guest essay

Webcasting IV: A royal(ty) mess [part 1 of 2]

Thursday, July 18, 2013 - 7:00am

This week in RAIN we're featuring contributions from various industry executives, journalists, and experts on the state and future of Internet radio.

BY ANGUS M. MACDONALD
The Copyright Royalty Board (CRB) proceeding to set non-interactive webcasting rates for 2016 through 2020 (known as Webcasting IV) commences next year. But it’s not too early for webcasters to start making preparations for this significant rate-setting process now.

Since it’s unlikely that settlements will occur as broadly as they did in 2009 (shortly before the last proceeding, Webcasting III, got underway), most of the largest U.S. webcasters probably will, in some way, be involved in the upcoming CRB case. It’s bound to be a royal(ty) mess!

Here’s a quick preview of several key players that could have a great influence in Webcasting IV. (This article's second installment will cover some of the important legal issues that will likely arise in the proceeding.)

Congress: In the last go-around, the vast majority of webcasters settled prior to Webcasting III, due to the non-precedential royalty agreements between SoundExchange and various groups of webcasters. These deals occurred only through Congressional authorization under the Webcaster Settlement Acts of 2008 and 2009. (Pandora, for example, obtained the so-called "Pureplay" rates under the 2009 Act.)

However, it is unlikely that Congress will again intervene on behalf of the webcasting industry in this next proceeding. The fact that Congress can't seem to agree on anything these days aside -- more importantly, webcasting appears to be a more “mature" industry now compared to 2009. Four years ago, Pandora and other webcasters were seemingly on the verge of going under without relief from the CRB-determined royalty rates (which appeared to be out-of-whack compared with what the industry could afford at the time).

If Congress does not intervene prior to Webcasting IV (and there’s no indication so far that it will), statutory webcasters need to choose: Either (1) start ramping up for Webcasting IV; (2) undertake the enormous effort of obtaining direct licensing deals from the myriad of record labels (as Apple is doing with its soon-to-be-launched iTunes Radio); or (3) stand nervously on the sidelines as other webcasters (i.e., competitors) try to litigate for the best rates.

The Copyright Royalty Board: The CRB is the three-judge panel of the Library of Congress, tasked with determining a statutory rate it recommends to the Librarian.

There will be an entirely new cast of CRB judges in the upcoming proceeding than was in Webcasting III. (The Webcasting III judges were the same judges in Webcasting II, which ended in 2007.) Among other items, it will be interesting to see how much deference the current CRB judges will give to the findings of the previous panel of judges.

Pandora: Among all the webcasters, Pandora has the most significant interest in Webcasting IV.

As I reported several months ago (in RAIN here), Pandora paid 56% of its total revenues to SoundExchange for the fiscal year that ended January 31, 2013. (See p. 22 of Pandora’s 10-K here). That amounted to $238.7 million in royalties paid by Pandora solely to SoundExchange in just one year. Given Pandora’s growth over the last few years, it’s easy to expect it to pay SoundExchange close to a half-billion dollars by 2015 or 2016, even if its growth slows somewhat over the next few years. (These royalties do not even include the rapidly-increasing royalties Pandora pays publishers and the Performing Rights Organizations that control the copyrights to musical works.)

More on Pandora in the next installment of this article.

SoundExchange: In Webcasting IV, SoundExchange (on behalf of the record labels) will undoubtedly push for a substantial increase of the current rates webcasters pay for digital performances of sound recordings.

Consider that in Webcasting III, SoundExchange argued for rates that were more than two times higher than the eventual Pureplay settlement rates -– rates which clearly would have bankrupted Pandora could it not avail itself of the Pureplay rate. Though SoundExchange did not get the rate it proposed in Webcasting III, the current statutory rates (as determined by the CRB) are relatively close.

And SoundExchange is reaping the rewards. As recently reported (here), SoundExchange's recent $149 million second quarter 2013 royalty distribution was its highest quarterly payment ever.

The NAB: Unless it can obtain another approved settlement (which seems unlikely unless Congress intervenes), the National Association of Broadcasters will certainly be involved in the upcoming proceeding. As more and more terrestrial radio companies come to rely on their Internet transmissions -– including straight simulcasting -– to connect with growing online audiences, the NAB and its members will have a greater interest in streaming royalty rates and keeping them affordable.

One arduous alternative for NAB members is to enter a vast array of deals negotiated directly with numerous record labels, as Clear Channel has started to do with independent record label groups like Big Machine, Glassnote and others (in RAIN here). But, as it’s unlikely NAB members can secure a critical amount of direct deals before the CRB proceeding gets underway, it’s safe to expect the NAB to be an active voice in Webcasting IV.

