Will Royalties Kill the Radio Stars?


Joe Krown occasionally gets checks from Broadcast Music Inc. (BMI) for amounts like $.41 or $.19. After 31 years as a professional musician, these are the only royalty payments he sees. For most musicians, getting paid when your songs are played, streamed, and broadcast is a very occasional business. But some new royalty rates are out to change that.

On March 2, the Copyright Royalty Board (CRB)—which oversees royalty payments made to recording artists—ruled to increase webcasters’ 2005 rates. Every time a song is played via an Internet webcast or streamed by a listener, a royalty payment is supposed to be made by that webcaster to the artists performing that song. The three Library of Congress judges who comprise the CRB voted to increase the current rates—7/100 of a penny per song streamed per listener—to the eventual 2010 rate of 19/100 of a penny per song streamed per listener. This new rate is retroactive, and will apply to programming from January 2006 onward. For many hobbyists and music fans sharing their passion for music on their own Internet radio stations, these rate increases could chase them out of the business.

Prior to 1995, recording companies and performance artists received nothing when their songs were digitally transmitted, or streamed, over the Internet. Two pieces of legislation changed that, and now, every time a song is played on digital cable, satellite television, satellite radio, or the Internet, it is deemed a “public performance,” and the artists performing the song are entitled to a royalty payment.

By contrast, terrestrial radio stations (AM and FM) never pay a “public performance" royalty. Current copyright laws were heavily influenced by the powerful lobby of the National Association of Broadcasters, and they stipulate that when terrestrial radio stations broadcast a song, broadcasters pay royalties for that song’s composition as a piece of intellectual property. These royalties don’t go to the artists performing the songs, but rather to the songwriters who wrote them. This is why Joe Krown gets his laughable royalty checks—because, having written songs for Clarence “Gatemouth” Brown, he “owns” those songs, and when they’re played on FM radio, he’s paid. On the other hand, since his Old Friends album is an album of covers, he doesn’t see a penny from plays on WWOZ’s terrestrial broadcasts.

On July 15, royalties for transmitting songs over the Internet are set to go up an estimated 5 to 8 percent, according to SoundExchange, a non-profit performance rights organization, comprised of recording companies including Sony BMG Music Entertainment and Tommy Boy Entertainment, as well as individual artists who either perform on commercially released sound recordings or own their own sound recording copyrights. SoundExchange was designated by The US Copyright office to collect and distribute digital performance royalties for both recording artists (who make and perform the music) and sound recording copyright owners (the record labels or individual artists).

“We’re on the side of all artists—small and large,” says SoundExchange’s Richard Ades. “[These rate increases are] an issue of fairness to artists, who work hard to produce a product. It’s not fair to artists to be expected to subsidize these webcasters.”
This is not a universal viewpoint. According to SaveNetRadio.com, “a coalition of artists, labels, listeners and webcasters” who vehemently oppose these rate hikes, the new royalty rates will amount to increases of an estimated 300 to 1200 percent, and will cripple small and large webcasters alike, potentially bringing a prompt end to their programming and, consequently, to the diversity of music available to listeners over the Internet.

What’s at issue isn’t just the survival of Internet radio; it’s the livelihood of inependent musicians. According to the American Association of Independent Music, less than 10 percent of the music broadcast over terrestrial radio is independent music. By contrast, music played on non-terrestrial radio (Internet and satellite), is 37 percent independent. If webcasters go out of business because they can’t pay their royalty fees, they won’t be able to give any airtime to independent musicians.

“I’m totally dependent on these itty bitty Internet stations,” says Joe Krown. “Even things like You Tube, it gets you out there. There are bands who have a huge fan base because they’ve utilized the Internet. My last name doesn’t have a Neville in it or a Marsalis in it. I need the exposure.”

Krown would love to be paid every time his music is played, but he’s also conscious of the impact those payments may make. “It’s not going to be helpful if they do stuff to kill the industry. I understand that they’re trying to pay musicians for the use of their artwork, but they can’t do it at the risk of killing the industry.”

Richard Ades takes a different view. “Just because people are streaming the music doesn’t mean they’re going to go out there and buy it,” he says. “People are finding more ways to access music. They’re not buying records like they used to.” What’s more, says Ades, these rates can easily be circumvented. “Any artist can make a direct deal with any webcaster.”

