Internet Radio, Copyright, Copywrong and $$$
The end of the road for Internet Radio was near. The execution of the Internet radio by SoundExchange, the body that represents copyright owners, was to have been on Sunday.
And Dejavu happened on the way!
Go back about 5 years: In 2002, there was a royalty deadline looming and then a meeting between SoundExchange and small webcasters took place which made possible the creation and adoption of the Small Webcaster Settlement Act. Webcasting was a nascent industry, it needed nurturing, it needed a way to grow. So for independent webcasters with rev of $1.2M or less, a special deal was worked out. Great!
In 2007, we are exactly at the same place, minus the sanity of SoundExchange.
I understand the copyright issues here; they are kind of interesting but I am more fascinated with the business decisions.
The copyright owners, represented by Soundexchange, can do whatever they want with their copyrighted work. That’s the Copyright law. It says that they have to allow the internet webcasters to stream the music at a certain price. Soundexchange is willing to do it but unfortunately it wants to collect $1B first as administrative expense by charging $500/per channel under some ridiculous formula and wants royalty per song to be the same as a cup of Starbucks coffee. Under this formula RealNetwork owes them $200M/yr for “administrative expense”. They tweaked it a bit but the issue still remains.
SoundExchange wants minimum payments; Again for webcasters, its a non-starter. In almost all cases, if royalty rates that have been set are applied, the royalty amount due will be 3-5 times the revenue generated by the webcaster. Currently the webcasters pay ~10% of the revenue and it will go to 300% of the revenue.
This morning, Soundexchange realized that executing the internet radio also means that it will have to shoot itself in the foot. They announced that SoundExchange will not enforce the royalty hike on Monday but will try to work out some reasonable settlement.
This will drag on for a few weeks, some groups will work out a special deal, others will be subject to the new royalty rates, and it will be a huge mess!
Webcasting and internet radio is going to be huge but its not there yet. But I can tell you this with some confidence that the economics of webcasting, especially for small webcasters, is going to be the same as it is right now, for a long time to come.
Webcasters compete with satellite radios pay and about 7.5% as royalties. Webcasters should pay more because they do not have a subscription model but that number needs to be at 10-12%, with no minimum fees per channel. Who came up with channel thing anyway? I know that the comparison with the satellite delivery is not perfect, but its a good starting point as the basis for charging tariffs on internet radio.
If the internet radio is silenced in this country, many non-US broadcasters will try to extend their reach; that’s not copyright enforcement, that’s “copywrong”.
I fully respect and understand the copyrights owned by Soundexchange; I have counseled and litigated copyright cases, but this is not a copyright issue, this is a pricing issue; It is no different than setting the pricing for a widget correctly, so that it not only benefits the distributor, but generates sustainable revenue for the content producer.
And the solution is to follow the $$$ signs and optimize for the long term.
There is a revolution happening, and I want it streamed!
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By Dube on Jul 13, 2007 | Reply
I agree that the satellite delivery system is not a good comparison for how much should be paid to sound exchange. Satellite is paying about 7.5% of the rev; but the rev includes both the music and delivery.