SoundExchange "settlement" offers lower royalty option for micro-webcasters

by David Oxenford, Broadcast Law Blog

[RTM note: this article was originally published on 28 March 2009. We repost it here in response to questions about the recent settlement between SoundExchange and "pure-play" webcasters, which establishes a $25,000 minimum payment for webcasters. The microcaster settlement described below provides lower rates for very small web stations - $600 per year for the smallest stations with no recordkeeping, or a $2000 a year minimum for stations with a larger listenership but revenues less than $50,000.]

With all the recent discussion of the NAB-SoundExchange settlement and the recent Court of Appeals argument on Copyright Royalty Board decision on Internet Radio royalties, we have not summarized the "settlement" that SoundExchange agreed to with a few very small webcasters. That agreement would essentially extend through 2015 the terms that SoundExchange unilaterally offered to small webcasters in 2007, and make these terms a "statutory" rate that would be binding on all copyright holders.

The deal comes with caveats - that an entity accepting the offer would be prevented from continuing in any appeal of the 2006-2010 royalties and from assisting anyone who is challenging the rates in the CRB proceeding for rates for 2011-2015, even if the webcaster grows out of the rates and terms that SoundExchange proposes. Once it signs the deal, it cannot have any role before the court or CRB in trying to shape the rates that his or her company would be subject to once they are no longer a small webcaster until after 2015.

Even with these caveats, the deal does provide the very small webcaster the right to pay royalties based on a percentage of their revenue, and even provides some recordkeeping relief to "microcasters", the smallest of the small webcasters. Parties currently streaming and interested in taking this deal must elect it by April 30 by submitting to SoundExchange forms available on its website for "small webcasters" (here) and "microcasters" (here).

The Small Commercial Webcasters that I represented in the Copyright Royalty Board proceeding did not negotiate this deal. In fact, no party who participated in the CRB case signed the "settlement", yet it has become a deal available to the industry under the terms of the Webcaster Settlement Act as SoundExchange and some webcasters agreed to it. My clients have been arguing for a rate that allows their businesses to grow beyond the limits of $1.25 million in revenue and 5 million monthly aggregate tuning hours set forth in this agreement.

But for very small webcasters not interested or able to participate in regulatory efforts to change the rules, and who do not expect their businesses to grow significantly between now and 2015, this deal may provide some opportunities. The webcaster pays 10% of all revenues that it receives up to $250,000, and 12% of revenues above that threshold up to $1.25 million. If it exceeds the $1.25 million revenue threshold, it can continue to pay at the percentage of revenue rates for 6 months, and then it would transition to paying full per performance royalty rates as set out by the CRB. A service would also have to pay for all streaming in excess of 5 million monthly ATH at full CRB rates. Microcasters, defined as those who make less than $5000 annually and stream less than 18,067 ATH per year (essentially an audience averaging just over 2 concurrent listeners, 24 hours a day 7 days a week), need pay only $500 a year and, for an additional $100 a year, they can be exempted from all recordkeeping requirements.

Note that this deal also imposes a new restriction on webcasters who agree to be bound by it. If they ever accept a deal to sell to a company that would not qualify as a small webcaster under these terms, the entire benefit that they receive from being a small webcaster gets "recaptured" from the purchase price, i.e. they have to pay to SoundExchange all the money they would have owed were they subject to the CRB rates back to January 1 2006. If they cannot compute that amount, they have to pay as if they had 5 million ATH for the entire period that they were operating pursuant to the small webcaster agreement.

This deal may provide some opportunity for small webcasters to operate though, once they hit the revenue or ATH limits, the significant CRB royalties kick in. So this is a deal that only makes sense for companies for a limited period of time and, if they outgrow it, they must be prepared to jump off a steep cliff as they fall into the CRB-imposed rates. This deal also raises questions about fairness and equality as, if the performance royalty that SoundExchange seeks to impose on broadcasters gets Congressional traction, small webcasters under this deal would be paying more than twenty times the amount that small broadcasters with a similar amount of revenue would pay.

Is this a fair deal? Maybe not but, unless the appeals of the CRB decision are successful or unless some other deal comes along, for small webcasters, this may be the only way that some may be able to stay in business. Small webcasters will need to surrender some rights to fight the royalties, and will have to live with the other provisions of the deal, and weigh those downsides against the opportunity to continue streaming in deciding whether to sign on to this deal.

article originally published at Broadcast Law Blog.

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