SiriusXM: Though primarily associated with satellite broadcasting, SiriusXM is also one of the largest webcasters, and pays significant royalties to both SoundExchange and record labels directly for its Internet radio transmissions. Through its "Internet radio-only" and "All Access" subscription packages, SiriusXM allows customers to listen to over 150 channels online (instead of via a satellite radio receiver).

SiriusXM's growing audience -- it recently surpassed 25 million subscribers (more here) -– will mean higher royalty payments, so it seems likely it will be a key player in Webcasting IV.

And, as its ongoing antitrust lawsuit against SoundExchange shows, Sirius is not afraid of tussling in court with SoundExchange and the recording industry to get better rates.

With this cast of characters (and many others not mentioned in his article), Webcasting IV is shaping up to be a veritable battle royale. In the folow-up to this piece, we'll take a closer look at a few of the "hot button" issues and other interesting legal wrinkles surrounding Webcasting IV.

Angus M. MacDonald is a copyright and digital media attorney. The views expressed in this article are solely Mr. MacDonald’s and should not be attributed to his employer.

AccuRadio COO Gehron exhorts b'dcasters to stake their claim to streaming

Wednesday, July 17, 2013 - 7:00am

This week in RAIN we're featuring contributions from various industry executives, journalists, and experts on the state and future of Internet radio.

BY JOHN GEHRON
Think back
to the early days of FM radio in the United States. Think about how different it could have turned out.

What if AM broadcasters hadn't applied for FM licenses? What if the FCC hadn't limited simulcasting and required all radios to be built as AM/FM? What if all broadcasters had followed the Westinghouse lead, and simply gave up on their FM licenses?

What if non-broadcasters had ended up controlling the FM band?

This "alternate reality" may in fact be taking shape today as many broadcasters remain reluctant to embrace Internet radio. Among major radio groups, only Clear Channel has made a major effort to carve out a position in streaming radio.

Just as in the early days of FM, when simulcasts of AM signals attracted little audience interest, simulcast streams of on-air content show little additive value to radio's listenership -- they only represent about 3% of the typical broadcast station's listening.

Remember what ignited FM's growth? Separate programming and identity. Programming that offered more music variety and lower commercial load. Successful FMs offered an identity separate from that of their AM sister stations, offering a fresh new listening experience for an audience weary of AM programming.

Internet radio can offer certain clear programming advantages over broadcast radio, representing a shift as radical as FM was to AM. Streaming services offer lower commercial loads and more variety of content -- practically infinite variety, in fact, because there's no "scarcity of frequency." Internet radio can offer "the long tail."

The big attraction is personalization. Broadcast radio is a "push" model, while the Internet is all about "pulling" the information you want, when you want it. Listeners don't have to wait for their favorite songs. This is the same reason music videos will never return to MTV: Why wait when you can see it instantly on YouTube? Internet radio is the YouTube for audio.

Apple's jump into Internet radio accelerates the trend of non-broadcasters dominating this space.

In the late 90s broadcasters had a chance to be a part of satellite radio and, interestingly, only Clear Channel invested. Today, satellite radio has 25 million subscribers and a $30 billion dollar market cap. Now broadcasters run the risk of being left out of Internet radio too. Major players are carving out their positions while broadcasters watch from the sidelines. Pandora already has over 71 million registered users and a market cap of $3 billion.

Other than Clear Channel, it's as if non-broadcasters had bought up all the FM licenses

I think traditional radio companies need to be in this space. Many broadcasters are not convinced there is a workable business model, but I believe the current streaming players will be in a position to influence and change realities that today are holding back the industry.

The FCC spurred FM growth by limiting simulcasting and by requiring all radios be AM/FM-capable. I think Congress, the Copyright Royalty Board, record labels, artists, and Internet radio companies will find a solution to royalty cost issues.

Part of it is the issue of "parity" with other media. But more importantly, a proper dialogue will help all to recognize that an equitable deal can help the music business expose far more music to consumers than ever before. Pandora's offer to talk with labels and artists is an example of working in a positive direction, as opposed to just threatening action for royalty fairness.

And revenue is in play as well. Media buying is evolving across the board, and real-time bidding for highly targeted consumer-clusters will increasingly become the norm for all advertising, including broadcast. Radio-only companies will continue to see AQH and CPPs erode.

Twenty years ago you could get music in two places: record stores, and the radio. Today the music consumer has so many more choices, and is even more demanding. Most record stores are gone. Will radio be next, or will radio embrace the new consumer model and thrive?

John Gehron is a well-known and experienced broadcast radio programming and management executive. He's currently COO of webcaster AccuRadio, a sister company of RAIN.

