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Wednesday, March 21, 2007

Sound Exchange & The Copyright Royalty Board Are Full of Shit Extremely Complicated

posted by on March 21 at 15:00 PM

I just got this press release in my inbox:

SOUNDEXCHANGE CALLS ON WEBCASTERS TO RECOGNIZE VALUE OF MUSIC PERFORMERS TO WEB-BUSINESS

SUGGESTS WEBCASTERS NOT TELLING WHOLE STORY ABOUT ROYALTY PROCESS

WASHINGTON, DC—-SoundExchange today called on internet radio and broadcast radio simulcasters to publicly acknowledge the value of musical performers to the success of their businesses, and to acknowledge the recent royalty setting process for such work was fair to all involved.

“The music created by artists is the main reason why people listen to internet radio, and those artists should be fairly compensated for the value they bring to each webcaster’s business,” said John Simson, Executive Director of SoundExchange. “Yet, the webcasters refuse to acknowledge this common sense fact. Webcasters have a number of opportunities to maximize revenue with a captive audience attracted by music created by artists through banner ads, pop-ups, video pre-rolls, audio commercials and other avenues of revenue generation. While we want internet radio to succeed, it is only fair that artists be compensated for the value of their work, which forms the basis of their business.”

The decision by the Copyright Royalty Board (CRB) on March 2, 2007 established performance royalty rates webcasters will pay artists and record labels based upon the fair market value of their work. This decision was a balanced, well-reasoned opinion that considered all sides of this issue. (A summary of the decision is attached.) Unfortunately, some in the webcasting industry have been engaged in a campaign of misinformation about the process, the decision itself and the impact of the decision on the participants.

“Recent claims by a few webcasters that the process was unfair simply reveal that their complaints are not really about process, but rather about results,” said John Simson, Executive Director of SoundExchange. “Webcasters like AOL, Clear Channel, and others want to impose low rates on artists, rather than accept fair market rates as the law requires. They may disagree with the ruling, but they should be forthcoming about the integrity of the process.”

The CRB reviewed written and oral testimony from almost 50 witnesses during 48 days of hearings that totaled over 13,000 pages of transcripts. The webcasters cross-examined all of SoundExchange’s witnesses and had access to hundreds of thousands of pages of documents. The webcasters and SoundExchange also submitted over a thousand pages of written findings, which the CRB reviewed before issuing its 115-page decision.

What this statement fails to address is that the new internet royalty rates are so high as to price streaming stations out of existence. Indeed, if these rates were applied to satellite and broadcast stations, they might be bankrupted. Idolator has done a great job covering this. The FAQ @ savethestreams explains the basic math. This blog post from Pandora has some interesting discussion in the comments, including some proposed letters of protest. The Wall Street Journal gets to the root of the problem:

(Performance royalties and composer royalties are separate — the former are paid to artists and record labels, while the latter are paid to songwriters and music publishers.)

A brief recap: The Digital Millennium Copyright Act of 1998, building on 1995’s Digital Performance Rights in Sounds Recordings Act, said Net-radio firms had to pay performance royalties on songs played in addition to composer royalties on those songs. Terrestrial radio stations pay composer royalties, but they don’t pay performance royalties, under the long-established rationale that record labels benefit from the promotional value of songs played on the radio.

So if a Clear Channel radio station plays that new Fergie song over the air, it doesn’t pay a performance royalty — but if it streams Fergie over the Net (or satellite radio), it does. Make sense to you?

The bottom line here isn’t that Sound Exchange, a spin-off organization of the RIAA, and the Copyright Royalty Board are looking to get artists paid, but that they’re seeking to eliminate the laissez-faire entrepreneurial wonderland of the internet and replace it with the kind of consolidation and regulation that they (or their clients) are comfortable with/profiting from. If getting artist paid was all they cared about, they would institute royalty rates commensurate with those of regular broadcast or satellite radio and let fair competition ensue. The Big Four record companies need a strangled flow of media to ensure that you purchase their rapidly devaluating product, and internet radio stations threaten their grip.

Update: Meinert points out in his post, that the real bad guy here is, perhaps unsurprisingly, Clear Channel and their ilk:

National Association of Broadcasters, one of the most powerful lobbying groups in DC. Congress needs to create the royalty rates, not Soundexchange. In fact, Soundexchange, RIAA, NARAS, the musicians unions and artist advocacy groups are all working together to fight the NAB and get broadcast radio to pay more royalties. The US is the only Western country where artists and labels don’t get paid these royalties. Because the NAB has blocked artists and labels from collecting these royalties in the US, it means US artists also do not get paid these royalties in other countries. The artists are truly getting screwed here where companies who use their music are enriched (see Clear Channel’s profits and salaries).

So then the better idea would be to increase rates for both terrestrial and other radio? Wouldn’t that, coupled with existing deregulation, just encourage more media consolidation?

RSS icon Comments

1

Eric,

Look deeper into this issue. It's not so simple. First, know that the head of Soundexchange is John Simson, former manager of several indie and major label artists. I know him well. He is a true lefty, true artist advocate, very good man.

