Daily news and commentary on the key issues involving radio and the Internet    
     
 


BY KURT HANSON
America's nascent Internet radio industry continues to react in shock to Thursday's Copyright Arbitration Royalty Panel ("CARP") recommendation that Webcasters pay "performance rights" fees to record labels that are so high that they are currently more than 100% of most Webcasters' gross revenues!

The panel's recommendation was addressed to the U.S. Copyright Office, which 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 by May 21st.

Under the recommendation,
Internet-only Webcasters would be required to pay royalties of .14 cents per listener per song transmitted, or roughly $.02/listener-hour (assuming about 15 songs per hour). Given the current low levels of advertiser support of Internet radio, most Webcasters are not seeing anything close to $.02./listener-hour in revenues — suggesting that the recommendation, if adopted, could essentially stop the industry dead in its tracks.

As the New York Times reported on Friday, "Representatives from both sides can continue to press the Copyright Office for proposal changes for 60 days. Eric E. Van Loon, a member of the three-person arbitration panel, said that the panel had received more than 14,000 pages of testimony from more than 50 witnesses." (According to RAIN's calculations, that works out to 280 pages of testimony per witness.)

CARP's proposed performance license fees
for Internet simulcasts of AM and FM signals are half of the fees proposed for the Internet-only Webcasters -- but the simulcast portion of the Webcasting industry is already feeling pain from high streaming costs, impossibly-high AFTRA talent fees, and a lack of support from top-level management.


How did this happen?
DiMA recommended a flat per-hour fee!

It was the hope of many webcasters that the performance license fee CARP recommended would be based upon a percentage of each Webcaster's revenues. That way, the industry could grow, and the record industry could make money right along with it -- more revenues for Webcasters, more compensation for copyright owners.

However, the association representing Webcasters in the arbitration, the Washington, D.C.-based Digital Media Association ("DiMA"), may have started arbitrators down the flat-fee path in its testimony and its recommendation of a $.0015/hour license fee.

As shown on the DiMA website here, DiMA took broadcast radio's ASCAP-BMI-SESAC license fees (designed to compensate composers), which are in reality calculated as a percentage of radio station revenues, and translated them into an approximate price per hour of programming. DiMA then recommended an label-and-artists' license fee 30% lower than the composers' license fee.

Unfortunately for Webcasters, CARP embraced
the concept of that translation into a flat fee...but recommended a fee 14 times higher than DiMA proposed.


Could Internet radio eventually
support a $.02/listener hour license fee?

Many observers, including all of us at RAIN, believe that advertisers will eventually embrace Internet radio as an advertising medium. After all, if, say, Arby's is willing to pay a penny to deliver a 60-second advertising to a single consumer's ears via the AM or FM band (i.e., a $10 CPM), as they are, why wouldn't they logically, eventually, be willing to pay the same penny to deliver the same advertising impression to the same pair of ears via Internet radio?

The problems right now are that (1) Internet radio audiences are still too small to warrant much agency attention, (2) in the depressed post-9/11 advertising spending environment, agencies are looking for places to cut back, not new media opportunities to consider, and (3) the agency infrastructure is not yet in place -- in other words, the department that buys Internet doesn't have audio-based creative, and typically the department that buys audio ads isn't currently allowed to buy anything on the Web.

If the medium is allowed to grow, these problems will inevitably be resolved. At that point, CARP's proposed $.02/listener-hour performance royalties might not be the kiss of death, as they would be covered by selling two spots per hour at current local or national radio station spot prices (or several spots per hour at current network radio spot prices).

But there's no way to get there! If this year's license fees are higher than anticipated gross revenues, there will be virtually no Webcasting, and thus no audience growth, and thus no interest from advertisers.

To be continued.

 



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    Kurt, this is deep background -- don't quote me!

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WSJ catches Clear Channel's deceptive voice tracking in Boise
From The Wall Street Journal
: "On Feb. 15, disc jockey 'Cabana Boy Geoff' Alan offered up a special treat for listeners of KISS FM in Boise, Idaho: an interview with pop duo Evan and Jaron Lowenstein...

"The artists reported that they had just come from skiing at nearby Sun Valley, then praised the local scene. 'Boise's always a nice place to stop by on the way out,' Evan Lowenstein said, adding that the city 'is actually far more beautiful than I expected it to be. It's actually really nice, so happy to be here.' Mr. Alan chimed in: 'Yeah, we've got some good people here.' Later, he asked Boise fans to e-mail or call the station with questions for the performers...

