RAIN 8/16: Net radio wants to avoid issue of AM/FM royalties for now

Paul Maloney
August 16, 2012 - 1:15pm

Leading webcaster Pandora, Utah Republican Congressman Jason Chaffetz, and now the Brookings Institution (see yesterday's RAIN here) are all calling for the use of a consistent standard for determining sound recording performance royalties across Internet, satellite, and cable radio. (Currently, webcasters pay a rate significantly higher than other forms of digital radio, since the legal reference determining judges are instructed to use is dramatically different.) Even the NAB's Dennis Wharton says he "appreciate(s) (Chaffetz's) interest in reforming the current Interet radio rate structure."

But, no one among this group is arguing that broadcasters should be paying this fee too.

The reason: it's simply been proven to be far too difficult a task to accomplish such a major change in an established and powerful U.S. industry.

For webcasters and their allies, their immediate goal is relief from the controversial "willing buyer/willing seller" standard -- which might reasonably be considered an achievable end. The broadcast radio royalty issue would be like an anchor tied to the foot of a drowing man.

Congressman Chaffetz's proposed "Internet Radio Fairness Act" (in RAIN here) would compel judges deciding royalty rates for Internet radio to base their decisions on the same legal standard they use for satellite and cable radio rates. It would not address the matter of broadcast royalties.

The National Journal writes that Pandora argues that the radio royalty debate has dragged down efforts to get the webcast royalty standard changed from "willing buyer/willing seller" to the more widely-accepted "801(b)(1)." "We’ve been held hostage to that for years," Tim Westergren, Pandora’s founder and chief strategy officer, told the news source. "The reason nothing has been fixed is we’ve been stuck behind [radio-station] royalties. We're victims of a fight that’s not ours."

John Villasenor, author of the Brookings paper covered yesterday, in it wrote, "Any new legislation should not include a provision to end the AM and FM over-the-air 'terrestrial' broadcasters’ longstanding sound recording performance royalty exemption... every one of the dozens of legislative attempts to end it since 1926 has run up against extremely strong opposition from terrestrial broadcasters and has failed. New legislation including a provision ending the terrestrial broadcasters’ exemption would be likely to fail as well." Without the provision, he continues, legislation "may even garner the support of the National Association of Broadcasters," whose current streaming royalty deal with SoundExchange expires at the end of 2015, "meaning that terrestrial broadcasters, like pureplay webcasters, would benefit from a more reasonable digital broadcast statutory royalty framework."

It may not be so simple, however. Ray Hair, international president of the American Federation of Musicians, writing in The Hill, says it's not that Internet radio's royalties are too high, it's that other platforms (especially broadcasters') rates are far too low! He says Chaffetz's bill "would allow the digital platforms to pay musicians less... at rates far below market value. The bill would effectively unleash a race to the bottom, with radio platforms competing to see which can pay musicians the least." It's the Internet radio platform which he seems to think is giving "artists their fair share," and writes, "People I know are already calling the bill by a more appropriate name: the 'Internet Radio Rip-off Act.'"

Vigrinia Congressman Bob Goodlatte, vying for the top Republican spot on the House Judiciary Committee (he currently heads its Intellectual Property, Competition, and the Internet Subcommittee), told the National Journal he expects his panel will take up the matter of music-royalties, and is open to calls for requiring traditional radio stations to pay performance fees.

Read more in the National Journal here and The Hill here.

Paul Maloney
August 16, 2012 - 1:15pm

It looks as if we'll soon hit the moment where sales of physically packaged music (CDs and vinyl) will be surpassed in the U.S. by digital sales and licensing, in the form of paid downloads, subscription services, and webcasting.

Worldwide, CDs and vinyl still dominate the industry with a 61% share of all music sold. But it's streaming services that are powering the shift in revenue, notably in the U.S.

2012 U.S. streaming revenues will grow at four times the rate of downloads, meaning online streaming and downloads account for double the share of music spending in the U.S. than globally. Strategy Analytics says worldwide streaming revenues are to increase 40% this year to account for $1.1 billion in industry revenue, while downloads will grow just 8.5% to $3.9 billion. So, while downloads still dwarf streaming services revenue, the latter "will take over as the leading revenue growth engine for the music industry in 2012."

Ed Barton, Strategy Analytics' Director of Digital Media, said, "Streaming music services such as Spotify and Pandora will be the key growth drivers over the next five years as usage and spending grow rapidly." He added, "Having stabilized long term revenue declines resulting from the downsizing of packaged music spending, the industry will be hoping that digital can rebuild the U.S. music market to something approaching its former stature."

Read more from Strategy Analytics here, Ars Technica here, and BBC News here.

Paul Maloney
August 16, 2012 - 1:15pm

The new Music 360 study from Nielsen shows that in the U.S. "more teens listen to music through YouTube than through any other source (64%), followed by radio (56%) and iTunes (53% ) and CDs (50%)." 

Nearly half (48%) of Americans says they use radio most often to discover new music.

More than half (54%) said they have music player apps on their smartphones, followed closely by radio apps (47%).

Read more from Nielsen on Music 360 here.

Paul Maloney
August 16, 2012 - 1:15pm

-Billboard reports (here) that a new PWC projection (here) says online radio advertising will grow by 11.5% from $465 million last year to $802 million in 2016. Satellite radio ad revenue will also rise, 9.4% compounded annually, from $74 million in 2011 to $116 million. Satellite radio subscription spending will increase from $2.6 billion in 2011 to $4.1 billion in 2016.

-Webcaster Songza says it's registered more than 2 million U.S. and Canadian users since June 1st, and that of all the users that have ever used Songza (since its official launch last September), over half of them are still active. Read more in TechCrunch here.  

-SoundExchange, the organization that collects and distributes money from Internet-, satellite-, and cable radio, has released a database of 50-thousand artists and labels that are owed over $60 million in unclaimed royalties. More from The New York Times Media Decoder blog here.

-Internet radio aggregator Live365 has announced the release of its dedicated application for the iPad. Read more here.

-Webcaster Senzari has launched a new proprietary music recommendation engine it calls AMP3 ("Adaptable Music Parallel Processing Platform"). Sensari says "The AMP3 technology is revolutionary within the music recommendation space, as it is the first engine to be modeled after a semantic network that includes an API architected similarly to Facebook's OGP (Open Graph Protocol)." Read more here