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CRB: Small webcasters face January 1 with fear, anger, hope, and strategies

mountain streamSmall webcasters feel left out. The music licensing terms under which they have been operating since 2006 are about to expire. Countless small businesses, many of them streaming unique programming in specialized music categories, could shut down this week.

On December 16 the Copyright Royalty Board (CRB) fulfilled its every-five-year function of determining new royalty rates which kick in January 1, and made no mention of the Webcaster Settlement Act of 2009 (WSA), which gave indie pureplay stations special rates designed to encourage business development. The WSA expires at midnight on December 31.

As of this post, small webcasters are facing increased royalty rates to record labels estimated at eight to 14 times what those stations have been paying for years. Owners of independent streaming stations who have contacted RAIN News have expressed dismay, fury, and guarded hope that the omission of a carve-out for small webcasting represents a delayed solution that could still arrive in time.

There might be reason for hope. The CRB has not yet released its entire documentation which substantiates its rate decision and provides the legal reasoning of the three-judge panel. The full determination will not contain additional royalty terms, but it might contain information with which SoundExchange can decide whether to advocate for small webcasters. (See more about SoundExchange’s role below.)

The Board did release basic per-stream rates for commercial webcasters. The headline number, 17 cents per hundred non-subscription (ad-supported) stream plays, traced a line almost exactly in the middle of what Pandora hoped to pay (11 cents), and what SoundExchange hoped to receive on behalf of music labels (25 cents).

Pandora expressed satisfaction with the new rate. But SoundExchange was officially unhappy on behalf of its label clients, stating that it would consider options. That sentiment is important for small webcasters to recognize, as a possible indicator of whether rights-holders will be in the mood to carve out special, even lower rates for low-revenue streamers. (All speculation on this matter is just that — speculation.)

The Role of SoundExchange

Whether SoundExchange, which collects and distributes webcasting royalties for labels, values the revenue of small webcasting is unknown. The question is important because it was SoundExchange which negotiated the Webcaster Settlement Act of 2009. (An earlier law, the Small Webcaster Settlement Act of 2002, authorized SoundExchange to do so.) The 2009 agreement allowed small webcasters to avoid the per-stream rate set by the CRB, by opting into a calculation that takes a percentage of revenue, for webcasters falling below a total revenue threshold.

Will SoundExchange advocate for small webcasters again? And if so, will it do so in time to prevent those indie streamers from going out of business on January 1, or soon after? Those are the questions keeping small-business webcasters awake during the holidays. (In response to a query from RAIN News, SoundExchange provided background information which informs this article, but declined to comment on the future of small-scale webcasting.)

Two facts make it seem unlikely that small webcasters will get any joy before January 1. The first is that SoundExchange has not received the full CRB determination, and therefore does not have the full story any more than webcasters do. Nobody knows when the complete documents will be released. The second fact is about advocacy — small webcasters were not represented in the two-year run-up of arguments and litigation that preceded the CRB rate announcement. Participation was expensive, so it’s not a surprise that individual stations could not carry the mantle in Washington. But neither did small webcasters organize a coalition to participate, as college stations and public radio did. While the small webcaster plight might be obvious to anyone following along during the last 13 years, it was not represented in the arguments, and is not represented in the ruling.

A Built-In Assumption

It is worth noting that the expiring agreement negotiated by SoundExchange was created in the context of a less mature streaming market, with the intent of incubating webcasting businesses. The following language from the Webcaster Settlement Act is pertinent:

“It is the intent of Congress that any royalty rates, rate structure, definitions, terms, conditions, or notice and recordkeeping requirements, included in such agreements shall be considered as a compromise motivated by the unique business, economic and political circumstances of small webcasters, copyright owners, and performers rather than as matters that would have been negotiated in the marketplace between a willing buyer and a willing seller.”

david oxenford canvas

Broadcast law attorney David Oxenford

We asked broadcast law attorney David Oxenford whether that language describes an intentionally impermanent situation for small webcasters — in other words, whether it was assumed in 2009 that the special rates were meant to incubate business temporarily, not as a lasting haven for low-revenue streaming business. “Every WSA agreement was a temporary measure designed to remedy what were perceived deficiencies for some group or another in a CRB decision,” David Oxenford told us. “They were always meant to end at the time of another CRB proceeding as, who knows, the next decision might be one that resolved the perceived inadequacies that were addressed by the WSA agreement.”