"The singers had actually done the interview in San Diego a few weeks earlier. Mr. Alan himself has never been to Boise, though he offers a flurry of local touches on the show he hosts each weekday from 10 a.m. to 3 p.m. on the city's leading pop station...

"Via a practice called 'voice-tracking,' Clear Channel pipes popular out-of-town personalities from bigger markets to smaller ones, customizing their programs to make it sound as if the DJs are actually local residents.

"'We can produce higher-quality programming at a lower cost in markets where we could never afford the talent,' says Randy Michaels [pictured above], the chief executive of the company's radio unit. 'That's a huge benefit to the audience...'

"Mr. Michaels compares his model to McDonald's Corp.'s franchise system. 'A McDonald's manager may get his arms around the local community, but there are certain elements of the product that are constant,' he says. 'You may in some parts of the country get pizza and in some parts of the country get chicken, but the Big Mac is the Big Mac. How we apply those principles to radio we're still figuring out...'

"Clear Channel and its predecessor companies began installing the technology in all its stations in the late 1990s, and linking them together into a giant high-speed digital network to move digital recordings around seamlessly. Gradually, the company started piping major-market DJs into smaller cities. It even did the same with some news stations, which used local reporters feeding information to announcers in different cities, who would then send back their newscasts digitally to be put on the air...

Michaels "compares the radio shows to films, which wouldn't be 'nearly as much fun if the camera kept turning around to show you it was just a set. I don't know that the radio experience would be as good if we said every five minutes, "By the way, I'm not really here and I taped this 20 minutes ago." But that's all part of the magic of creating entertainment.'"

This article is in today's issue of The Wall Street Journal. If you're registered, you can read it online here.

 
 

Reader feedback
"They'd have to sue each individual company..."

http://webrock.net/Why don't we as an industry, both broadcast properties and webcast properties, simply state that we won't pay fees and we won't comply with regulations...period? Let 'em know up front that no matter what, we think it's crazy and we're not going to bother with it.

They'd have to sue each individual company or organization, and to be frank that would be ludicrous...

  Scott Hawk, President
WebRock.net


"One hell of a bill..."

It would be fun for you guys to guess how much money stations still streaming owe. I imagine that AOL is going have one hell of a bill for AOL Radio.

  Mark Cuban
Dallas Mavericks


"An obvious disparity..."

I don't see how the arbitration panel could have allowed the CARP fees to be based "per performance." Having once programmed a Classical channel with 3-4 songs per hour, as well as an Oldies channel with 23 songs per hour, there is an obvious disparity there.

Will formats that play shorter songs like Oldies, Americana and even Blues vanish from the 'Net as a result?

  Ron Smith


"Enron-esque RIAA/CARP bigwigs..."

These new rules are very old-school, and (what a surprise) cater to the money-hungry Enron-esque RIAA/CARP bigwigs.

If they really want to feed the MP3-sharing trend that is growing exponentially, this is a *great* way to do it. I'm not sure that's their intention, though.

  CJ


"Why should I pay twice as much?.."

Our programming approach has been to have a mass appeal rock music station, targeting a geographic niche of Connecticut. This has allowed us to generate significant local advertising...

The per song formula will be a substantial burden, especially when applied retroactively to the months when we had little or no advertising. However, my biggest question with the proposed fees is this: If the RIAA formula is per song, per person, why should I pay twice as much per song, per person as a broadcaster?

  Randy Borovsky, President
UltraRadio.com


"Where is the NAB?.."

Where is the NAB during all of this? Their silence has been noted.

Between the logging requirements and the rates, why bother to blaze new trails?

Where are the privacy advocates? We are to log and report each and every unique listeners EXACT listening habits (log on and off time as well as unique ID) so as to pay the fees? Sounds like we are handing quite a database as well as a check to the RIAA. I think we will bill our research company from this day forward for exact data.

  Deep background only
 

 
"You know why!.."

One thing that should be taken into strong consideration in regard to the RIAA copyright attempt is the fact that they deliberately spared the commercial broadcasters from the outrageous fees. Broadcasters were allowed a much cheaper rate.

WHY? You know why! The big radio corporations are most likely in it with the RIAA (publicly or otherwise). Radio wants to totally control the audio-only commercial playing of music...

