By Emma Silvers
By Gary Moskowitz
By Alee Karim
By Ian S. Port
By Ian S. Port
By Derek Opperman
By Emma Silvers
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Conventional wisdom dictates that the Internet should be a magical musical wonderland where everyone can be a DJ. But when it comes to user-programmed online radio, the Web is becoming less democratic, squeezing out the little guy with high royalty fees.
Two years ago, the U.S. Copyright Royalty Board (CRB) set new per-song, per-listener rates for the Web that many thought would put Webcasters out of business because the rates totaled 100 percent or more of revenue. Larger broadcasters have since negotiated lower rates with SoundExchange, which collects song royalties and distributes them to artists and labels. Pandora and other larger Webcasters say the new reduced fees will allow them to survive.
But really small Webcasters, or "microcasters" — including those represented by Live365, which lets users broadcast from their bedrooms — now say SoundExchange's offer makes it impossible for hobbyists to embrace their inner John Peel. It's an odd development for a community space built on empowering the individual.
Under SoundExchange's February deal, even stations with negligible audiences still have to pay the high CRB rates. If there are more than two simultaneous listeners tuning in, the microcasters must pay a minimum annual fee of $500. Most hobbyists want to Webcast on an amateur level — as in, without quitting their day jobs. But if they were to somehow turn a profit, the CRB rates (for 2009, 0.18 cents per song, per listener) kick in as soon as they make more than $5,000 a year, which also applies to community stations that play music. (Educational and religious Webcasters await their own new deals.)
Many microcasters aren't capable of legally administering their own online radio servers — upkeep that includes tracking playlists and writing checks to SoundExchange. Foster City's Live365 takes care of the hassles of streaming technology for its users, who set up accounts with the company for fees that start at $10 a month.
Even factoring in advertisements, Live365 says it doesn't generate enough income to cover its costs under SoundExchange's deal or the CRB rates. Live365 must now pay SoundExchange about $40 per month for each station, on top of bandwidth costs, salaries, and other expenses. Those fees are capped at $50,000 per year, but that has yet to be codified into law, and Live365's tiny member stations would still have to pay the onerous CRB rate.
Live365's general manager of media Johnie Floater says the large Webcaster deals are getting too positive a spin in the press while the same negotiations are leaving microcasters high and dry. By not creating a special deal for the very hobbyists and companies like Live365 that aggregate them, he claims SoundExchange is acting ungratefully. If it weren't for his company, he says, there would be no meaningful way to monetize underground stations: "They would never have seen revenue from all of these little guys if I didn't aggregate them."
The U.S. Court of Appeals for the Federal Circuit remanded the CRB's controversial $500-per-channel minimum, calling it "arbitrary, capricious, and not supported by record evidence"; the board is apparently considering lowering the per-channel minimum. Still, SoundExchange maintains that $500 per year is a reasonable price for microcasters to pay.
SoundExchange executive director John Simson says his research indicates that the typical American spends $1,800 on a hobby each year, so he believes $500 is a fair fee, especially considering that payment lets you play whatever you want on your show, including big artists like Bob Dylan and the Beatles. "If you're a hobbyist photographer, you don't get Tyra Banks as your model for free," he says.
Floater seems to think his company can't survive SoundExchange's rates. And if microcasters go solo and set up their own stations, they'll still owe at least $500 per year, no matter how few listeners tune in — or $600 per year, if they choose to forgo playlist reporting, thereby ensuring that none of the artists they broadcast get paid. Either way, hobbyist Webcasters — and the lower-profile artists they tend to play — get squeezed.
"The RIAA [Recording Industry Association of America], SoundExchange, and their member labels, they'll tell me, 'You're trying to do a deal for small Webcasters, the really tiny guys. We don't want 'em on the air. That's not our interest,'" Floater claims.
The disappearance of microcasters would certainly make SoundExchange's job easier. It's much simpler to collect royalties from 10 large Webcasters than from 10 million small ones. Some advocates claim the tax on home broadcasters reeks of a conspiracy to squelch independent radio voices while amplifying corporate ones. Floater certainly seems to think so. He believes that although the RIAA, SoundExchange, and big labels would never admit it publicly, they secretly wish DIY Webcasters would just go away — not only because they're hard to deal with, but also because they tend not to play as much major-label music.
This back-and-forth about royalty rates is taking place just as artists and labels look for new ways to make money during this consumer-empowering Internet age. They might want to keep in mind that to light a fire, you don't first blow out the spark.