In that context, it is unrealistic for small webcasters to expect the expiring statute to be renewed as a matter of course. Anything can happen, especially if small webcasters organize quickly. But in the more mature webcasting industry of 2016-2020, it might be that SoundExchange (and/or its label partners) will not be inclined to carve out new special conditions for small webcasters.

Different Perceptions of “Market Rates”

From the start of the CRB process, a key focus has been so-called real-market rates. The Copyright Royalty Board made it clear nearly two years ago that it was keen to determine what music licensing would be worth in the open market if there were a vibrant open market apart from government rate-setting. To that end, both sides of the litigation argument provided real-world examples which probably guided the CRB in its (still-hidden) full determination.

Real-market negotiations, plus tremendous scaling of the listening audience during the 2011-2015 royalty period, are the benchmarks of a more mature marketplace for streaming music. In this new landscape, there might not be motivation to create a trench of special conditions for small webcasters in a vibrant and high-stakes industry with much greater context to settle on a single perceived cost of music. Record labels might generally prefer to concentrate webcast listening in platforms that pay out the regulated value of music — especially since SoundExchange and the labels did not get the higher rates that they perceive as true market value.

While there is business logic there, any loss of small webcasters would be an impoverishment of the online audio universe, diminishing its variety, vibrancy, locality, and entrepreneurism. At RAIN News we have celebrated pureplay Internet radio, from indie stations highlighted in the Pureplay of the Day feature to the “Single-Stream Webcaster” category of the annual RAIN Awards.

Reactions and Strategies

No source has given RAIN News any reason to think that a new special royalty arrangement for small webcasters will come by year end. At this moment our speculation is that webcasters of all sizes, and the supply side of the business, will be forced to adjust to an un-tiered rate structure on January 1, for some amount of time. It could be that the new royalty plan represents a new long-term business ecosystem for streaming. If that’s how it plays out, we have heard that some small and specialized Internet radio stations will change their revenue models, geo-target their streams away from U.S. listeners (which some owners are already planning), or simply close.

ari shohat crb letterThe crisis management affects some Internet radio brands that listeners might not realize fall into the “small” category. One is Digitally Imported (DI.fm), a well-known and respected electronica platform with dozens of stations and an ambitious roadmap for expanded services. A few days ago DI listeners received an email from founder Ari Shohat, concerning the CRB situation. “In order to maintain profitability and continue to keep this great music available, Digitally Imported is also making some hard decisions to limit our free streaming service in the near future,” the letter said in part. It encouraged listeners to upgrade from free accounts to premium ones, which generate higher-margin revenue for Digitally Imported.

2ng could closeSome small webcasters present the cost crisis to their audiences in more detail. Atlantic Oldies 2ng posted an open letter specifying its streaming rate and projected royalty cost. The station averages 11,000 listening hours a month, and plays 17 songs per hour, which spins out a 2016 royalty obligation to labels of $318/month. That’s a deal-breaker for this station, which calls the new rates “unsustainable.”

SatinJazz, which plays female jazz vocalists, informed its listeners of the situation with a definite “going off the air” notice. “At the [CRB’s] pay-per-performance rate it will be impossible for me to continue broadcasting SatinJazz from 1 January 2016,” the letter asserts. “The CRB ruling is effectively killing off these lower tiers of the internet radio industry.”

Taking Control of the Licensing

radio mystic logoRadio Mystic, which plays three electronica stations hosted on the Live365 platform, is also scrambling for a solution. But unlike some other small webcasters, Program Director Pete Havey has laid down a path that could enable his audio business to go in another direction. In addition to traditional streaming stations, Havey has developed a small network of music podcasts that correspond to the stations. Music licensing in podcasting is entirely different from radio streaming, and is not connected to the CRB process. To make his podcasts legal, Havey has built a library of directly licensed music submitted by artists who own their rights and agree to a legal non-exclusive use by Radio Mystic. Pete Havey told RAIN News that he could limit his radio streams to that bucket of royalty-free music, but it would be laborious to execute that plan, and would reduce the variety of his streams. Further complicating his thinking is that Live365 is increasing its platform cost, according to Havey. So, at this moment the plan is to move Radio Mystic entirely to podcasting.

