Posted on the U.S. Copyright
Office's website today is
the 146-page report of the the recent Copyright Arbitration Royalty
Panel (CARP) hearings on Internet radio royalties, which reveals
that the fees recommended by the panel are based almost
on a deal cut between the RIAA
in Summer 2000.
Those fees effectively
about 2¢/listener-hour for
webcasters and half that for broadcast radio simulcasts, retroactive
to October 1998 (see 2/20/02 RAIN
are perceived by most parties involved as so high that they
will effectively kill
as an industry if accepted by the Copyright Office.
"The Yahoo!-RIAA negotiation was the only
one to reflect a truly arms-length bargaining process on a level
playing field between two major players of comparable skill, size,
and economic power," the
three-member panel of arbitrators said in their report.
Note that the Adobe Acrobat ".pdf" file (available
via the "CARP Report" link here)
contains blacked-out words and phrases on almost every page (represented
as "xxxxxxx" in the quotes below, which is how it cut-and-pastes
from Acrobat), representing an effort on the part of the Copyright
Office to protect confidential business information (as requested
by participating parties).
Unless one or more CARP participants files an objection by this
Wednesday, the panel's recommendations will become law in 60 days.
We'll have a follow-up report on the document later today in
RAIN, but here are some of the key interesting points:
RIAA proposed per-song rates
or, for B2C, 15% of revenues...
"Based upon these agreements, RIAA proposes the following
rates for DMCA compliant webcasting services: (a) For basic business
to consumer (B2C) webcasting services, either 0.4¢
transmission of a sound recording to a single listener, or 15%
of the services gross revenues; (b) For business
to business (B2B) webcasting services, where transmissions
are made as part of a service that is syndicated to third-party
web sites, 0.5¢ for each transmission of a sound recording
to a single listener; and (c) For listener-influenced
webcasting services, where the transmissions are partly influenced
by the listener, 0.6¢ for each transmission of a sound
recording to a single listener...
"RIAA further proposes a minimum fee, subject to certain
qualifications, of $5,000 per webcasting service and a Section
112(e)(1) ephemeral license fee of 10% of each services
...while Webcasters proposed per-song
or per-hour, based on elaborate theoretical model
"The Webcasters model is fundamentally premised
upon the notion that, in the hypothetical marketplace we seek to
replicate, copyright owners would license their sound recording
digital performance rights and ephemeral reproduction rights to
webcasters at a rate no higher than the rates at which
music publishers (through the PROs) have licensed their musical
work analog performance rights to over-the-air radio broadcasters...
"By combining [ASCAP-BMI-SESAC] fee data with data on
the Arbitron 'ratings' or listening audience of these stations,
Webcasters converted the over-the-air music stations fees
paid to the Pros into an average fee paid by an over-the-air broadcaster
per 'listening hour...
"Webcasters...argue that, if royalties paid to musical
works copyright owners are to be used as a benchmark for royalties
that should be paid to sound recording copyright owners, an adjustment
to account for the greater promotional benefits received by the
sound recording owners relative to the musical work owners...
"To determine the appropriate adjustment, Webcasters
assumed that 27% of all record album sales
were directly attributable to record play on the radio... Webcasters
then calculated the promotional value discount that reflects the
difference in the total remuneration derived by sound recording
owners and musical work owners from the sale of record albums promoted
by over-the-air radio....
"Applying this discount to Webcasters per-performance
benchmark of 0.02¢ and their per hour benchmark of 0.3¢,
yields a proposed per-performance fee of .014¢ and a
per-hour fee of 0.21¢.
Note that the
Webcasters' case, as presented to the CARP panel, took a
roundabout route, starting with the ASCAP-BMI-SESAC %-of-revenues
royalty rate and turning it into a per-song rate.
For webcasters who were hoping for a %-of-revenues rate, that
was a fatal decision.
failed to provide evidence
of Internet radio's effect on record sales
"We cannot conclude with any confidence whether any webcasting
service causes a net substitution or net
promotion of the sales of phonorecords..."
"The evidence adduced by RIAA on this issue, consisting
entirely of anecdotes and unsupported opinion testimony, is unconvincing...Indeed,
RIAA did not attempt to offer any empirical evidence to support
its 'concerns' that webcasting causes a net substitution of phonorecord
"Webcasters also failed to present any compelling evidence.