You mention that 'they' should institute similar royalty rates for broadcast radio. I agree those rates should exist, however Congress has for decades bowed to the pressure of the National Association of Broadcasters, one of the most powerful lobbying groups in DC. Congress needs to create the royalty rates, not Soundexchange. In fact, Soundexchange, RIAA, NARAS, the musicians unions and artist advocacy groups are all working together to fight the NAB and get broadcast radio to pay more royalties. The US is the only Western country where artists and labels don't get paid these royalties. Because the NAB has blocked artists and labels from collecting these royalties in the US, it means US artists also do not get paid these royalties in other countries. The artists are truly getting screwed here where companies who use their music are enriched (see Clear Channel's profits and salaries).

Sadly, most of internet radio is owned by major corps like AOL, Clear Channel, Yahoo, Microsoft, etc. And the small stations have tied themselves and their arguments to the large stations. What the smaller stations should be doing is asking for blanket licenses straight from Soundexchange at a low rate. Or something of the sort.

This really is about getting artists paid, and yes, labels too. Indie labels included. I see no reason why Clear Channel should get music for free just because they are on the internet. The web is not some mysterious magic ether. It's just another space business happens. Companies are making a ton of money on the web off the backs of content producers, especially musicians. I support non-profit and indie radio, but I also support artists getting paid.

Anyhow, If you want I can hook you up with John Simson who can explain this to you better, and I think you'd see that there are ways to make this work well for both the small non-profit broadcasters and the artists and labels. But the small stations need to separate themselves from the Clear Channels of the world.

Even your Wall Street Journal quote really shows how ignorant the people writing about this are.

Also, Pandora will probably be treated completely separately from radio, they are a special case.

Posted by Meinert | March 21, 2007 3:38 PM
2

"So then the better idea would be to increase rates for both terrestrial and other radio? Wouldn’t that, coupled with existing deregulation, just encourage more media consolidation?"

No. But Artists and labels would get paid for another business using their product. Seems fair to me. Tv and film has to pay to use music, why shouldn't radio? Because they're Republican owned with large lobbying groups?

Posted by Meinert | March 21, 2007 7:25 PM
3

http://www.dailymail.com/story/Entertainment/+/2007031962/Webcasters-paying-more-for-radio-royalty-fees

http://www.royaltyweek.com/issues/Royalty_Week_031907.pdf

So, when Simson

a) ... asks "Does having so many Web stations disperse the market so much that it hurts the artist?" (first article)

b) Says things like "These little stations develop a popular URL and then flip it and sell it for big money and the artists get nothing."
(first article)

c) Complains that webcasters made the arbitration proceedings "more costly for us" and "I think there was a lot of greed on their (webcasters) part" - and then admits in the same f!@#$5ing article, that SE more or less gets free legal guns direct from the RIAA (second article)

.. you're still saying it's about 'artists getting paid'?

Posted by b | March 21, 2007 8:15 PM
4

Anybody looking for a more informed, more eloquent take on this stuff than I could provide should be listening to tonight's Alternative Radio on KUOW. Or, hey you could stream it...for now.

Posted by Eric Grandy | March 21, 2007 8:39 PM
5

keep in mind that NPR negotiated their own rates outside of the other rates from what I understand. NPR has also worked against licensing low-powered fm stations. So yes,listen to KUOW, but keep in mind they have a horse in this race too.

to 'b' - as I said, these negotiations are about getting recording artists and the owners of the masters (usually record labels) paid. And yes, I still say that. I personally know Simson and have spent hours talking to him about this subject. You can read about him hear - http://www.soundexchange.com/about/whos_who.html

The reason the RIAA helps pay for attornies is that the RIAA helped establish Soundexchange. The RIAA has a bad rep and much of it is well deserved. Though in this case they helped form Soundexchange in order to get them and artists paid. Sometimes groups like the RIAA do something good even though it's definitely motivated by their own interests. Of course, they also make sure artists like Modest Mouse, Death Cab, and now The Gossip (all signed to majors) get paid too. And a lot of small labels and indie artists.

Posted by Meinert | March 21, 2007 9:41 PM
6

Some of the issues here are related to the historical evolution of the copyright law. So let me try to flesh things out just a bit more.

Under the 1909 copyright act, there was no federal copyright protection for sound recordings. So in the context of recorded music, the only federally protected component of a record was the underlying musical composition.

Copyright holders received a bundle of rights. One of these rights is the so called "performance right," the right to control public performance of the work. This right applies not only to live performances but also to uses of recorded music in public as well as via broadcast, etc.

ASCAP and later BMI are non-profit groups that came into existence to enforce the performance rights of composers. For the most part, they have done a reasonably good job at this. By aggregating content and requiring users to agree to blanket licenses, they have pretty good leverage to negotiate with even big media companies.

So that's one part of the puzzle. The song.

The part at issue here is the sound recording (the master tapes). Before February 15, 1972, sound recordings were generally protected by common law (judge made law) or in some cases by statutes enacted in certain states. They were not, however, protected by federal copyright law.