The direct-license strategy might seem like a heavy lift to many small webcasters, especially if starting on that path from scratch. But on balance, Pete Havey recommends the model to station owners. “The obvious downside is that the music library options are quite limited compared to being able to play whatever you like, the effort to get artists to sign an agreement takes time and detailed record keeping is involved! But if the goal of the broadcaster is to bring a truly unique mix of music to their listeners, and to help indie artists get the exposure that they need, then I’d definitely recommend the broadcast agreement strategy,” Havey told RAIN News.

Hope

radio paradise logo cubeBill Goldsmith runs Radio Paradise, one of the most venerable and respected small webcasters. An ex-radio DJ and program director, Goldsmith is credited with starting the first full-time radio webcast in 1995 at KPIG, and started Radio Paradise in 2000. Goldsmith told RAIN News that he is considering his options for the new year, but probably won’t take immediate action on January 1, and is hopeful for legislative support.

We asked Goldsmith whether he thought SoundExchange and the labels should feel motivated to assist small webcasters. “Stations like Radio Paradise, SomaFM, & Digitally Imported have inherited and expanded the role traditionally played by community & college FM stations,” he said. “We’re a vital source of exposure for artists who would easily be lost in the hit-driven universe of mainstream music outlets, so yes, it seems to me that SoundExchange’s constituency would be best served if we were able to continue operating.”

Like Rusty Hodge, who operates SomaFM and is considering pointing his streams away from U.S. listeners, Bill Goldsmith is also mulling the geo-fencing solution. “We’d probably be forced to restrict stream access by US-based listeners, possibly moving to a subscription-only model for US listeners. This would drastically reduce our US listenership. It would almost certainly also reduce the amount we pay in royalties to SoundExchange.”

For Bill Goldsmith and Radio Paradise, these final days of December comprise a hopeful wait-and-watch period. “We’ll be waiting at least until the end of January before we make any changes, as my best guess is that SoundExchange will be willing to work with us.”

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27 Comments

  1. Thank you Brad for keeping this serious issue at the forefront of RAIN News. I did however want to clarify what the “mature” industry looks like to us. CPMS have not increased, in fact they have decreased, sometimes we’ve seen as low as .75 cent CPMs. With ad serving and middle men taking their piece, that leaves pennies per 1,000 listeners. Also, with the popularity of music subscription services and Pandora, our listener numbers are decreasing, not increasing. We are actually making less than we were in previous years. The royalty rate is way out of the realm of realty for the small independent webcaster.

  2. To me it all sounds like censorship on commercial greedy grounds. A wake-up call by a famous altruistic musician can blow away all support for these people’s exploiting of culture. Culture: a common effort of mankind to socialize, but apparently turned by the copyright agencies into plain property. In this case Bakunin was right: “[this] property is theft”.

  3. Well covered, from multiple angles. Even specializing in “indie” artists as we do, we must also be on guard not to play any “cover” versions of songs licensed to major label artists, as well as secure contracts/releases from over 1,000 indie labels and self-release artists. That’s an exceedingly steep hill to climb.

  4. One part of the article has been revised, thanks to a close reading by a knowledgeable attorney involved in CRB matters. While it’s true that the full CRB decision has not been released, the full release *will not* contain any new rates or decisions about small webcasters. If any relief for small webcasters is in the future, it can only come from SoundExchange deciding to pursue deal-making with the labels and rights-holders. I am confident that SoundExchange will not do that (if it ever does) until it sees the full CRB documentation, which will contain the judges’ reasoning. In my opinion it is extraordinarily unlikely that anything will happen by January 1. But nothing is known for sure, by anybody, because there is so much uncertain flux in this situation.

  5. More damage: Live365 on life support after investors pull out as a result of CRB
    http://rainnews.com/live365-suffers-a-collision-of-misfortune-lays-off-most-employees-and-vacates-office/
    What a shame and a loss if they go under. They are one of the pioneers and they have lots of fun and quirky stations that won’t be able make a go of it anywhere else. Such nichey stations is what the Internet is supposed to be about. But the way this is going we are heading right back to the bad old dinosaur media days where Big Media and the Big Labels were the gatekeepers all music had to be approved by and signed off on in order to get a hearing and find an audience.

  6. I remember traveling to DC with a coalition of web casters a few years ago.. A great effort but didn’t get much traction. Maybe this past year would have been better timing for such an effort.

