Copyright Fee Proposal Dooms Online Radio; Act Now If You Care

Something seems amiss here. According to BetaNews, the Copyright Licensing Board (an arm of the Library of Congress) ruled in March that online radio (streamed music) must pay royalties to the RIAA (via the SoundExchange, an industry group) that greatly exceed the amount paid by "real" (AM/FM) radio stations.

The retroactive fee change (how can they make it retroactive?) will probably doom Pandora. And the San Jose Mercury News calls it a "huge gift" to the record industry (13 March Op-Ed, pay-to-view).

It certainly seems like a gift. In 2004, the NYTimes reported that MTV "does not pay (royalties) for video clips from independent producers." (One assumes that they do pay royalties to the Big Labels, based on this phrasing. But still. If MTV is exempt, why not streaming radio? After all, it's a lot easier to save/share an MTV sound clip than a stream, if piracy is the issue.)

BetaNews estimates that online webcasting leader AOL Radio may receive a bill for copyright holders' royalties retroactive to 2006 amounting to $23.7 million, payable to a collective representing the US recording industry... This while the world's three major copyright holders' groups - ASCAP, BMI, and SESAC - collectively charge terrestrial broadcast radio stations $972 per year per station, for the rights to broadcast exactly the same music to an equivalent or larger audience.

From Wired:

In the old, percentage-based fee system, webcasters paid SoundExchange -- the Recording Industry Association of America-associated organization that pushed the Copyright Royalty Board to adopt the new rates -- between 6 percent and 12 percent of their revenue, depending on audience reach. The new system charges all webcasters a flat fee per song per listener; for instance, in 2007, streaming companies would owe $0.0011 per song per listener (rates change based on year)...

Kurt Hanson, publisher of RAIN and CEO of AccuRadio, went so far as to speculate that Pandora, which is based in the United States, could "disappear" as a result of the new rates. Overseas competitors like Last.fm, which is based in London and removed from the board's restrictions, could easily claim Pandora's market share. If Pandora has to pay the annual $500 minimum for each channel, Hanson said, its sound-recording royalty bill for 2006 alone would be capped at about $2 billion (based on the service's 300 million registered users, each of whom gets to create up to 100 unique channels).

The fee schedule approved by the Copyright Board was the one proposed by the record companies. According to BetaNews, the Board was swayed by the testimony (pdf, 164pp) of Adam B. Jaffe, professor of economics at Brandeis University (member of President's Council of Economic Advisers under Bush 41).

Labels Do Not Have Clean Hands: Payola Persists
Perhaps the Music Labels just want to continue stacking the airwaves with green (aka "bribery"). For example, in 2001, Salon reported on the "pay to play" nature of top 40 radio:

The music industry is a $12 billion-a-year business; today, nearly every commercial music station in the country has an indie [promoter] guarding its playlist. And for that right, the indie shells out hundreds of thousands of dollars a year to individual stations -- and collects a lot more from the major record labels.

Then last year, NY Attorney General Eliot Spitzer found that "some of the [nation's nine largest] radio conglomerates have participated in the illegal practice of accepting payments from record companies and middlemen for guaranteed airplay for certain songs."

CBS reports that "Sony BMG and Warner, both of which have settled with the attorney general, revealed payments for songs that became major hits, including Jennifer Lopez's I'm Real and John Mayer's Daughters."

Vivendi-Universal was still duking it out with Spitzer last October.

Last month, four majors (Clear Channel Communications Inc., CBS Radio, Entercom Communications Corp. and Citadel Broadcasting Corp.) "tentatively agreed to pay the government $12.5 million and provide 8,400 half-hour segments of free airtime for independent record labels and local artists in separate settlements aimed at curbing the persistent practice known as 'payola,' according to sources."

Learn more about the royalty issue (and what you can do) at SaveTheStreams.org, RAIN (the Radio and Internet Newsletter) and the Broadcast Law Blog.