17

CRB royalty rates arrive today; here is the prep sheet

copyright royalty boardThe 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.

Which Rate?

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.

 

Be Sociable, Share!

Brad Hill

17 Comments

  1. My family and I listen to a variety of overseas streams. How will this affect internet stations overseas?

    • I think the stations that will be hurt the most by this and will most likely have to stop streaming will be the small webcasters (the ones on StreamLicensing.com or Live365.com) more so than the big webcasters (Pandora, Accuradio, etc.)

  2. These are American regulations for American webcasters. So, even though you and your family are listening in the U.S., the overseas streams will not be affected by whatever the CRB rules.

    • That wouldn’t surprise me one bit. The major labels want to get rid of freemium and silence indie artists.

    • My problem is that I have too many streams that I listen to. They’re scattered around on various sites – StreamLicensing.com, Live365.com, and Radionomy.com. Some are US based and some are UK based. If the ones I like from the US have to go to a subscription fee for listeners, it would be too expensive for me to choose to listen to all of them.

  3. “The royalties specified by the CRB get paid to labels. From there, the money is shared with performers…”

    This isn’t accurate. SoundExchange pays out 50% to labels (or more specifically, the copyright owner for a given sound recording), 45% directly to the featured artist of a recording, and 5% to the musicians’ union for compensation of session musicians across the board. It has been legislated explicitly that the artist’s share of the money NOT pass through the label’s hands. This is one of the big differences from on-demand streaming (Spotify, Apple Music, etc), wherein rates are set by direct market negotiation and the artist’s share is bundled in to the per-stream royalty paid by each service to the label owning a recording.

  4. i see how this affects a lot of bigger stream radio station’s for sure my question is this is this going to be a survival thing of who has the most money to pay this rate change and or hike affect’s a station like chilltrax radio who exist on donations and not on ad’s , i see no clear line here ! this would be forcing them out of streaming music for which so may enjoy listening too, so i see a type of discrimination of the haves and have not’s or is that the underlying idea here ! ? if this is the case there really is no sense in having phone app’s or tablet or computer what would be the sense in having a radio app when most of the your favorite station are gone because of this royalty board rate’s decision i hope the board has more common sense then greed or a lot of the smaller station’s wont be there anymore because they could not afford the cost raise !

  5. I don’t understand why Pandora is considered non-interactive. I’m currently trying out their free, ad-supported tier. It allows me to build my very own personal radio station based on a particular artist, even a particular song. I can skip tracks, I can give a track a thumbs up, or give a track a thumbs down and I won’t ever hear that track again. That seems to be interactive to me.

    • That’s a very good point, and one that content providers have tried to make without much success in past battles with Pandora…if you look at the statutory language, too, it paints “interactive” in pretty broad strokes that fall far short of on-demand streaming and seem to me at least to firmly fall in line with what Pandora lets listeners do…apparently it’s interactive just somehow not interactive enough, which has been pretty convenient for Pandora up to now.

      • Pandora’s “interactive,” but not interactive in the sense that you can’t see what song is going to be played next. You can’t request a specific song to be played at a specific time. You’ll never hear an entire album by an artist played sequentially (or even more than a couple tracks within a given time). It’s more like terrestrial radio in this regard.

  6. What bugs me about the whole CRB proceedings is why should the organization that has the government monopoly to collect and distribute royalties (SoundExchange) the ones who are arguing for higher rates? Shouldn’t they stay neutral in this? The worst thing is that SX isn’t representing all labels/rightsholders. There are lots of little labels that value the promotion from internet radio.

    • SX is an advocacy group created by statute to monitor the compensation of content creators…if they weren’t arguing for higher rates (or even just trying to hold the line against the 50% rate decrease that Pandora wants), I wonder who would? And by law, SX does indeed represent all labels/rightsholders. If you’ve been played on internet radio, someone’s paid them your royalties. You might argue against the fact that SX was ever brought into being, but again, it would be a question of who then plays devil’s advocate to Pandora’s race to the bottom. As things stand now SoundExchange is the best placed and most appropriate player to do so.

  7. There should be 3 categories: Fully Interactive (non-statutory licensed, e.g. Spotify); Semi-Interactive (like Pandora) and Non-Interactive (like traditional radio, e.g. Beats 1, Live365, DI/SkyFM, SomaFM, FM radio simulcasts). Semi-interactive and non-interactive should have different rates.

  8. I’m still crying for the tiny Small-Town Full-Service radio stations that probably couldn’t even dream of affording Online Streaming regardless of the 32% drop in costs…It bothers me that the Small-Town Radio Stations didn’t propose a special Royalty Rate for Commercially-formatted radio stations that operate on a low enough budget…Although $0.0017 per performance is not ½-bad, I would have preferred a drop to at least perhaps $0.0010 per performance…There are so many wonderful radio stations in rural areas of this country, for example, that service listening areas that have been hit very hard by the economy and the songs they air are so interesting and I just think we should stop setting up a landscape that benefits only the richest and most predictable of radio stations having the financial resources with which to pay for all those Royalty Fees with…Just Sayin’…

Leave a Reply

Your email address will not be published. Required fields are marked *