In addition to a plethora of similarly unsupported opinion evidence...
they produced some unpersuasive empirical evidence... to support
their claim that webcasting actually causes a net promotion of phonorecord
"Most reliable benchmark
was never implemented
"The most reliable benchmark rate would be established
through license agreements negotiated between these same parties
for the rights described. Unfortunately, the record contains only
one agreement that appears to meet all three of these parameters,
namely, the agreement between xxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxx. See xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxx, testified that xxxxxxxxxxx
was a fully DMCA-compliant service.
"The agreement provided for a royalty rate of xxxx per
performance with xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. Regrettably,
while directly on point this agreement can be accorded little weight
because it was never implemented, and xxxxxxxxxx
therefore never paid any royalties under it. Rather, xxxxxxxxxx
its streaming to a third party, which apparently deemed the agreed
rate too high and elected instead to avail itself of the compulsory
license rate set in this proceeding."
What deal are they
describing here? Notice that "xxxxxxxxxx"
contains the same number of characters as "ClickRadio."
(the first instance) doesn't, "Click Radio" with a
space does contain that many characters.) (If you have
a better idea, e-mail me here.)
rule on rate : Actual negotiations
between relevant buyers and sellers
"The [Webcasters], on the other hand, contend that these
agreements are fatally
tainted in numerous respects and that willing buyer/willing seller
rates are best derived from the thoughtful, theoretical model developed
and explicated by Dr. Adam Jaffe, a distinguished economist. In
essence, the parties ask us to choose between theory and practice,
with each side pointing out numerous alleged flaws in the opposing
"If we can observe agreements that willing buyers and
willing sellers actually negotiated in the relevant marketplace,
we would generally expect their negotiated rates to already reflect
the parties joint perceptions of the various factors identified
in Sections 114(f)(2)(B) and 112(e)(4). In that event, no
further rate adjustment would generally be required to
determine a willing buyer/willing seller rate." (pg. 83)
Rate for radio retransmissions
based on RIAA/Yahoo! deal
"Broadcasters note that broadcasters represent more
than 1500 of the 2300 entities which filed Notices of Intent to
use the statutory license... They argue that the fact that RIAA
was able to negotiate agreements with only 26 webcasters, but with
none of the 1500 broadcasters, demonstrates that broadcasters and
webcasters represent different groups of willing buyers,
which would negotiate different rates in the marketplace.
"Although no party has adduced a single digital sound
recording performance license agreement with any radio broadcaster,
the Yahoo!/RIAA agreement entails retransmissions of the same types
of radio stations signals, albeit by a third party Yahoo!.
The Panel has already determined that the typical willing buyer/willing
seller rate for that RR" radio retransmission
"rate is 0.07¢ per performance.
"The Panel must now decide whether the record suggests
a different rate for retransmission of an identical radio signal
by the station itself -- rather than by a third party.
We find the record (and consideration of the statutory factors)
utterly devoid of evidence implying a higher
rate and insufficient to warrant a lower rate..."
"In sum, the Panel finds no reason to set a different
rate for broadcasters (that simulcast their own signals) than for
third parties that retransmit the same signals on behalf of the
broadcasters. Accordingly, we determine the willing buyer/willing
seller commercial broadcaster rate also to be 0.07¢ per performance."
In other words, the deal that Yahoo! cut with the
RIAA almost two years ago -- in the
heat of the dotcom craziness! -- has been used to
set the the rate for over-the-air broadcasters today.
the rate for side channels
also based on Yahoo! deal
"The record is devoid of direct evidence of the willing
buyer/willing seller rate for archived radio retransmissions. But
the Panel must resolve which rate, of those we have already determined,
should apply to these retransmissions the 0.07¢ RR (and
commercial broadcaster) rate, the 0.14¢ IO rate, or some other
"In accordance with our previously articulated reasoning,
the best benchmark for
determining royalty rates for the transmission of archived programming,
programming, and substituted programming, is the Yahoo!/RIAA license
That agreement provides compelling record evidence of two willing
rates: (1) a rate for Internet retransmissions of AM/FM broadcasts
(RR rate); and (2) a
rate for all other Internet transmissions."
document is quite large, and there's lots more analysis
to be done. Please look for follow-up stories in RAIN
tomorrow -- and perhaps even in an afternoon update today.
