On July 15, 2007 (recently extended from May 15), a new royalty structure will go into effect that will shut down most streaming Internet-only music broadcasters and cause havoc with streaming from NPR affiliates. Representative Jay Inslee (WA-1) has introduced HR 2060 to reverse these changes and give the industry an opportunity to work out a new structure that will not destroy this nascent medium.

On July 15, 2007 (recently extended from May 15), a new royalty structure will go into effect that will shut down most streaming Internet-only music broadcasters and cause havoc with streaming from NPR affiliates. Representative Jay Inslee (WA-1) has introduced HR 2060 to reverse these changes and give the industry an opportunity to work out a new structure that will not destroy this nascent medium.

For decades, all broadcasters have paid royalties on songs to songwriters (not performers) through the licensing agencies ASCAP, BMI and SESAC. However, in 1995 the Recording Industry Association of America, an industry organization representing the major record companies, lobbied the new Republican Congress to pass the Digital Performance Right in Sound Recordings Act (Public Law 104-39, 109 Stat. 336 - 1995), which required an additional performance fee specifically on digital music. This has required Internet broadcasters (but not terrestrial AM/FM broadcasters) to pay an additional royalty to the record labels through SoundExchange, an organization set up by the RIAA to collect and distribute digital royalties.

In 2005, the digital royalty was 0.07 cents per song streamed (per listener) and small webcasters were able to calculate royalties as a percentage of revenue rather than on a per-song basis. This made it possible for small, often niche, webcasters with limited revenue streams to be financially viable, although most webcasters did it for love rather than money and usually lost modest amounts of money on their webcasting ventures. A typical small Live365 webcaster paid around $600 per year in digital royalties.

On March 2, 2007 the Library of Congress' Copyright Royalty Board (CRB), which oversees royalty rates, got rid of the revenue-based royalty provision, mandated a minimum royalty of $500 per channel per year, and established a higher royalty rate that will increase to 0.19 cents per song streamed per listener in 2010. For a webcaster that broadcasts 15 songs an hour to 500 listeners, that will increase the royalty to over $72,000 a year in 2010. For the six largest Internet-only broadcasters (who are financially marginal, at best), the royalty increase will represent over 50% of their total income. Pandora.com's founder, Tim Westergren, told Newsweek, "If this stays, we're done. Back to the stone age again." My favorite station, JazzPlayerRadio, has already left the web because the new rates will be applied retroactively to the first of the year.

Lest you think that some stations could survive by webcasting music from independent labels and producers, the RIAA has secured legal authority to administer a compulsory license that covers ALL recorded music. This means SoundExchange can force a royalty payment for ALL webcast music, with the provision that an independent label or artist can then join SoundExchange (for a significant fee) and get the money that was extracted on their behalf.

And for you NPR fans, this affects you. NPR is spearheading the effort against the new royalty because they have a significant number of listeners via the web. The new rules would be an accounting nightmare for them because only a portion of their programming is commercial music, but figuring out who is listening when a Justin Timberlake bumper plays on All Things Considered is really hard. For more details on NPR's role in this, see this article on NPR's initial appeal of the royalty increase.

From the RIAA's perspective, people who listen to Internet radio don't need to buy overpriced CDs or downloads, cutting into the already dwindling music revenues of the media companies. Internet radio listeners also don't have to listen to the endless stream of obnoxious advertising on conventional broadcast radio outlets. So the media companies want to shut down every Internet webcaster who they can't control (and extract money from), which is pretty much every webcaster. It's the last desperate gasp of an outdated business model, but that dying empire will inflict alot of pain on the way down.

HR 2060 will overturn the Royalty Board's decision and establish an interim rate of 7.5 percent of revenue (which is what satellite radio pays) while copyright holders and Webcasters hammer out a new rate that "will allow distribution channels to crop up that would otherwise be strangled in the crib," says Inslee

This is yet another example of havoc caused by the confluence of consolidated media and Republican governance. We urge you to contact your representative and ask them to support and cosponsor HR2060.

(legacy node 88202)