Academic's math shows Pandora pays sound recording royalty at 10 times the rate of UK radio

Wednesday, December 12, 2012 - 12:10pm

We've heard (at the recent House Subcommittee hearing on the Internet Radio Fairness Act for one, but elsewhere too, and often) the recording industry:

  • doesn't like the amount of royalties streaming services pay to play copyright recordings, and wants more;
  • really doesn't like that U.S. broadcasters don't pay at all; but should, like the good folks of the non-U.S. broadcast world.

So, how much does, say, a UK radio broadcaster pay to play a copyright sound recording per listener, and how does that compare to other services, like Spotify or Pandora?

Enter David Touve (you may remember him as the Washington and Lee University Assistant Professor of Business Administration who estimated that U.S. broadcasters would owe the recording industry $2.5 billion a year if they were required to pay at the webcasting rate here).

Using data from PPL (which collects royalties from UK radio) and RAJAR (which measures listening), and estimating 12 songs per hour, Touve estimates "the value of a single radio play to a single listener in the UK for only that portion of the royalties that are paid to record labels, featured artists, and performing artists" is £0.000073, or $0.00012.

"For comparison, I believe the value estimated above is 1/36th the rate reported by Zoe Keating ($0.0042) [Touve's referring to this] for her receipts from streaming music services (e.g., Spotify), 1/10th the rate ($0.0011) paid by Pureplay Webcasters in the U.S. (e.g., Pandora), and 1/18th the CRB-established default Webcaster rate ($0.0021) in the U.S."

Put another way: Pandora currently -- under the settlement "discount" rate -- pays at a rate ten times what UK radio pays to perform sound recordings.

(The difference in audience size between Pandora and the broadcast industry of a country like the UK, much less the U.S., naturally means the recording industry's take from broadcasters will be much larger. But what Touve is putting in high relief is the discrepancy between the rates.)

Read Touve's latest Rockonomics blog entry here.

Could AM/FM's royalty exemption doom webcasting's hope for relief?

Thursday, November 29, 2012 - 12:40pm

It was clear that many members of the House Judiciary subcommittee weren't interested in hearing about Internet radio's problems during yesterday's hearing (see our coverage here).

[SomaFM's Rusty Hodge has posted audio of the meeting online here. We should also point out that Tom Taylor has excellent and extensive coverage of the hearing in his Tom Taylor Now newsletter here, as does Inside Radio here.]

The meeting was to discuss the Internet Radio Fairness Act legislation intended to bring relief to an industry whose most successful representative remains unprofitable and paying more than 50% of its revenue in music rights. But music industry witnesses and their allies on the subcommittee deftly turned the spotlight elsewhere: the fact that broadcast radio does not have to pay royalties for sound recordings it plays on the air.

The maneuver perhaps revealed just how difficult it will be for IRFA-backers to gain any ground while the "radio royalty" issue remains unresolved in the eyes of the record industry.

In recapping yesterday's House Judiciary subcommittee hearing on the Internet Radio Fairness Act, ArsTechnica concluded:

"Overall, to say Pandora's battle appears to be an uphill one would be a serious understatement. Its main ally is the terrestrial radio industry, which has become a 'bad guy' to many in Congress. And the list of opponents is growing to include not just the entertainment industry but also unions and interest groups, both liberal and conservative... the AFL-CIO, the NAACP, Americans for Tax Reform, and the American Conservative Union all opposed the bill...

"In the meantime, the Internet radio industry—which essentially consists of just one large player—will continue to be a losing bet."

Read Ars Technica's recap (also the source of the boom box photo) here.

AM/FM royalty exemption as prominent a topic as IRFA in today's hearing

Wednesday, November 28, 2012 - 11:25am

A House of Representatives Judiciary subcommittee today held a hearing on issues involving the use of copyright sound recordings and the compensation paid to copyright owners and recording artists by various radio platforms. While the focus of the hearing was the recently-introduced Internet Radio Fairness Act -- which concerns royalties webcasters pay -- subcommittee members and some witnesses spent at least as much time talking about broadcast radio's long-time exemption from paying royalties on sound recordings.

(The written testimony of the six hearing witnesses (see today's early story) is available on the Judiciary Committee's website here (the witnesses' names link to pdf files). Follow-up questions from subcommittee members and discussion followed the witnesses' testimonials.)

The Internet Radio Fairness Act (IRFA), among other measures, would require Copyright Royalty Judges, when determining royalties for web radio, to use the same legal standard (known as 801(b)) they use for satellite radio and cable radio royalties. Under current law, CRB judges are instructed to try to set royalties at a "fair market value," using a legal standard known as "willing buyer willing seller."

Many committee members, most notably Rep. John Conyers (D-MI) and Rep. Howard Berman (D-CA), seemed unwilling to consider the terms of the IRFA while broadcasters enjoyed an exemption from paying labels and performers for music. Witnesses Michael Huppe (SoundExchange president) and renowned producer  Jimmy Jam themselves willingly encouraged this line of discussion.

Conyers hoped the discussion would be a "catalyst for formulating" an AM/FM obligation. The outgoing Berman went as far as calling testimony from Hubbard Radio President/CEO Bruce Reese (who also represented the National Association of Broadcasters) "disingenuous" -- for asking for "fairness" for webcast royalties yet not acknowledging an "obligation" to pay labels and performers for over-the-air play.

Venrock investment partner David Pakman (pictured above) testified to the difficult economic climate for standalone webcasters. "We've resisted investing" in digital music "solely because of the state of music licensing," he said, calling it "perilous" and "overburdensome." He said his firm is "skeptical of the profitability of a standalone digital music service," being unable to point to a single profitable standalone Internet radio service. This point returned later, when Rep. Jason Chaffetz (R-UT, who introduced the bill in the House) somewhat heatedly challenged witness Huppe to try to name another successful webcaster.

In regards to IRFA, witness Dr. Jeffrey Eisenach (an economist and principal of Navigant Economics, pictured left) attacked the 801(b) standard as "harmful" to the public since it doens't "maximize the resources" of the marketplace. He testified that 801(b)'s objective to minimize disruption "guarantees webcasters a profit," and that he could find no valid basis in his research for forcing content creators to "subsidize digital music." His solution for Pandora's profitability is simply "to sell more ads."

Pakman, however, challenged the "open market" ideal of the "willing buyer willing seller" standard, in that "we don't have a market." He described the reality of three major record labels as "concentrated" sellers, while Pandora exists largely as one standalone buyer. "Rightsholders should encourage healthy competitive market -- which demands an ecosystem of hundreds or even thousands of licensees."

Joseph Kennedy, Pandora CEO, was pressed -- by both Rep. Sensenbrenner (R-WI) and Rep. Jerrold Nadler (D-NY, who is drafting legislation in opposition to the IRFA, called the Interim FIRST Act) -- as to why Congress has been repeatedly called by webcasters to settle the royalty issue, when it should be handled by the marketplace. Kennedy stressed his company's willingness to live with the deals it willingly entered for past and current rate terms. "But there's unfinished business here," he added. In regards to the upcoming rate-setting for the next term, Kennedy said, "the process is still broken."

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