Small & innovative webcasters may live
Of my 5 reasons internet royalties suck, SoundExchange has now offered to address #4 and 5 for webcasters, arguably the two most egregious aspects of the CRB decision back in March. I’m not terribly surprised by this because these were truly show-stoppers for the sector. And it is an encouraging start.
First, small webcasters. SX agreed last month to extend the rates and terms of the Small Webcaster Settlement Act through the end of 2010 (a point I really should’ve highlighted in my post last week). Accordingly, small webcasters would pay royalty fees of 10% of all gross revenue up to $250,000, and 12% for all gross revenue above that amount, up to a unspecified qualification limit (perhaps $1.2m but this needs clarification). This still leaves an artificial ceiling on revenue growth — Kurt Hanson estimated that royalties would increase >10X when a webcaster hits the threshold — but at least the smallest guys can still participate.
Second, innovative webcasters. SX offered today to cap the $500 “per-channel” fee at $2,500 per year, per webcaster. This means webcasters that provide personalized or DIY streaming like Last.fm and Live365 won’t be stuck paying $500 for each of thousands or even millions of individual channels. I doubt a strict interpretation was really intended by the CRB and clarification here is very good to see.
I still think the per-stream rate is too high. Or, more specifically, this basis for calculating royalties is inappropriate for a nascent sector. But maybe these things will take care of themselves in due course. As I commented in response to one of Fred Wilson’s posts last week:
The biggest issue is the basis for calculation of the rate. Any reasonable %-of-revenue rate, subject to an annual/monthly minimum (which itself could be tiered in some way), would solve the entire issue. This was what saved the small webcasters last time ’round and should in some form be applied to all webcasters so there’s no odd “ceiling” that limits small guys’ growth.
The per-stream minimum needs to go away. Let labels effectively invest in this nascent sector on an “equity” (rather then fixed-payment “debt”) basis. There will be more revenues in the long run (and quite possibly short run too), both from streaming royalties and other sources that are supported by exposure (music sales, concerts, etc).
If not, then the market will take over. Webcasters will just have to do direct deals with indies, take the outsized rate for content from the Majors for the time being (most likely), and lower their blended average to something that can be supported at today’s CPMs. The business potential for the digital music sector (whether radio-style or on-demand streaming) all comes down to the minimums, really.
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