New royalty payment laws for Net radio companies go live on Monday, but there’s no need to freak out yet. In an interview with Tim Westergren of Pandora, a Net radio leader, Digital Journal learned the scenario might not be so bleak after all.
Digital Journal — You can’t help but feel sorry for Internet radio. Once the free-wheeling musical buffet every Net junkie could enjoy, the industry is now faced with new royalty rates that could essentially destroy the smaller players and seriously fracture the bigger ones. In one fell swoop, a proposal from the U.S. Copyright Royalty Board can kill webcasts featuring a diverse selection of grassroots music.
Net radio pioneers haven’t taken this legislation lying down — forming the SaveNetRadio coalition and creating popular petitions and press releases — but this week more bad news hit the airwaves: royalty fee increases take effect on Sunday, where webcasters must pay triple the rates they usually fork over. Also, $500 per channel or station must also be paid, capped at $50,000, a decision urged by SoundExchange, a group created by the record industry.
The current rate of .0762 of a cent each time a song is played will double by 2010, even though small webcasters prefer a more logical structure: paying up to 12 per cent of revenue instead of a per-song fee per listener. By comparison, satellite radio companies pay a percentage of their revenue and AM and FM stations pay nothing.
The higher rate is retroactive to the start of 2006, so webcasters also face large payments that could cripple their business.
“We’re re-evaluating what this does to our company every day,” Tim Westergren, founder of Pandora, one of the leaders in Internet radio, told Digital Journal recently. “Worst case scenario is we go dark, we close shop. If these new rates come into effect, and we believe they can’t be fixed, we can’t just keep doing our thing willy nilly.”
Westergren is among many Net radio advocates who are frustrated by how the record industry regards their business. “They’re killing the goose that lays the golden egg,” he declares, explaining how Net radio stations offer the kind of musical diversity and indie appeal Netizens crave. Because the record industry is in trouble, Westergren says, they’re trying to find the culprits and a way to monetize what they do. “But they don’t understand the economics of Net radio,” he adds.
Some major forces in Net radio, like Yahoo, will try to recover their losses by signing major deals with record labels. Pandora doesn’t want to go that route, Westergren states, because that would limit want Pandora fans have come to expect.
Our experience is all about discovery, all about breadth. Pandora wouldn’t be the same if we started partnering with mainstream labels.
This all sounds like a horrifying doomsday scenario but a few reports on Friday offer a glimmer of hope. Wired News posts that a SoundExchange promised before Congress that the group will not enforce the new rates, and is continuing to negotiate with smaller webcasters to ease the royalty payment burden.
SoundExchange’s executive director John Stimson told the Radio and Internet Newsletter: For the people who want to comply with the law and are in bona fide negotiations with us, we don’t want those people to be intimidated. And we don’t want them to stop streaming.
Essentially, SoundExchange (responsible for collecting fees) admitted it won’t be filing lawsuits against any webcasters.
“They’re killing the goose that lays the golden egg,” declares Pandora founder Tim Westergren when asked about the record industry’s decision to triple royalty rates paid by webcasters
So there are some mixed messages here: SoundExchange will be lenient with webcasters who continue to stream content on Monday, even though the Copyright Royalty Board is requiring higher royalty rates from those same webcasters. It amounts to a reprieve for Net radio companies. They’re not out of the woods yet, though, because they still have to hammer out workable royalty rates with the CRB and SoundExchange. As Westergren notes, Congress has stepped in and essentially said, ‘The CRB ruling was the wrong answer. Work this out. If you don’t, we will.’
Also, Digital Journal learned about a bill introduced to the House last night that will allow SoundExchange and webcasters to have an additional 60 days to work out terms acceptable to both sides. Even though the rates are technically live, and because SoundExchange said it won’t collect those fees, it’s obvious to see how public pressure worked its magic: Net radio fans petitioned their Congressmen, the SaveTheNet site was flooded with hits, and SoundExchange was forced to rethink CRB’s ruling.
The Pandora offices are brimming with both anxiety and optimism, a nerve-wracking combination, Westergren admits. “I’m confident sanity will prevail,” he says. “No one is served by knocking out Net radio.”
Daniel McSwain, assistant editor at the Radio and Internet Newsletter, said Net radio companies should echo Westergren’s optimism.
This is move is a step in the right direction, a very positive development. We’re hopeful Congress will find a solution to workable royalty rates.
To find a way to satisfy all parties, Congress needs to seriously consider the Internet Radio Equality Act, which would set webcaster royalties at 7.5 per cent of revenue. That’s the kind of fair deal webcasters would sign, and if the record industry wanted to appear less greedy, they would also prioritize that act over anything else. Sure, record labels want to compensate their artists for work they produced, but should they mangle the Net radio business in the process?
On Monday, the music won’t die. But those involved in this fascinating issue should look beyond this week to think about the future of a democratic Web app many people take for granted. It’s not enough to clink glasses and cheer the temporary reprieve; it’s more important for Net radio companies to work closely with Congress to find the right way to pay musicians in this increasingly digital age.
