The Copyright Royalty Board (CRB) will announce the Webcaster IV proceeding by today. The ruling could arrive one minute after this article is published, or not until late in the day. Today we get an outline, including the royalty rates. Full documents from the CRB, including argument summaries and the Board’s reasoning, will take longer. Those documents go first to litigants in the proceeding, for redaction of sensitive non-public information. (Thanks to broadcast attorney David Oxenford for that tip.)
Here’s the background, the players, and what’s at stake.
The CRB process regulates music licensing rates for streaming use of recordings. The royalties specified by the CRB get paid to labels. From there, the money is shared with performers on records and other production stakeholders.
People who create music — songwriters and composers — get paid in an entirely different process regulated by different government instruments.
The CRB rates apply to non-interactive webcasters. That generally means Internet radio like Pandora (the biggest), iHeartRadio, AccuRadio, Live365 stations, Radionomy and Shoutcast stations, webcasts of terrestrial radio, and many other online radio brands.
The CRB rates do not apply to interactive music services like Spotify, Rhapsody, Tidal, Apple Music, YouTube Music, and Deezer. Those on-demand platforms negotiate rates directly with labels.
Who Does the CRB Listen To?
The CRB invites any company in the webcasting business to submit a petition for higher rates, lower rates, a different rate structure, or really any argument about the rates. The submission period is followed by a litigation process that involves more submissions which argue against the first round of submissions, and more submissions after that which reply to the arguments.
After all the legal briefs there is a real-time litigation process which resembles a courtroom trial — but no jury.
In this royalty cycle, the main combatants were Pandora (which, as the largest webcaster, has the most to gain or lose from a rate change), and SoundExchange, the government-recognized organization which collects royalties from webcasters and distributes the money to labels. Pandora wants lower rates. SoundExchange wants them higher.
What’s the Rate Now?
As always with government oversight, it’s complicated. There are multiple rates. For example, webcasts of public radio, and also of college stations, enjoy special (lower) rates than the big commercial brands. Radio station streams also pay a different rate. (Over-the-air radio pays nothing to labels. So radio stations have two cost structures for the music they use, if they stream, which most do.)
The headline rate of the CRB process is for pure webcasting — that’s the rate Pandora pays. It is normally stated as a cost-per-play of one track served to one listening device.
That rate has been $.0014 this year. At the start of the current five-year royalty period, the rate was $.0010. The CRB has delivered rates that escalate through the five-year periods.
But Wait — There’s a (Big) Wrinkle
When the CRB completed its process in 2005 (for the 2006-2010 period), the ruling was challenged by pureplay (Internet-only) webcasters. The result, reached by settlement in July, 2009, is called the Webcaster Settlement Act of 2009. It dramatically lowered the CRB rates that started in 2006, and furthermore established a royalty-rate plan that stretched through 2015 — that’s now.
The settlement permits lower per-play rates because it includes a calculation of total revenue, and factors it into a webcaster’s rates. Webcasters could choose to opt in to the settlement, or stay with the original CRB per-play rates.
The 2009 settlement also distinguishes between large and small webcasters based on revenue ($1.25-million is the threshhold). What follows from there is complex, but small webcasters need to be concerned about the settlement’s expiration without knowing whether its structural principles will be carried forward into 2016-2020.
The expiration of the Webcaster Settlement Act makes the CRB’s imminent ruling even more unpredictable than it would be as a refresh of the five-year period. It is essentially a refresh of a ten-year rate structure.
What’s Going To Happen?
Could be anything. Nobody knows the CRB sentiment, how the rates will be structured, how the pureplay webcast industry will be carved (if at all), or whether the cost to webcast music will go up or down — regardless of ungrounded predictions.
What’s At Stake?
The cost of music. Balance sheets. Webcaster survival. Label and artist income. Outlook for webcasting. The future of Pandora. Product development strategies. The pace of marketplace negotiations outside of statutory rates. The shape of the industry and the size of the pipes which move money through it.
Pandora is an obvious focal point. The market-leading Internet radio brand, a publicly-traded company, has been operating all year without knowing its most important cost of business next year. Watch the stock price of P when the announcement arrives.
Beyond Pandora, the beauty, variety, and entrepreneurial aspect of Internet radio depends on a rate solution that allows small webcasters (of many degrees of smallness!) to operate with an acceptable balance of risk and opportunity.
It’s the biggest story of the year for Internet radio.