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SoundExchange cuts deal on webcasting rates
Submitted by jonathan on Tue, 2009-07-07 22:49
by John Timmer, Ars Technica
The long, strange saga surrounding webcaster royalty payments is (mercifully) over after a multiyear fight.
Back in 2007, the US government's Copyright Royalty Board set royalty rates for the online streaming of music that many in the business felt were unrealistically high for a nascent market, leading at least one prominent streaming service, Pandora, to threaten to pull the plug. Negotiations over an alternate pricing scheme broke down earlier this year, leaving things looking grim. With a slight nudge, however, the parties returned to the table and today announced an agreement that provides webcasters with a new royalty structure.
The fact that negotiations were even happening took Congressional action. In 2008, Congress passed the Webcaster Settlement Act [sponsored by Rep. Jay Inslee, D-WA], which gave the webcasters roughly a year to come to terms with SoundExchange, the entity that collects royalties on behalf of the rightsholders. But the deadline set in that act expired earlier this year, an event that triggered the breakdown of the negotiations.
Pandora founder Tim Westergren tells Ars that the parties were reasonably close to an agreement at that point, but backed away once the deadline passed. Westergren credited a number of factors for getting things back on track, including pressure from the webcasters' audience and some innovative ideas from A2IM, a trade group which represents independent musicians; he also praised Representative Howard Berman (D-CA) for getting the parties an extension on the deadline.
"Collectively, they pushed us across the finish line," Westergren said, "if we didn't have have any one of those, this never would have happened." A2IM president Rich Bengloff also praised Berman and the extension he crafted for enabling the agreement.
The settlement announced today is being called "experimental" by SoundExchange, but will actually run for at least five years. "2015 is not an experimental period of time," quipped Westergren, noting that the deal should provide the certainty required for companies to develop more concrete business models.
The terms divide webcasters into three segments: subscription-based, and large and small free services, with "small" being defined as less than $1.25 million in revenue. All webcasters would pay a minimum fee of $25,000 for legal access to the music they stream, but that money could be applied to what they owe in royalties, making it more of a down payment. Those providing subscription or syndicated services will pay the same rates as SoundExchange charges traditional broadcasters.
The larger streaming services will have the option of choosing to pay either a per-performance fee or a flat 25 percent of revenue under the new agreement. Smaller webcasters have to pay either the percentage of revenue or a percentage of their total expenses, whichever is greater. Westergren said that this should keep the cost of music a manageable expense for new services, which would pay percentages of revenue only after they have established a steady stream of it. These percentage payment structures will provide ways to avoid the per-performance fees that were expected to cripple webcasters, and they will provide webcasters with greater certainty about the expenses they'll face going forward. Smaller companies will also be able to pay a flat fee that will release them from the need to report precise statistics on which music they stream.
John Simson, Executive Director of SoundExchange, didn't exactly give the agreement a ringing endorsement. "We believe the rates the CRB set were appropriate and fair," he said in a statement, noting elsewhere that "time will tell if revenue sharing is the right move for both the recording community and webcasters."
Just about everyone else, however, was enthusiastic. A2IM's Bengloff noted the increased importance of webcasting for his constituency, stating, "For all artists and music labels, performance income continues to become more important as replacement income for recorded music sales as consumer consumption patterns shift from buying music to listening to music. For independent artists and labels, agreements like this settlement ensures independents can continue to reach our growing number of fans and be compensated fairly and on the same basis as all creators, regardless of the size of the artist or music label, so we can continue to create new music."
Westergren had similar thoughts, telling us, "This is a win for a lot of people, not just a reprieve for webcasters. This is good for musicians, because Pandora and others play a lot of music that definitely doesn't appear on the radio." The fact that musicians and rightsholders were given a percentage of revenue, he said, would better align their incentives with those of webcasters.
But the key feature of the agreement may be that existing webcasters can stay in business without radically changing their models.
"First and foremost, it's a huge relief for us," Westergren said. "If it hadn't been resolved, we would have been done." In a blog post, Westergren indicated that the new agreement can be implemented without major changes in Pandora's pricing scheme. If the experience of other companies is similar, then webcasters may have gained the breathing room needed to develop into an essential component of the music business.article originally published at Ars Technica.