Small Webcasters React To SoundExchange Offer

Online broadcasters lashed out last week in response to a SoundExchange announcement saying that webcasters have “embrace[d]” a new offer that subsidizes royalty costs.

SoundExchange is a nonprofit organization the government has authorized to collect and distribute performance royalties from Internet and satellite radio stations. The offer comes after months of negotiations and politics that arose following a March decision by the Copyright Royalty Board (CRB) that raised royalty rates for Web radio dramatically and retroactively. Groups that represent webcasters, such as SaveNetRadio, say the SoundExchange offer is unrealistic and that some webcasters felt pressured into signing the agreement.

“I really had no choice but to sign,” says Michael Clark, a webcaster who runs christmasmusic247.com, which plays Christmas music year round. After the March rate change, Clark says he was set to owe about $11,000 instead of an anticipated $2,000. Signing the new offer saved him about $5,000. But the offer he signed comes with drawbacks.

Although SoundExchange also collects royalties for non-registered artists, a webcaster playing artists not registered with SoundExchange is still charged at the high CRB rates.

“(The terms) don’t enable us to perform the same repertoire of sound recordings that we’d like to have access to…We’d be limited basically to the major labels or other members of SoundExchange,” says Randall Krause, executive director of the Small Webcaster Community Initiative.

Clark says keeping his playlist intact was too expensive. In an effort to continue playing independent music, he recently spent time contacting independent artists in an attempt to get direct licenses that would allow him to play their music.

According to a copy of the contract terms Clark sent to American Songwriter, SoundExchange’s offer is limited to webcasters pulling in revenue less than $1.25 million per year and broadcasting less than 5 million aggregate tuning hours per month. Five million aggregate tuning hours is equal to about 7,000 listeners streaming around-the-clock for a month. Under the agreement, qualifying webcasters can pay their royalties as a percentage of revenue until 2010. The rates set by the CRB in March calculate royalties using a formula that charges per song, per listener.

SaveNetRadio calls the recent offer “unrealistic and unacceptable.” They say the offer’s limits make it difficult for webcasters trying to expand their businesses. The group notes that the Small Business Administration sets the revenue cap for terrestrial broadcasts for a small business at $6.5 million. In a press release, SaveNetRadio argues this is “a fair cap, with precedent.”

Richard Ades, a SoundExchange spokesman, says the revenue limit doesn’t restrict growth.

“They have a product upon which they’re building a business…they need to pay for a product,” he says. “These guys are getting quite a break in order to build their business. When you get into the seven-figure range it gets disingenuous to say” it’s a small business.

Others have criticized SoundExchange for pressuring small webcasters into accepting the offer by approaching them individually.

Ades says, “I don’t know what they felt, all I know is that [the offer] basically extends the very favorable terms they’ve enjoyed since 1998.”

Clark says another reason he signed was that he didn’t feel the Internet Radio Equality Act (IREA) would get passed. The IREA is pending legislation in the House and Senate that would set performance royalties for Web radio equal to satellite radio. If the IREA passes, as SaveNetRadio and the Small Webcaster Community Initiative desire, webcasting would become cheaper.

The IREA, which has a lot of support in Congress, may have been a force driving behind SoundExchange’s recent negotiations and offers.

SoundExchange seems to take a swipe at the looming legislation in the contract they sent to small webcasters:

“[The new rates and terms] 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…”

A spokeswoman for Rep. Jay Inslee, a congressman who helped introduce the IREA into the House, told American Songwriter recently that there would not be a push to pass the bill as long as SoundExchange is in “good faith negotiations” with the various groups representing webcasters.

Jonathan Potter, executive director of the Digital Media Association, a trade group comprised of large companies such as AOL and Yahoo! that is in negotiations with SoundExchange, says SoundExchange is in good-faith negotiations with them. He expects talks to wrap up within a few weeks.

When asked if he “embrace[d] the recent offer, as a SoundExchange press release says, Clark laughs.

“I don’t think I embraced, embracing it sounds like I was overjoyed, thrilled. I am happy it saved me $5000, but it’s really not a complete solution, it’s still costing me thousands of dollars more.
“It’s a mixed bag of happy. It’s sad that the independent artists won’t be getting as much exposure…”