criticize the compromise, saying they're too big to qualify for the more favorable percentage-of-revenue option -- but not yet rich enough to afford the fixed royalty rate.

"The compromise is little different from the current rate, said John O. Jeffrey (above), executive vice president of Live365.com..."

Read Dawn Chmielewski's entire article from the San Jose Mercury News online here.




From the LA Times: "Under pressure from an influential lawmaker, record labels and Internet broadcasters moved closer Tuesday to a compromise on royalties that could help small online radio stations stay in business.

"The record labels' proposals, however, struck some Webcasters as presenting a painful choice: They could stay small and qualify for reduced royalties, or grow and be hit with fees that only the largest companies could afford to pay...

"One proposed deal would let small Webcasters pay labels and artists a sliding percentage of their operating expenses or gross Web site revenue, whichever is greater. The record labels and large Webcasters, meanwhile, are discussing a reduced per-song rate over a longer term to avoid the expense of the current rate-setting process of biennial arbitrations.

"The large Webcasters also are eager to prevent the terms of the small Webcasters' deal, which they view as a sign of desperation, from setting a precedent that could be applied to them. The Recording Industry Assn. of America and artists' representatives, on the other hand, are determined not to subsidize the growth of Webcasting -- particularly not when the beneficiary is as big as Yahoo Inc., AOL Time Warner Inc. or RealNetworks Inc."

Read Jon Healey's article in the LA Times here.

...

... With these being private negotiations, the reader has to take the emerging details of proposed deals with a grain of salt. It is interesting to be hearing something however. Live365 and Beethoven.com have good reason to be wary of the "$1.5 million" threshold (from the Mercury News piece). That's over four years (or $375,000 per year), and it's gross revenue. There's a lot of space there between the "cottage-industry" webcasters and the ISP/portals, but it doesn't seem like this deal would work for a business there. And with no details on the "sliding percentage" element mentioned in the second article, we can't tell how that would affect these mid-sized webcasters (is that the 8%-12% of gross revenue deal?). The "$11.20" for the big companies is simply the Librarian's determination ($0.0007 per performance) for a 16-song hour. An annual "rate of inflation" increase would presumably alleviate the need for further CARPs, but isn't a "reduced" rate (as alluded to in the Times piece). Finally, if the two categories of webcasters were to get separate deals (one based on revenue, one a per song/per listener deal), how the smaller webcaster deal would "set a precedent" for a less lucrative deal for the bigger companies. -- PM ...

The following is the statement released by Rep. Jay Inslee (D-WI, pictured), author of the Internet Radio Fairness Act, following Judiciary Committee Chairman James Sensenbrenner's (R-WI) decision to pull his HR 5469 bill from Tuesday's voting schedule.

"The October 20th royalty payment deadline is fast approaching, and I urge all parties involved in current negotiations to find a compromise that is fair and equitable. I commend Chairman Sensenbrenner for recognizing the urgent need to address this issue, and his work to encourage a negotiated agreement that Congress can act on.

"The ultimate goal of these necessary changes must be to uphold consumer access to this extraordinarily diverse array of music genres and ensure copyright owners are paid for their work."