The NAB (National Association of Broadcasters) made a proposal to SoundExchange regarding the proposed royalties netcasters will have to pay to continue to play music online about three months ago. Apparently, SoundExchange, which represents the copyright holders to the music, apparently rejected the offer.

The NAB claimed its offer would allow SoundExchange to compensate its constituents while changing an amount that would allow online radio providers to continue to grow.

BetaNews reports on an open letter sent to SoundExchange by NAB that said: “The detailed proposal presented to you and SoundExchange staff sought to achieve a number of important objectives, such as: 1. To encourage greater participation by radio stations in Internet streaming than would otherwise be possible under the misguided CRB rates; 2. To enable greater radio station streaming activity, allowing revenue to artists through SoundExchange to grow beyond that achievable under the CRB rates; and 3. To address ancillary aspects to streaming above and beyond the CRB decision that would be beneficial to musicians and SoundExchange.”

SoundExchange claims it has settled with many of the larger webcasters, but it has not been made public which ones have allegedly reached agreements.

http

According to Beta News, Congress is considering applying similar royalty to charges to traditional or terrestrial radio stations. Traditional radio has avoided royalty payments to performers, but not songwriters, based on the idea that radio play helps promote the performers. As the landscape is changing and online broadcasters are trying to figure out a reasonable method of compensating performers and songwriters, Congress is considering a similar structure for traditional radio stations. Online advertising has already wreaked havoc on the advertising side of traditional radio, now will new royalty structures do the same?

There is some speculation that terrestrial radio stations may lose their exemption to help pay for a lower fee that will be charged to online radio stations.

Sunday was the original deadline for online broadcasters to begin paying new royalties that many have said will shut down smaller netcasters. July 15 was the day online radio stations were to pay the 2006 royalties and agree to a new royalty schedule on an ongoing basis similar to that of satellite radio.

Instead, it looks as if negotiations are continuing between SoundExchange, the royalty body and netcaster, according to BetaNews. Over the weekend, there were reports of discussions with the Corporation for Public Broadcasting.

BetaNews also reports there are meetings with the Digital Media Association, with representatives from RealNetworks, Pandora, Yahoo, MTV, AOL, and Live365, scheduled for Tuesday.

One of the key issues is a $500 “per channel” administrative fee that could cost some larger netcasters hundreds of millions of dollars in the first year. One of the proposals is to cap the”per channel” fee at $50,000 and to cap the royalty amount on smaller stations whose revenues fail to meet a certain threshold.

A variety of groups, including the Digital Music Association, AccuRadio, and National Public Radio, filed a petition for an emergency stay before the US Court of Appeals in D.C., of the order imposing new performance royalty fees on online streaming music providers. The petitioners interpret SoundExchange’s argument to mean that, if we define a streaming station as a single running program of pre-selected music, then every such program constitutes a station in and of itself, even if that station plays to only one person.

Thus the $500 minimum royalty fee per channel could be construed as a “fee per playlist,” which could entitle SoundExchange to royalties even far beyond what we previously considered to be unprecedented. While SoundExchange was only entitled to a total of $18 million for 2006 under the statutory license, the ‘minimum’ fees for 2006 for just three licensees (RealNetworks, Pandora, and Yahoo) would be over $1.15 billion. They would dwarf the licensees’ radio-related revenue by substantially more than a billion dollars.

NPR’s interest is slightly different. Many NPR stations are streamed online, for which it does owe some royalties under current law, but a rather nominal fee due to exemptions pertaining to its status as a public broadcaster, as well as the fact that NPR stations don’t present playlists of popular music.

Under the new streaming copyright system, however, the fact that an NPR station could play popular music means that it could owe royalties on a pre-emptive basis. Thus, stations that used to pay virtual pocket change in royalties could suddenly find themselves owing millions per year.

A stay could allow Congress to act before the July 15 deadline. Congress is considering the Internet Radio Equality Act.

Representatives Jay Inslee (D-Wash) and Jay Inslee (D-Wash) introduced a bill in the House yesterday that would explicitly nullify the findings of the Copyright Royalty Board, which set forth last month a royalty fee for Internet streaming performances that online providers say could put them out of business entirely. As discussed in earlier posts, the Copyright Royalty Board proposed a plan to charge internet radio providers the same as traditional over-the-air proviers. More information can be found here.

Regular updates on the development and how it affects internet radio providers will be provided.

Because none of the internet streaming broadcasters’ objections had new evidence of an egregious error according to the Copyright Board, they are proceeding with the implementation of the internet streaming costs. The three-judge US Copyright Royalty Board ruled it would not stay its own decision last month imposing a massive, per-performance rate increase on Internet streaming broadcasters, beginning in 2008.

The only positive news for internet broadcasters is that the rule would not be applied retroactively. Instead, it would impose an increase on the “aggregate tuning hour” (ATH) method that had been employed before, but which earlier legislation had enabled streamers to forego.