On Friday, we showed you the first draft of a petition letter
that some industry leaders intend to send to the US Copyright Office
in protest of the webcasting streaming rate recommendation of the
MeasureCast and Ultimate80s.com are the companies behind
this effort. The letter has recently been updated, and is viewable
RAIN, on behalf of the companies above, is accepting input
and ideas for the letter. When the letter is complete, we will provide
instructions on how you can participate in this appeal effort. In
the meantime, please keep your input and ideas coming. If you have
some thoughts on the letter, please feel free to e-mail email@example.com.
about how the ruling isn't fair doesn't seem to result in something
that the copyright office could deem actionable. (That) would suggest
that this letter is an effort in futility.
In my opinion, the best case you could make would be one that
said that the decision was technically correct but practically
unworkable. Lay out the numbers and compare it to the publishers'
arrangement (the specifics don't matter, just the structure) which
is based on a % of revenue model.
Take a webcaster that generates an AQH of 15,000 M-Sun 6A-Mid.
That's about what a 4 share radio station in market #30 would generate.
Streaming royalties would be somewhere between $1.5mil and $2mil.
That station would generate about $6mil in revenue. Lop off
about $1.5 mil in agency and sales commissions and you're down to
$4mil. Add steaming costs of about $500,000 and you're down to $3.5
mil. Throw in marketing costs of $500,000 and you're down to $3mil.
ASCAP, BMI and SESAC would cost about another $250K. Now you're down
to $2.7 million. Which leaves about $1 million for salaries, rent,
insurance and everything else that goes into the basics of running
Point of fact is the $1.5-2mil in webcasting royalties comes
dangerously close to BEING the profit that a typical 4 share station
in mkt. #30 would generate.
The issue isn't whether webcasting is currently profitless,
as all new businesses are. Much money is invested with the assumption
that unprofitable start ups will one day become cash cows. The real
issue is that webcasting can never be profitable paying these kind
of licensing fees. The "unworkability" of this model scales up or
down. The profit inherent in a 15,000 AQH/$6million radio (terrestrial
or Internet) property is wiped out by a licensing obligation of upwards
of $2 million. Thus, the solution arrived at pretty much precludes
webcasting. Technically correct, but practically unworkable.
Ask the copyright office that if it could be proven that no
webcaster could survive such licensing obligations, would they have
grounds to redo this. Or, if something is technically correct but
beyond unfair, rather, is literally fatal to a business class, would
they let it stand.
it, and believe in it!"
Laurence has made available a FREE MP3 to run online. Not only
does he have TOP NOTCH A++ pipes but he says it well.
Log on to http://www.teltronik.com/radio/mp3/internet_radio2b.mp3
to get your free MP3. Run it, and believe in it! We need to beat the
bad guys before they suck our bank accounts dry!
Good Time Oldies Radio Dot Com
From The Wall Street Journal: "Only a few years
ago, politicians and regulators at least paid lip service to the
government should stay out of the Internet as much as possible.
So why is everyone in Washington clamoring to meddle in the online
"At the Federal Communications Commission, a new proposal
would make it easier for the Bells to dominate high-speed Internet
service. In Congress, the controversial Tauzin-Dingell bill seeks
to accomplish the same thing. Meanwhile, over at the Copyright Office,
they're mulling a plan that could kill the fledgling Internet radio
industry. And if Sen. Fritz Hollings has his way, the personal computers
of the future will be designed to congressional specifications.
"Nothing escapes government entanglement, of course.
But this current flurry of activity is especially troubling for
two reasons. First, technology is complicated, which makes these
issues easy to get wrong. Second,
all of the measures directly affect consumers -- yet consumers seem
to have very little voice in
"Even as politicians and regulators profess their passion
for broadband, they're busy attacking applications that could
increase demand for high-speed Net access. The Copyright Office
is considering an arbitration panel's report that would determine
royalties for songs streamed to listeners online -- and penalize
the independent Web broadcasters that give music fans an alternative
to broadcast stations' endless top-40 fare and inane DJ blather...
"At Live365.com, which streams broadcasts by hundreds
of Web DJs, the proposal is a huge blow. The company favors compensating
artists but wants rates that won't destroy the Web radio movement
before it has a chance to grow. If you want to weigh in, e-mail
the Copyright Office at firstname.lastname@example.org."
This article is available in today's Wall Street Journal.
If you're registered on the site, you can read it here.
ongoing coverage of the CARP and RIAA license fee
arbitration is brought to you by these fine firms:
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