RAIN Guest Essay: "Song 2" by Andy Lipset

Tuesday, October 9, 2012 - 11:55am

Earlier in the year, I wrote an article for RAIN entitled "The Song Remains the Same" (here) which discussed how the noise around the subject of streaming was hurting potential dollars to come into the marketplace for all players in the space -- be it pureplay companies or broadcasters. 

Today, there is another wrinkle that has appeared in the space that could start to hamper dollar flow and that is one around technology. So, I have titled this article "Song 2," a follow up to my original article in January. ("Song 2" was also a big alternative rock hit in the 90’s and - somewhat appropriate to what’s happening in the marketplace -was recorded by the band Blur.)

I want to center on the debate whether or not broadcasters should stream separate commercials in their online versus over-the-air product.

There is a lot of discussion around this primarily because the ad breaks in the streams of many broadcasters sound terrible. Spots run over one another. Some spots don’t start on time. Some of the breaks finish when the over the air broadcast has already started, and spots may finish 20 seconds into the start of a song. While some have categorized the decision to discontinue running separate breaks as a royalty issue — at the heart of it, this is more of a product and, specifically, a technology, issue—and it’s one that will put a cap on money that flows into the market.

Personally, I do not believe that the broadcasters should pull their ability to insert ads into their streams. That said, the issue is an understandable one from the broadcaster’s perspective. To keep your current listeners engaged, and to attract new listeners, the stream has to sound good...

Continue reading Lipset's Guest Essay "Song 2" here.

RAIN Guest essay pt. 2: Can KTeshLA (and other "local" Internet radio) succeed?

Thursday, May 10, 2012 - 12:00pm

Mark Edwards is an award-winning radio programmer with experience at WLIT/Chicago, KOSI/Denver, KYKY, KEZK, and WVRV in St. Louis, and more. He's currently managing general partner of Mark Edwards Worldwide, his multi-disciplinary consulting practice. This is Part 2 of his guest essay; read Part 1 here.

In yesterday’s RAIN, we looked at John Tesh’s hyper-local KTeshLA website and streaming service. Today, let’s tackle the question of how stations like KTeshLA and other locally targeted online only sites can be successful going forward.

John Tesh already has a radio show on more than 300 stations (he launched KTeshLA after losing his Los Angeles affiliate). His show was one of the higher-rated dayparts on KFSH in Los Angeles, so there was already a dedicated local audience for his content, and he was already producing material for his national show. Given Tesh’s recording, touring, writing, and other activities, generating cash from the online venture may not have been as much of a concern as it might be for a standalone business. Staying in touch with a community -- especially without the benefit of a bone-crushing terrestrial signal -- can be costly.

One of the most significant differences between Tesh’s site and the sites of other people trying to “make it” as web radio stars is that Tesh’s site looks great. It's as good as any AM or FM radio station site on the Internet. If anything, the site takes too much from radio stations in an effort to look like a radio station as opposed to what it is: something between a radio station and a streaming service. While the site carries banner ads, it isn’t plastered with them hodgepodge like some other “web radio” sites.

Taking the time and spending the money to design a world-class website should be the first part of the plan for any webcaster. Clearly, the TeshMedia team considered the visual appeal of their product along with the sound, something rare in the world of webcasting. (Some of the ugliest websites I’ve seen over the last 15 years have been for air personalities putting a show or podcast on the web. They’re littered with banner ads, bad photos, and unusable navigation links.)

A significant expense for the local webcaster is for the stream itself. Beyond royalties and bandwidth costs, some kind of automation system needs to push out the content if it is a full-time format, even if it’s a podcast or constantly repeating three or four hour show. There are ways to do the automation inexpensively, but streaming should not be a bargain basement decision. Great quality, constant uptime, and full-time support are needed for a successful stream, and that costs money. The good news is there are new technologies on the horizon that will significantly lower the cost of streaming, and add personalization and ad-targeting to the stream, helping to generate more revenue.

The world is racing to a mobile, personalized, on-demand model for entertainment, and the opportunity for locally-targeted Internet-based stations is here. If the stations are done right, they’ll generate traffic and response for local advertisers. It can be done, and now is the time to get started on hyper-targeted projects like KTeshLA.

We'll wrap this up with some comments from the people behind KTeshLA and see how their station is performing.

RAIN Guest essay: John Tesh (of all people) erasing the line between streaming service and radio station

Wednesday, May 9, 2012 - 12:10pm

Mark Edwards is an award-winning radio programmer with experience at WLIT/Chicago, KOSI/Denver, KYKY, KEZK, and WVRV in St. Louis, and more. He's currently managing general partner of Mark Edwards Worldwide, his multi-disciplinary consulting practice.

