Investing in internet radio (or not)

17Apr07

I’m sure many readers will have heard the news yesterday, but here’s Paul Resnikoff’s round-up of the CRB denial:

Copyright Royalty Board Denies Webcaster Rehearing Request

The US Copyright Royalty Board (CRB) has now denied motions for a rehearing by internet radio broadcasters, according to documents issued Monday. The broadcasters are protesting a more expensive royalty schedule related to the use of master recordings. “The parties filed various responses per our request,” the three judge panel explained. “Having reviewed all motions, responses to those motions, and written arguments, the Judges now deny all such motions.” The five-page document noted that internet broadcasters largely rehashed earlier arguments in their rehearing requests, or raised issues that could have been offered during earlier proceedings. “We find, however, that none of the moving parties have made a sufficient showing of new evidence or a clear error or manifest injustice that would warrant a rehearing.” The denial follows an original ruling in early March of this year, and a subsequent order allowing motions for a rehearing on March 20th. Motions were filed by the Digital Media Association (DiMA), Intercollegiate Broadcasting System, Inc., Small Commercial Webcasters, National Public Radio (NPR), and various others.

The denial was greeted enthusiastically by SoundExchange, which represents the interests of major recording labels and artists. “We are gratified that the CRB has upheld its decision,” said Michael Huppe, general counsel at SoundExchange. Others promised a fight and rallied behind the banner of SaveNetRadio, a group committed to pushing back against the escalated rates. “The CRB’s ill-informed decision to increase royalty fees to this unjustifiable level will quite simply bankrupt most webcasters and destroy internet radio,” said SaveNetRadio spokesperson Jake Ward. Meanwhile, the royalty board also refused to grant a stay on the payment of retroactive royalties until all legal appeals are exhausted, a decision that will generate a lump payment for a number of internet-based radio providers. “In just about one month from today … the Copyright Royalty Board expects internet radio stations to pay millions of dollars in retroactive royalties – and this will drive most stations out of business,” said Jonathan Potter, executive director of DiMA.

I’ve been planning a new venture over the last year or so that was to take advantage of the compulsory license. Now, I question whether it’s worth pursuing from a purely business perspective. One thing is certain: the only way forward for internet radio is to seek direct licensing arrangements, which means that music from Major labels (which would seem unlikely to license at a rate cheaper than that handed down by the CRB) will receive increasingly less airplay.

Or at least less airplay through sites and services that pay royalties vis-a-vis a number of free offerings that are now hosting (or pointing to) music available on demand — a “better version” of access to music than radio-style consumption, which would normally require a payment of $.01 per stream, a la Rhapsody or Napster — but for which no royalty is currently paid.

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4 Responses to “Investing in internet radio (or not)”

  1. 1 jonau

    Hi David,

    I noticed you said
    “…which would normally require a payment of $.01 per stream, a la Rhapsody or Napster — but for which no royalty is currently paid”

    From that I presume you mean imeem and similar sites.

    How do they get away with it? Are they paying any royalties, if they do – how do they pay the $0.01 per stream you mention – there isn’t a single body like Sound exchange to do this is there?

    It strikes me that imeems massive growth is linked to their loose interpretation of webcasting, or at least they know something I don’t about it!

  2. Yes, imeem would appear to be operating outside of any license (it would not qualify as ‘webcasting’ as defined in law). However, it recently announced a deal with SNOCAP which I believe includes fingerprinting. So perhaps this arrangement will allow imeem to filter out MP3 or AAC files that haven’t been authorized for on-demand playback through SNOCAP (which had originally set up its system to do this for P2P networks going legit). But filtering is definitely not in place yet and, frankly, I’m surprised they’ve not received a cease-and-desist or lawsuit (like MySpace and Bolt did) given their growth.

    A number of other social networks host tracks uploaded by users and allow (or have allowed) visitors similar on-demand access.

    Sites like Project Playlist and The Hype Machine (sorry Anthony) fall into a legally questionable area as well – as I’ve blogged in the past – but with files hosted elsewhere on the internet (not by those entities themselves).

    I would be surprised if any of these services were paying royalties as (1) there is no compulsory license for on-demand streaming (would be great if there were), and (2) anything licensed with the Majors would likely be in the $.01 range which, as Napster demonstrates, isn’t really viable under an ad-based model.

    imeem’s growth seems to mirror the approach taken by MySpace and YouTube, i.e. push the legal envelope to enhance user experience to achieve massive growth. The trick then is to negotiate a license rather than / before having to pay the (potentially venture-terminating) penalty for copyright infringement.

  3. 3 intheway

    “One thing is certain: the only way forward for internet radio is to seek direct licensing arrangements, which means that music from Major labels (which would seem unlikely to license at a rate cheaper than that handed down by the CRB) will receive increasingly less airplay.”

    Not necessarily so.

    A major label could negotiate a direct license with a webcaster for at least half of the CRB rate, have it paid directly to them, rather than SoundExchange, and cut out the artist completely. The webcaster saves half the statutory license rate and the label gets more than it would from SoundExchange as there would be no deduction for SoundExchange’s administrative fees. The 50/50 split and payment through SoundExchange only applies to the “compulsory” statutory licenses.

  4. Interesting and true point – label and webcaster benefit while artists get shafted.

    As a practical matter, though, given that the Big 4 dominate the RIAA, and the RIAA fills the ranks of SX, I doubt any Major could/would negotiate directly, outside of SX, at least in the near-term.


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