  7. Even if we do make agreements with an artist and label to play their songs for free,we still must negotiate with the writers,and publishers of the songs to satisfy our legal obligations to b.m.i. ascap, sesac,and socan. that’s a lot of work.

  8. We’re working on a project that will make CRB and SoundExchange choke when it’s launched because the music in our network (the Radio Revolution Network, LLC) will be totally out of their control. All we need to do is to get it funded…and I’m working on that.

    I’m a Live365 broadcaster for the past year (BLAST! Digital FM) and am very saddened by the lack of foresight by all the licensing organizations and recording companies, and have been so for the past several years. They’re so archaic in their thinking and approach to music that they really have no business existing in the 21st century. They need to go the direction of celluloid collars and buggy whips. And I’ll do whatever is within my power to make that happen.

    • Bruce – I’d like to hear more about your proposal. I, too, am a Live365 broadcaster with two stations that are facing closure. Please, keep me in the loop.

    • Hi Bruce,
      I too am a Live365 broadcaster and (AllGospelMix) has been on the air since 2003. I too would be interested in hearing your plans for the future. While I believe that every artist should be paid the fair and appropriate royalties for their music, provisions should be made for the small broadcaster who is looking to showcase the music they love without having to mortgage their house to do it.
      Keep us posted when you can!

  9. Brad, thank you for your coverage of this issue while all other trade magazines were in a holiday stupor. This has been a horrendous few weeks of silence, aggravation, and frustration as we hope and wait for a solution to the plight of the small webcaster.

    SoundExchange, hope you had happy holidays. Now it’s time to get to work on negotiating a solution that keeps Internet webcast diversity thriving.

    • And, SoundExchange, NOT doing so takes money out of your own coffers! If you’re truly disappointed with the rates announced by the CRB, losing this many small webcasters must *really* mess with your revenue.

  10. In addition to Radionomy, anyone know anything about what 181.fm’s stance on this is?

  11. All this will do is push more stations to run underground and pay no royalties. You can set up a station in a few hours and be broadcasting online. Make it a few months or years, get caught, shut it down and make a new stream a few hours later. Or use virtual or cloud streaming host outside of the US and none of these rules apply.

    Its just big media companies trying to shut down any competition.

  12. Ron is exactly Right!

    Who do you think has the money to organize the special interest groups that padded the CRB’s judges pockets?

    Answer: Big media companies (i.e. CBS, Clear Channel/I-Heart)

    Who do you think designed the outrageous rates for online streaming and exempted themselves from having to paying to pay for terrestrial radio?

    Answer: Big media companies (i.e. CBS, Clear Channel/I-Heart)

    Who are all of the positive stories about on this news letter (i.e. new hires, expansion in Canada, etc.?

    Answer: Big media companies (i.e. CBS, Clear Channel/I-Heart)

    Who was late to the Internet radio industry and bought out companies such as Ando Media after they took small webcasters money for products like SAM Broadcaster?

    Answer: Big media companies (i.e. CBS, Clear Channel/I-Heart)

    • Hey Wonderboy — I understand your frustration, but a little defense here … we run positive stories about small webcasters, not just the “majors.” Our Pureplay of the Day feature is all about indie radio, and our annual RAIN Awards have a single-stream webcaster category. (I started that series in my first week at RAIN.) We pay attention to press releases and direct appeals from webcasters of all sizes, and often put spotlights on small businesses and startups. Yes, we give a lot of space to the market-leaders, no question about that. One reason is that they send us a lot of news! The simple press release is a tool that all small businesses should master. We need content every day, and we welcome news (special programming, new stations, etc.) that is sent to us. One final point — I believe we are providing the most sincere and informative coverage of the small webcaster crisis that you’ll find anywhere. Best wishes to you and all small webcasters.

  13. Sadly Atlantic Oldies 2NG is closing down on Sunday April 24th after being online for 11 years. Its heritage are specialising oldies shows which most got syndicated, yet it may be hard for most to regain the audience after the fateful date. 2NG and Atlantic both pointed to the crossover of pop music from the United States to Great Britain and vice versa. The station’s loss will hurt memorably to singles charts and oldies lovers, a loyal category of listeners only competed in lotalty by offshore radio lovers aka ‘anoraks’.

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