The entire issue has devolved into a confusing crossfire of legislation and intention, with opposite sides all claiming to be allies of the artists who make and perform this music. In late April, U.S. Representatives Jay Inslee, a Democrat from Washington, and Donald Manzullo, a Republican from Illinois, filed the Internet Radio Equality Act (IREA), which, if passed, will overturn the CRB’s decision. The bill proposes that webcasters return to paying royalties as a set percentage of their revenue, rather than as a flat rate per song streamed. The bill suggests Internet radio pay the same rate as satellite radio: 7.5 percent.

On May 22, at the request of Congress and in direct response to the proposed IREA, SoundExchange offered to extend below-market royalty rates to small webcasters until 2010 in order that they have additional time to develop their businesses. SoundExchange is offering small webcasters a royalty rate of 10 percent of their gross revenue up to $250,000 and 12 percent for gross revenues above that amount. In other words, says Ades, “Small webcasters will have the same deal as they did in 1998, if they choose to accept it.”

SoundExchange doesn’t want these new rates to destroy small-time webcasters, but they do want to make big businesses – such as Yahoo, Real Network, and Clear Channel – to pay for the music they use. “There’s a long history in this country of broadcasters and other companies having huge businesses, building them around music, and then not compensating the artist for the use of that music,” says Michael Bracy, the Policy Director for Future of Music Coalition.  “How do we help the smaller artist [receive the] exposure from these smaller stations, while also making sure we’re not allowing the larger stations, who are making money out of this, from not facing their responsibilities to pay for this music?”

In exchange for SoundExchange’s olive branch to extend the 1998 rates, the American Federation of Musicians, who supports SoundExchange’s offer, requested that small webcasters make full and accurate reports of the sound recordings they currently transmit, in order that artists regularly receive the royalties they are due. Traditionally, royalties for terrestrial radio are determined by sampling and monitoring broadcasts.  Non-terrestrial radio, on the other hand, relies on webcasters to accurately and regularly report the songs they play.  Currently, many webcasters are non-compliant with these reports.

The Future of Music Coalition has advocated compromise. “What we’ve been trying to do is encourage both sides to be as reasonable as they can be in terms of cutting some settlements that balance the need for artists to receive as much money as makes sense for them to receive and for webcasters to grow their audience and move on,” says Bracy. The Coalition suggests a tiered system, where hobbyist and non commercial webcasters pay very little, and big businesses like Clear Channel pay a lot. “In the middle you get a temporary break,” explains Bracy, “until you make a lot of money and pay the big boy rate.”  Opponents of these proposals feel they sacrifice the bigger companies as well as punish webcasters whose businesses grow enough to move them into the upper tier.  They also worry that a tiered system will create a de facto cap that may make it harder for a webcaster looking to expand his or her business to raise capital.

WWNO, WTUL, and WWOZ broadcast on the FM dial and are streamed on the internet.  Because WWOZ is so associated with New Orleans music, Krown is concerned about how it will be affected.  “If they’re not paying royalties, they’re paying in other ways,” says Krown. “They are essential. If that radio station goes down, the music scene will be crippled. People know about me because of ’OZ.” Krown says that each year, Jazz Fest out-of-towners tell him, “I heard your cut on ’OZ, I went out and bought it.” Most of those folks aren’t tuning the station in on their radios; they’re streaming it on their computers.

Ades says that SoundExchange’s offer aims to preserve exactly these types of relationships.It’s really important that these musicians who have small audiences have access to stations,” he says. “We want these opportunities to be preserved. We want these small eclectic stations to go on playing the music. We want them to thrive.”

David Freedman, the general manager of WWOZ, says that ’OZ hasn’t calculated the potential economic impact of their Internet broadcast, but these new rates open up a wider question for him. “In this new, emerging digital landscape, how do we define intellectual property rights?” he asks. “The models are changing from the days when musicians were signed up to record companies and didn’t see much of the money and felt they were being exploited. It’s a different world for musicians in 2007 then in 1957.”

To a great extent, the effect of the new rates on individual artists depends on the particulars of those artists’ careers. “If you’re a double platinum musician, you don’t want your songs being streamed without getting paid for it,” says Freedman. “But if you’re the vast majority of these musicians, and you haven’t risen above a certain level… then essentially, because you’re eliminating the ballplayers, you’re eliminating the possibility that you’ll be played at all.”

The complexity of the issue requires an equally complex solution. “How do you get an equitable field for everyone who plays a part in this digital landscape?” asks Freedman. “The one size fits all is only going to help consolidate big distributors of music. It’s up to each individual musician to figure out what does and does not work for them. The music comes from the musicians, and they can’t be ignored. They’re a prime actor.”


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 © Eve Abrams 2010