There’s very little doubt that mobile and personalized content are the future of what is now radio, and in some cases that big tower in the corn field won’t even be part of a “radio station” in the not too distant future.

Multimedia content creator John Tesh may be among the first to see and act upon that future. He's put a radio station online that, in fact, isn’t a radio station or a streaming service; it’s both and neither at the same time. Last week, the entertainer launched K-TeshLA (see RAIN coverage here) a site that looks like a "best in class" local radio station site complete with a 24-hour streaming audio service as part of the package. The only difference between this site and most other Contemporary Christian radio stations is that there’s no traditional radio station connected to the site, just the stream.

(The site was launched the site after Tesh's syndicated radio show was dropped by Salem’s KFSH in Los Angeles. Heard daily on over 300 stations in the U.S. and Canada, Tesh wanted to make sure he was still reaching the important Los Angeles market, and so built what's ostensibly a complete online radio station.) 

The K-TeshLA site is completely localized for the Los Angeles market, right down to showing the local time and weather, working with local charities and churches, and doing actual contests, giving away $100 a day and a grand prize of an iPad. The station is building its own database of listeners, and has wasted no expense in designing an engaging website and high quality streaming player. Both the site and player have deep integration with Facebook, something not found at many FM or AM radio stations.

While the station doesn’t have a mobile site or streaming app yet, K-TeshLA is available on the TuneIn Radio application, and it looks and feels just like any broadcast property on the roster of TuneIn’s stations. Having that parity with traditional broadcast outlets is certainly one of the first steps to leveling out the playing field between stations that have a transmitter and those who are going directly for online and mobile listeners.

Listening to K-TeshLA, one wouldn’t know that it wasn’t a regular FM station. The stream features lots of music, IDs, and Tesh’s “Intelligence For Your Life” content repurposed from his terrestrial radio show, not to mention both national and local advertising.

The big question is, will a localized Internet-only radio station succeed in the world of AM and FM broadcasters and their continuing consolidation into apps like iHeartRadio? We’ll look at that in the next part of this essay.

Guest essay by Michael Robertson: "The Smart Phone Killed the Car Radio"

Friday, September 30, 2011 - 11:00pm

Today RAIN brings you a guest essay from respected entrepreneur Michael Robertson. He founded MP3.com, in 2005 launched MP3tunes and most recently built DAR.fm -- a TiVo-like device for recording radio programs online.

Michael RobertsonIn 1997 I drove a beat up Honda up to LA to meet with the major record labels. I wanted to show them the PC would become the center of people's music life thanks to the new found capabilities MP3 brought. Music fans could warehouse massive music libraries, organize their music, make custom playlists, burn CDs and share that music experience with others. Those I met with scoffed at the notion that the home stereo would be replaced by the PC remarking that "most PCs don't even have speakers!" The major labels could only see the computer as a word-processor. But, I knew that the PC would displace the home stereo and become the music hub.

I have the same feeling today about the car radio getting stream rolled by the smart phone. Today's smart phone has a virtually unlimited audio catalog thanks to the net. Much of the content is interactive (meaning users can rewind, fast forward and skip ahead 30 sec). Many in the radio industry scoff at the notion of the phone replacing the ubiquitous AM/FM car radio. They say that users don't want/need a big library of programming - just the morning DJ / sports talker / political commentator that happens to be offered in their town. If that were true, why wouldn't listeners want those same shows in the afternoon for their drive home? The radio industry sees the ability to rewind/fast forward as unnecessary. They think that radio fans are passive robots who are content to just sit and listen. But, every indication I see in magazines, on TV, Twitter, blogs, etc. tells me that users want control.

DAR.fm now allows everyone to record AM/FM radio and have it automatically downloaded to any smart phone or tablet. I've put together some videos which show how to automatically sync radio shows to an iPad, iPhone, Android, or a PC to use with other mobile devices. (iPad/iPhone users click here) Whenever I jump into my car or travel, my phone already has a few episodes of my favorite radio shows ready for me to listen to. This YouTube video shows how I mount my smart phone and plug it into my car's stereo system.

My smart phone has already made my car radio obsolete because I rarely listen to broadcast radio. I'm not alone. More than half of adults 18-24 have used a portable MP3 player or phone for audio in their car. 41% are interested in rewinding, fast forward and pause (and I think the rest don't even know it's now possible and they'll want it to once they experience it). Radio purists dismiss smart phones as a threat to the AM/FM radio, but there was a day when every house had a home stereo too.

-- MR (originally posted at michaelrobertson)

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