It's not going to stop here. This battle will rage for the next 10 years. Quite honestly RIAA won't stop me from broadcasting FREE. As with everyone else, I will find a server somewhere in the world that will stream my audio. The publicity that will follow this RIAA attempt will in the long run attract attention to the Internet broadcaster. Attention we need!

  Dick Martin


"Cash-and-carry politics..."

Unless we’re all incredibly naïve, how can we be surprised that the CARP recommendations embrace the views of the recording industry’s deep-pocket members? The Enron Syndrome is hard at work here, and that still-expanding scandal should have taught us all by now how the decision-making process really works, just in case there was ever any doubt.

The corporate and industry-group chieftains hand over their fat checks to the political parties and their minions, and are then permitted to dictate what governmental policy will be.

Enron may be bankrupt, but the corrupt system of paid-for political privileges, undue influence and secretly-granted “favors” that it represents is still very much alive and well, and more vigorous than ever. The RIAA and its members know that the politicians will take their money and then do as they are told, which includes leaning on the bureaucrats when necessary to ensure that their “special friends” get what they paid for. This will continue to be the reality as long as we allow cash-and-carry politics in this country.

  Alan Furedi


"In outer space on this one..."

As a non-industry type who is troubled the CARP ruling purely because I enjoy listening to out-of-area music stations over the 'Net, I am totally baffled by this matter.

What ever happened to the days when record companies were falling over backwards to have their songs exposed to as many people as possible? Is the RIAA and/or the government now seeking to restrict consumer access to new music by forcing law-abiding webcasters to terminate operations?

The complete absence of logic in this situation just blows my mind, and hopefully the CARP ruling will be swiftly reversed. Perhaps radio stations should tell the record companies that they will stop adding any new songs until the issue is dealt with in a satisfactory manner. A few months of featuring recurrents only in the music rotation might even help ratings.

The RIAA may have had commercial reasoning on its side on the Napster issue, but they are way out in outer space on this one.

  Mark Ogden


"We'll play your...song for $0.25 a performance..."

Heard this today from a MAJOR radio station...

"Our strategy will be to launch a sister stream...not a rebroadcast...and then tell the labels, "Hey we'll play your new Madonna song for $0.25 a performance...how many would you like? Oh, and by the way, we like to try out new music on our stream before we add it to our station's playlist."

  Deep background only


"Erosion of...cultural choices?.."

A topic not discussed is the effect on web sites that program what might be call "fringe" music -- in my case Classical, but also folk, country, jazz, and other forms that make up single-digit portions of the RIAA sales picture.

Not only do blanket fees presently collected from broadcasters fail to be distributed equitably (or at all) to those who make the recordings, but with smaller listener bases, streaming web sites will have a much harder time surviving if they have to tack on this new fee to their advertising rates. And those that don't have advertising will have outrageous expenses with no income.

Some classical music lasts over an hour. How can anybody ethically charge for 15 "songs" in this case?

ClassicalMusicDetroit.com...will be an endangered species if the proposal is accepted.

How do Americans effectively stop this erosion of their cultural choices?

  Brendan


"Establishing low-power stations?.."

Jim Lambert's comment that webcasters should buy wireless microphones to qualify their programs as broadcasts is amusing. On a more serious note, however, his point raises a reasonable question.

If "broadcast" includes low-power FM stations, wouldn't it be feasible for pure webcasters to put minimal investment into establishing low-power stations at various locations just to qualify for the broadcast rate? Or to enter into cooperative arrangements with existing stations to pick up their transmissions?

And is it permissible for ad-insertion type technology to be used to tailor the non-music portion of the program for a web audience while simulcasting the music portion, or would that make it a separate web-only cast?

  Rick Brown


  Feb. 27-Mar. 3, 2002 Canadian Music Week 2002: Toronto, Ont., CA
Mar. 1-3, 2002 ConXis: Conference and Expo for Internet Streaming: Rosemont, IL
  Mar. 14, 2002 16th Annual Bayliss Radio Roast: New York, NY
  Apr. 5-8, 2002 Broadcast Education Association 2002: Las Vegas, NV
  Apr. 6-11, 2002 NAB 2002: Las Vegas, NV
  Apr. 23-26, 2002 Streaming Media West 2002: Los Angeles, CA
 
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