Webcasting Rates and the Market
Thursday, October 2nd, 2008 by Patrick Ross
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Passage of PRO-IP in the House and Senate wasn’t the only major congressional development this week. This development involves free-market negotiations. Longtime readers will know I’ve written for years about the merits of market-negotiated agreements over statutory rate decisions, and nowhere is a fresh does of market reality more needed than in the music business. But it will remain to be seen whether these developments ultimately benefit songwriters and performing artists.
Congress has agreed to allow negotiations over webcasting royalties to extend into February. Close followers of this issue will recall that the Copyright Royalty Board issued a ruling in March of last year that switched from a percentage-of-revenues payment model for webcasters for its compulsory license rates to a per-performance model. This caused webcasters to howl, and since then the involved parties in the compulsory license have been negotiating a different arrangement. Their deadline was expiring and Congress needed to extend it, which it just did with the Webcaster Settlement Act of 2008, HR-7084 by Reps. Inslee (D-Wash.) and Smith (R-Tex.).
In a Senate Judiciary Committee hearing in July, Pandora Media CEO Joe Kennedy testified that under this new regime he was looking at paying “$18 million in sound recording royalties in 2008, over 70 percent of our anticipated $25 million in revenue.” While many of his other costs — servers, bandwidth — are presumably more affordable, a 70% hit is nothing to sneeze at.
Of course, there’s another way of looking at this; perhaps Pandora needs to rethink its business model a bit. Anyone who has used Pandora knows it’s a pretty remarkable technology (although some of the blues and gospel artists I like are hard to find) but how did they get that $25 million in 2008 revenue? It certainly doesn’t look like they got it from advertising. Is it venture capital? How do they expect to stay in business? I see this “launch first, monetize later’ approach too often.
Well, in the short term they apparently are looking to do it by negotiating a lower sound-recording rate or a different way of calculating fees that will be friendlier to their bottom line. At that same Senate hearing, SoundExchange CEO John Simson discussed the rapidly growing popularity of webcasting, noting Pandora was the hottest app on the iPhone. Then he said this:
So, why, with all this activity, the constant refrains of doom and gloom – which we’ve heard for over ten years now – when, in fact, webcasting is the place everyone wants to be? The simple answer is webcasters want to pay less so they can make more. The problem is that they want to pay less than what is fair, and what has been judged fair by impartial judges.
Keep in mind, Simson has been in negotiations with webcasters on a new rate; SoundExchange is talking with among other groups the Digital Media Association (DiMA), National Public Radio (NPR) and the Recording Industry Association of America (RIAA). The Inslee-Smith bill gives SoundExchange statutory authority to develop a new rate regime by Feb. 15 (and several influential members of Congress have said they better do just that, because another extension is unlikely).
This process has created some unusual alliances. Supporting the bill and the negotiations are Rep. Blackburn (R-Tenn.), a diehard IP supporter who founded the Congressional Songwriters’ Caucus, and also Rep. Lofgren (D-Cal.), who insisted on a roll-call vote in a doomed attempt to block passage of the PRO-IP Act Sunday. House Judiciary IP Subcommittee Chairman Berman (D-Cal.) has noted the support of songwriters and performing artists in this endeavor. Why would that be?
I think I heard my answer in part at the Americana Music Conference. I was on a panel addressing music licensing. There was strong interest both on the panel and in the audience for the continued existence of webcasting. In an age where many artists and songwriters feel commercial terrestrial radio has become dominated by playlists of limited variety, webcasting is one way to have non-mainstream artists and songwriters hear their works featured, and to reach new audiences.
We talk about the double-edged sword of the digital era, where it makes it easy for individuals to run rampant over the rights of creators, but where creators are empowered to find new ways to create, distribute and market their works. For some I met at Americana, they had no way of knowing if the CRB rate scheme was fair, but if the webcasters were telling the truth in saying they might shut down because of them, they were willing to live with a lower rate.
A lower rate they will get, it seems. That is the market at work. No one is completely happy with market-negotiated solutions; I’m sure the webcasters will still complain, and collectors of royalties will maintain they gave away money that was meant for creators. Let us just hope that, six months to a year from now, webcasters don’t go back to Congress claiming the new rates are too onerous to operate.
