Memo to SoundExchange: Please Get a Calculator

May 23rd, 2007

In the event you haven’t heard all the scuttlebutt, the nascent Web radio industry is about to come crashing down because of an ill-considered decision by a three judges known collectively as the Copyright Royalty Board.

Known as the CRB — and I hesitate to use any more descriptive titles right now in the hope they’ll soon come to their senses — they have settled on a scheme to exact an increase ranging from 300% to 1200% in royalties from Web broadcasters. The fight has reached the halls of Congress, where legislators are considering a measure to return some sanity to the process, and restore the previous rate structure.

It all started with noble intentions, I’m sure. Here in the states, terrestrial radio stations pay royalties to music composers and publishers, but not a dime to the artists. I suppose this doesn’t mean so much if the artist and composer are one and the same. No doubt some of you feel that such acts as Paul McCartney and The Rolling Stones don’t need to increase their money stash. Well, I suppose Paul might, because of that divorce battle.

However, there are lots and lots of struggling artists out there who might have an occasional recording that earns a small figure, but they aren’t living large by any means. They surely deserve to get paid for all their hard work.

As it stands, the artists receive royalties by broadcasters in many other countries, and the two satellite networks — desperately hoping to become one — also pay royalties to both artists and songwriters.

That all makes sense, and wouldn’t it be a good idea for terrestrial stations to remit their fair share? However, their lobbying organization, the National Association of Broadcasters (NAB), has fought long and hard for the status quo, and they have the money and the power to make sure their point of view prevails. They have convinced the powers-that-be that these stations are giving the artists free publicity by deigning to play their recordings. Isn’t that enough for those greedy so-and-sos?

Although they are finally getting their own voice, the thousands and thousands of Internet radio broadcasters that specialize in music shows can’t afford high-ticket lobbyists, or contributions to the appropriate political candidates. So what did the CRB do? Well, make them pay the highest royalties of all, with a minimum payment of $500 per year. Understand that many of these online broadcasters consist of just one or two people with a Mac or a PC and an account with a Web host to stream their content. If they get any income at all, it’s minimal, and now Big Brother wants all of it and more!

In addition to the possibility of congressional action, intended to keep rates as they are, SoundExchange, the agency that collects the royalties, has raised the olive branch. They are offering to give small online stations a break. If they gross less than $1.2 million a year, they’d have to pay “only” 10 percent of that figure for the first $250,000 in income, and from there, 12% up to the maximum allowable income. So-called “richer” stations pay the full fee.

This rate may seem reasonably modest, until you realize that SoundExchange is speaking of gross revenue here, without regard to the cost of doing business. No profit? Too bad. Alas, the NAB feels they should live by a different rule book. Do they really believe that the larger companies deserve to pay less?

And what, pray tell, might CRB and SoundExchange be thinking to expect the people who can least afford it to pay a larger percentage of their income for the benefit of the music industry?

This is taking the concept of the graduated income tax, where the rich are supposed to pay extra, and turning it upside down. The CRB, by the way, has already rejected appeals. They appear to be residing in an ivory tower where they have little understanding of how things work in the real world.

SoundExchange’s deal might seem an encouraging sign, but satellite radio is paying an even lower percentage of their revenue. Sure, satellite hasn’t earned a profit yet, but they have multibillion dollar investments keeping them rolling. What does the small online broadcaster have other than a few dollars with which to buy storage and bandwidth?

What indeed!

If you believe that Internet radio is the brave new future of broadcasting, and that the stations should live long and prosper, contact your representative and ask them to straighten out this mess. If enough of you respond, they might even listen to you — for once! If you want to know more about this unfortunate situation, check out

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