New royalty rates for internet radio
New royalty rates for webcasters – those for “digital sound recording performances”, paid to an organization established by the RIAA called SoundExchange – were handed down by the Copyright Royalty Board on Friday. David Oxenford covers the decision on the Broadcast Law Blog. Key results:
— Rates continue to be far too high (relative to comparable rates for radio-style delivery, e.g. satellite, cable, terrestrial radio in other countries) and, shockingly, are now slated to *increase*
— A per-performance (i.e. per song, per listener) rate grows from roughly its historical level, applied retroactively to 2006 ($.0008), to 2.5X that rate by 2010 ($.0019)
— A percentage-of-revenue alternative offered to smaller webcasters, as defined, will apparently no longer be available (this could well eliminate most such webcasters, assuming this isn’t corrected)
Ironically, terrestrial radio – the primary driver of exposure for music in the past – doesn’t pay a performance royalty when broadcasting “over the airwaves” in the US. If I recall correctly, they also enjoyed a slightly discounted rate for webcasting in recent years. It looks like they’ll now pay the same rate as internet-only webcasters (for internet-based delivery, that is – they’ll continue to pay nothing for terrestrial delivery). But they can afford it; after all, in the US, the terrestrial radio industry generates roughly *twice* the revenues of the recorded music industry.
I think the easiest way to evaluate the economics of the performance royalty is by use of a “breakeven CPM per hour” — that is, what CPM does the webcaster need to achieve on an hourly basis just to cover performance royalties. (On a side note, performance royalties represent the lion’s share of a webcaster’s marginal cost of streaming, as can be many times the size of composition royalties and more than 2X that for bandwidth.) So using the proposed CRB rates and an average of 14.5 performances per hour streamed, these hourly CPMs are required to breakeven on performance royalties alone:
So if we assume an average CPM of $5 for audio ads – probably a bit aggressive, at least at this stage – the webcaster would need to run at least 6 ads per hour in 2010 to cover the required SoundExchange payment. Again, to say nothing of composition royalties, bandwidth, contribution to overhead and profit.
Rags has some good insights on implications for US webcasters.
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