While the new ATH rates will represent a rise over 2005, they may not be as intolerable as the per-performance rates. According to BetaNews.com, based on ATH ratings for November 2006, AOL Radio – the nation’s largest streaming provider – could owe retroactive royalties of about $946,000. Likewise, Launchcast may owe $700,000, Clear Channel $365,000, and Live365.com $264,000. Had the originally planned rate gone into effect, AOL Radio might have owed $23.6 million for 2006.

A somewhat higher ATH rate will be in effect for 2007, the judges decided, though the amount that the SoundExchange performance royalty organization would collect on behalf of performing artists would still be lower than previously anticipated. But for 2008, the $0.0014 per performance rate would take effect. While that may seem impossibly small on the surface, consider the cost when multiplied by as many as 30 trillion individual song performances per year.

Most observers are expecting and appeal within 30 days to the U.S. Court of Appeals for the District of Columbia. Meanwhile, streaming providers have until May 15 to pay their 2006 dues, which for some may be crippling though not fatal. Many opponents to the new rates are now focusing their efforts on Congerss. Legislation may be able to change the course set by copyright judges before the Court of Appeals hears the case – which industry lawyers believe might not happen for another year, at best.

On March 6, the US Copyright Royalty Board accepted a proposal advocated by a consortium of recording industry representatives, whereby Internet streaming radio sites would be responsible for royalties for the music they play, the total of which would substantially exceed their annual revenue, probably forcing many to shut down.

BetaNews.com, an online site dedicated to trends in computing and online activities, detailed the depths of the proposal. Traditional over the air radio stations, pay major performance royalty organizations (namely, ASCAP, BMI and SESAC). The PRO’s have an industry-wide agreements with radio stations using a formula that takes the maximum collectable amount for each year, and works it backwards to determine a fair rate that each station can contribute to it. Thus, in 2006, ASCAP expected to take in $208,650,000 and BMI expected to take in $208,000,000 even.

The question is how to apply it to online radio. The BetaNews article cited to a BridgeRatings report estimating about 56.7 million listeners tuned in to Internet streaming radio every week in 2006. Comparatively, there are about 279.6 million listeners of AM and FM radio. But BridgeRatings believes the growth rate for AM/FM listeners will murmur at around 1% per annum, while the Internet radio listener base will grow at about 27% per year. By 2010, BridgeRatings projects 147.5 million listeners will tune in for streaming radio every week.

BetaNews than ran the calculations based on the public information available to determine what online music providers would have to pay. Beta News projected”

“One of our first tasks was to apply that projected growth rate in streaming audiences to the big four online streaming providers, as tabulated by comScore Arbitron: AOL Radio, LaunchCast, Clear Channel stations, and Live365.com. Based on the CRB’s royalty rates for 2006, AOL Radio is expected to receive a royalty bill for last year for about $23.7 million.

We based that figure on its November 2006 ratings for average listeners during peak hours (336,364), during awake hours (210,694), plus the industry standard of 10% of that broader figure for the overnight hours. With an industry average of 16 songs played every hour, AOL Radio in November served up 569.6 million performances to individuals every week, for which it owes $.0008 per performance under the 2006 rates.

When you apply the projected growth rate of Internet radio for the next three years, and also take into account the 2010 royalty rate of $.0019 per performance, BetaNews can now project that AOL Radio could owe $146.4 million in royalties in 2010 alone. LaunchCast would owe $113 million, Clear Channel would owe $61.7 million, and Live365.com would owe $42 million. Just the top four streamers would be billed $363 million during the same year that all 14,000 US radio stations combined would be billed $550 billion.

Based on comScore Arbitron’s numbers, BetaNews determined that these top four providers together supplied 11.64% of all streaming music traffic during November 2006. We estimated this by combining the listenership projections from BridgeRatings with the November scores from Arbitron. Using that percentage as a guide, we estimated the number of total US listeners during November’s peak hours, and scaled that number up using BridgeRatings’ growth rate, up until 2010.

This way, we could estimate the total number of performances for which all streaming radio providers would be responsible for 2010. At about 12.13 trillion performances per week alone, the annual figure is astoundingly large.

At the projected 2010 rate, streaming radio providers would provide SoundExchange with $2.3 billion in revenue. That’s almost exactly 400% of the calculated cumulative total for PRO royalties to be collected during that same year – and keep in mind, radio stations with Internet services would owe both fees.

. . .

On a per-listener scale, broadcast radio stations paid $1.56 per listener on average during 2006; and in 2010, that figure rises to $1.94 per listener. BetaNews estimates that Internet radio sites, by contrast, will pay $8.91 per listener for 2006, rising to $15.59 per listener in 2008 and staying flat beyond that time.

Thus an Internet radio music provider is likely to pay in royalties almost ten times the amount for each of its listeners throughout the year, than the terrestrial broadcaster.”