Sending a wave of concern through the industry, the Copyright Arbitration Royalty Panel (CARP) has issued its royalty rate recommendations for webcasts of public performances of sound recordings. The fee structure (35 percent of the fee requested by the recording industry, according to the RIAA, but about 10 times what webcasters proposed they could handle) has the RIAA declaring at least partial success but has left webcasters daunted, wondering how they will stay afloat financially.
The proposed fees are 0.14 cents per performance of sound recordings by Internet radio of a sound recording to a single consumer and 0.07 cents for simulcasters (traditional broadcasters who also stream on their sites). Noncommercial stations will owe 0.02 cents for broadcast retransmissions, and 0.05 cents for “Internet-only” or two or less “side channels.” Nine percent of performance fees will be added on top of that for “ephemeral performances,” such as those in restaurants or stores where the actual number of “listeners” cannot be determined. There is a $500 minimum per year. The retroactive clause was also maintained, meaning that webcasters will also owe back royalties from October 28, 1998.
“We are pleased that the arbitration panel has recommended royalty rates for Internet radio broadcasting, and that its recommendation is much closer to the royalty rate proposed by the webcast industry than was proposed by the recording industry.”
Nevertheless, he clarified, “We are extremely disappointed that the Panel’s proposed rate is not significantly lower, as a lower rate would more accurately reflect the marketplace for music performance rights and the business environment of the webcast industry.”
RIAA President and CEO Hilary Rosen saw the move as a small victory. “Artists and labels, who have supported these new businesses from the start with their music are one step closer to getting paid,” she said in a statement after the announcement. “We would have preferred a higher rate. But in setting a rate that is about 10 times that proposed by the webcasters, the panel clearly concluded that the webcasters’ proposal was unreasonably low and not credible.”
Rosen added, “It is apparent to us, as it was to the Panel, that webcasters and broadcasters of every size will be able to afford these rates and build businesses on the Internet.”
“Example: Say WLUP-FM Chicago averages ten songs per hour. Ten songs multiplied by 24 hours per day, 365 days per year, times the rate of $0.0007 (remember, the rate is listed in “cents”), yields an annual average “per listener” cost of $61.32. If an average of 1000 people are listening to The Loop on the Internet at any given moment, this will cost the station over $61,000 for the year.
If it’s reasonable to assume that an FM broadcaster like WLUP can sell ads at a rate that boils down to about one cent per listener, just one ad per hour ($0.01 x 24 x 365) should cover the royalty bill.
A pure webcaster like the AOL-owned multicaster Spinner faces a much steeper charge. Playing next to no ads, they’ll fit closer to 14 songs in an hour, for which they’ll pay a rate double that of broadcasters. In fact, in a year they’ll end up paying $171.70 per listener, assuming these numbers. With current ad rates (we assume) most likely lower than a those of a major market FM, it’s clear to see that it will take a quantum leap of an increase in the business fortunes of webcasters to handle these charges.”
Potter, keeping to the middle of the road, points out that CARP’s recommendations “are a first step in a process designed to bring stability to the webcast radio industry. Webcasters will study the panel’s decision further, and provide analysis and recommendations to the Copyright Office for consideration during that Office’s statutory review period.” The Copyright Office will recommend to the Librarian of Congress whether to accept, reject, or modify the rates and terms set forth in the report. The Librarian must accept or reject the report no later than May 21, 2002. The official rate schedules can be viewed on the LOC site. The decision will likely set an important precedent for future negotiations.
Peter Newman, program director of Classical KING-FM (a Seattle-based station that consistently ranks among the top five streaming networks on the Internet), lays out the situation matter-of-factly. “The rates we are hearing about would present a real challenge to us. Internet broadcasting is in its infancy and there are no proven financial models yet.” Not that he’s looking for a free ride. “We accepted the BMI and ASCAP fees which cost us under a thousand dollars each. But this fee structure could cost us tens of thousands of dollars. We would really have to rethink our strategy, play lists and even reconsider live streaming. If we did so it would not be beneficial to the classical music community and certainly not to the classical labels that are trying to get visibility for their product.”
If the rates go into effect as proposed, Newman is concerned, though he expects other stations to be hit much harder. “Since we are one of the most successful Internet broadcasters and we are looking at this as a possible problem, I can only imagine how it might affect smaller operations. I think the effect, if administered in its present form, would be to damage or kill the online broadcasting community.”