Is Internet Radio The Sacrificial Lamb In Digital Music War?
The clash was set up in March, when the Copyright Royalty Board (CRB), part of the Library of Congress, almost tripled royalty rates -- and also made them retroactive. It also added an annual $500 fee per station or channel. The new fee proposal was submitted by SoundExchange, an industry group.
The clash was assured on Wednesday, when the D.C. Circuit Court of Appeals chose not to act on an appeal of the new rate structure (it denied an emergency stay).
There are two measures before Congress, S1353 and HR 2060, which would roll back the fees. Neither measure has seen legislative action. However, the Washington Post reports that members of Congress organized a meeting of SoundExchange and internet broadcasters yesterday. At that meeting, SoundExchange "offered an annual fee cap of $50,000."
Let's put the $50,000 into perspective. The world's three major copyright holders' groups "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." And the NY Times reported in 2004 that MTV "does not pay (royalties) for video clips from independent producers."
This concession also begs the question: how does SoundExchange have the right to negotiate fees approved by the CRB? Is the Copyright Royalty Board merely a rubber stamp for record labels?
The CRB is a new entity -- enabled by the Copyright Royalty and Distribution Reform Act of 2004 (P.L. 108-419) and finetuned by the Copyright Royalty Judges Program Technical Corrections Act (P.L. 109-303).
Enabling legislation for the CRB was sponsored by Rep. Lamar Smith (R-TX) with two co-sponsors: Rep Howard Berman (D-CA) and Rep John Conyers, Jr. (D-MI). Smith's 2004 re-election bid was underwritten by Clear Channel Communications, Sony Corp of America, Time Warner and Viacom Inc. He also introduced controversial Digital Millennium Copyright Act legislation in April 2006.
As Wired reported in the spring, this is a major bottomline hit for most internet radio:
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...
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 tactic -- use legislation or lawsuits or regulatory power or political connections to thwart competition -- is an age-old one. Think VCR versus Hollywood. The television industry objected to the VCR because it meant mere mortals could record TV shows and watch them over and over again -- or at some other time than the regularly scheduled broadcast -- or (horrors!) fast-forward through commercials. Sony took the case to the US Supreme Court, which ruled in 1984 (5-4) that such recordings were "fair use."
The RIAA is doing something similar today with its controversial suits against teenagers accused of downloading music illegally.
In many ways, the actions of the record labels are like the proverbial Dutch boy with his finger in the dike. It's a stop-gap measure. Eventually, the labels will be forced to make peace with the age of digital music. Until then, expect more legal and regulatory maneuvers.
But don't count on hearing about them from the "radio" that is your computer, if the station also plays music.