Legal Matters: Inside The Webcaster Outcry

It's 2002 all over again. That's the last time a copyright tribunal set royalty rates for streaming sound recordings, and webcasters warned that the high rates would run them out of business. After the Copyright Royalty Board set new rates earlier this month, the outcry is the same. But this time, it's not entirely about the rates. It's also about the CRB rejecting a royalty based on a percentage of small webcasters' revenue. The RIAA negotiated this revenue-based structure with services for 2003-2005 rates that became the Small Webcaster Settlement Act, which expired in 2005.

Now, the CRB has set the 2006-2010 compulsory-license royalty rates that webcasters and simulcasters must pay to perform recordings on noninteractive Web sites (section 114 of the Copyright Act). In their 115-page opinion, the judges explained that the rate must reflect one that would be negotiated between a willing seller (record labels) and a willing buyer (webcasters) if there were no compulsory license. After considering expert testimony, the judges decided that the per-stream rate negotiated for interactive streams (which are not subject to a compulsory license) between services and labels was the best benchmark (see chart, below).

The CRB rejected a percentage-of-revenue royalty because ensuring payment for the value of copyrighted recordings presents several problems under this model (see sidebar, below). But the judges added that if the services, copyright owners and performers ever figure out a way to overcome these problems, a future royalty could be based on a service's revenue.

The decision came after a two-year proceeding involving 25 parties, including SoundExchange, the group designated by the government to administer compulsory noninteractive webcast licenses. SoundExchange represented labels, recording artists, background musicians and vocalists. Other parties included the Digital Media Assn. (DiMA), webcasters (including AOL, Yahoo and Live365), broadcasters (including Clear Channel), small broadcasters (including AccuRadio), the Corp. for Public Broadcasting and college-radio groups. The judges listened to 33 witnesses during 48 days of testimony that filled 13, 288 pages of transcript.

Several parties are expected to ask for a rehearing or appeal, but small webcasters may not have the money to keep fighting on the legal front. DiMA and other groups are also expected to try negotiating for different rates or rate structures, like a percentage of revenue.

Copyright owners and performers are not obligated to offer only the compulsory rates that the CRB set March 2; they may always negotiate directly with services. And SoundExchange could certainly negotiate directly with webcasters and offer the terms for their members to either accept or reject. They could also negotiate alternate ways of reporting performances instead of per stream, such as "per aggregated tuning hour" (ATH), which is sometimes easier to calculate because it uses average, rather than exact, numbers.

To help compare old versus negotiated versus new rates, I created three hypothetical webcasters: large (e.g., AOL or Yahoo), midsize (e.g., Live365) and small (e.g., AccuRadio). Since exact figures are not available, hypothetical figures for streams and listeners for large and midsize webcasters are derived from published comScore Arbitron Online Radio Ratings for three months (September-November 2006) that include data on AOL, Yahoo and Live365.

Hypothetical figures for small webcasters are based on a comparison to AccuRadio, which participated in the CRB proceeding. AccuRadio president/CEO Kurt Hanson represented to Billboard that the webcaster would owe $600,000 for 2006 under the new CRB rates.

A service that pays per-stream is likely to pay about the same per ATH. ATH is the total hours of programming to all listeners during a stated time period. One hour streamed to 20 simultaneous listeners is 20 ATH. If the webcaster has an average number of 20 simultaneous listeners per hour, then for a month it has 14,600 ATH (an average of 20 listeners per hour multiplied by 24 hours by 365 days divided by 12 months).