In 1971 Congress amended the copyright code to provide copyright protection for sound recordings fixed and first published with the statutory copyright notice on or after February 15, 1972. In part, this was in response to a waive of bootlegging of commercial recordings.

When the entire copyright act was revised in 1976, a sound recording copyright was explicitly included for any work, whether unpublished or published, that had been fixed in a tangible medium of expression (which is a term of art under the copyright act).

This is where things start to get sticky. From a conceptual symmetry standpoint, it would make sense to include a performance right for sound recordings just the like the already existing performance right for the underlying composition. But various interests (including broadcasters) succeeded in blocking such a right. And as Eric explained above, one rationale was that record labels got the promotion of having records played on the radio, and that was enough compensation.

So what that meant was that the owners of sound recording copyrights (typically record labels or the people who played on the recording) weren't in a position to get any income from performances of the sound recording, even as the composer of the work was getting performance income through ASCAP or BMI.

The rise of the internet provided an opportunity for labels and other interested parties to try and get another bite at the apple. And as Eric explain in his post above, these parties successfully lobbied for a digital performance right that only applies to internet streaming.

When Congress passed the Digital Milleneum Copyright Act, in 1998, this right was incorporated. And while labels get the vast majority of any money that comes in from this source, the statute does provide that a portion of the digital performance monies go directly to the the musicians who played on the record (with the so called "featured performer" getting a bigger cut).

Much as ASCAP and BMI have administered performance rights, Soundexchange was designated to play this role with regard to digital performance rights. So while Soundexchange certainly benefits RIAA member labels, I don't think it's fair to equate this group with the RIAA.

Unfortunately, I think Soundexchange got some bad publicity when it released that list of people who hadn't claimed their performance royalties and stated that if you didn't make your claim before x date, you were ass out. But ideally, Soundexchange isn't purely some tool of big labels. It exists to protect anyone who has a valid interest in receiving performance royalties from a sound recording.

So now we've got this new right. And we've got this group set up to collect digital performance right monies on behalf of labels and artists.

But exactly how much do the users have to pay?

That's what the current argument is about.

And while extending the performance right on sound recordings to terrestrial broadcasts is a nice idea, I wouldn't hold my breath on that one.

So from my perspective, it's kind of a tough quandary. Soundexchange is definitely doing its job in trying to get the highest royalty rate possible on behalf of the copyright owners.

But internet streaming radio, especially small players, provide a pretty valuable service, especially to smaller labels and artists, by helping to expose the music.

It'll be interesting to see how it all plays out. Ultimately, the argument revolves around how best to structure incentives to that the market can do its thing without someone getting egregiously screwed over. In addition, as others have argued, if the parties involved can't find an effective way to balance everyone's interests, people will just go black market and then nobody will get paid.

To a certain extent, we're seeing that with digital downloads. I guess it's still an open question as to whether the big labels will eliminate DRM. But the market does seem to be pushing things in that direction.

Personally, I hope the end result doesn't kill diversity, but I also hope we can increase opportunities for artists in particular to get paid, not just for playing live and for a t-shirt, but also for their recorded music.

Posted by j-lon | March 21, 2007 9:44 PM
7

Reading "Sometimes groups like the RIAA do something good even though it's definitely motivated by their own interests" ...
so we're gonna have to agree to disagree on this one. Because all small webcasters have seen since day 1 is attack after attack: disproportionately large fee bumps, legal shackles preventing interactive innovation,
nearly-impossible recordkeeping requirements, and now crap like the RIAA-backed PERFORM act.

That's great you know Simson, he might be a great guy with a heart in the right place who wants artists to get paid. Good for him.
But as a webcaster forgive me if all I see is yet another in a long line of attacks from organizations whose business practices border on criminal, and yet have the audacity to make statements like "gee, they made the aribtration process really expensive for us, those greedy, greedy webcasters" - all while wrapped in the ideology of "we're just acting in the artists
best interests."

Posted by b | March 22, 2007 7:13 AM
8

b - I feel for you, and think small webcasters are important, especially for the independent world of music I am involved in. However, there do need to be fees. Webcasters need to look at it from our side as well. That said, if the indie labels and artists of the world who are members of soundexchange would tell soundexchange they don't want the fees on the small webcasters raised, then soundexchange could come up with a plan to back off. I really suggest you go about it that way instead of tying yourself to the position of AOL, Clear Chanel, etc. Just a thought. And j-lon, thanks for the great post.

Posted by Meinert | March 22, 2007 8:52 AM
9

ya ya blaa blaa I have spent 7 years building my station and now I am going to lose it now due to OURAGEOUS "fee's" dude.... shove it! now I am going to have a pile of gear here and a DEAD station due to HIGH "FEE'S"


ITS ALL BS AND All A RIPOFF!

"you can pry my station from my cold dead fingers"

time to fire up some good old pirate radio!

Posted by keith mutch | March 25, 2007 10:31 PM

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