In blog post, Westergren shows how even little-known acts are seeing income from Pandora play

Wednesday, October 10, 2012 - 12:00pm

As it's done so well in the past, leading webcaster Pandora is showing an expert's edge in gathering support among its listeners and their representatives in Congress for the newly-introduced Internet Radio Fairness Act. Now, in his blog, Pandora founder Tim Westergren makes the case that a healthy, thriving Pandora is important for the future viability of artists.

Westergren reveals that his service in 2012 will pay $100,228, $138,567 and $114,192, respectively, in royalties for the use of music by Donnie McClurkin, French Montana, and Grupo Bryndis.

"They are artists whose sales ranks on Amazon are 4,752, 17,000 and 183,187, respectively," Westergren wrote. "These are all working artists who live well outside the mainstream - no steady rotation on broadcast radio, no high profile opening slots on major tours, no front page placement in online retail. What they also have in common is a steady income from Pandora."

He also reveals that his service will pay nearly $3 million each in royalties to play the music of performers Drake and Lil Wayne; for Coldplay, Adele, Wiz Khalifa, and Jason Aldean, it's more than a million dollars each.

"For over two thousand artists Pandora will pay over $10,000 dollars each over the next 12 months... and for more than 800 we'll pay over $50,000, more than the income of the average American household."

Further, he cites research from the NPD Group that concludes that Internet radio has a positive effect on both music sales and curtailing music piracy.

While record label-, artist-, and performer-lobby groups and unions like musicFIRST, AFTRA, and the AFM have publicly spoken against the IRFA, it's clear Westergren is looking to appeal to the actual artist members to support royalty reform.

"Making performance fees fair for Internet radio will drive massive investment in the space, accelerating the growth of the overall sector, and just as importantly accelerating the development of new technology that leverages the incredible power of the Internet to build and activate new audiences. That's where the great opportunity lies in the long run. The short-term reduction in revenue would be rapidly swamped by the overall growth of the sector. Imagine the impact on artists if this industry grew to become 25% or even 50% of radio listening," he concludes. "Artists, this is your future. Own it."

Read Westergren's blog here. Business Insider has coverage here

IRFA's royalty reforms not limited to change in rate-determining standard

Tuesday, October 9, 2012 - 11:55am

Most of the focus of the recently-introduced Internet Radio Fairness Act (in RAIN here) centers on the change of the legal standard by which Net radio royalties are determined. Namely, the bill calls for abandoning the "willing buyer/willing seller" standard in favor of what's known as 801(b) (for its location in the Copyright Act).

But the bill isn't limited to this single point. In a Broadcast Law Blog post, Net radio legal expert David Oxenford (pictured) explains some of the other points included in the bill intended to enhance the viability of a webcasting market in the U.S.

(To review, Internet radio sound recording royalties are based on what Copyright judges think a willing buyer and willing seller would agree to in a marketplace transaction -- a hypothetical one at that. If royalty judges were compelled to base their decisions on the 801(b) standard, as they are for satellite and cable radio royalties, they'd have to consider how their decision (A) Maximizes the availability of creative works to the public; (B) Affords the copyright owner a fair return on his/her creative work and the copyright user a fair income under existing conditions; (C) Reflects the relative roles of the copyright owner and the copyright user with respect to creative and technological contributions, capital investment, cost, risk, and contribution to opening new markets; and (D) Minimizes any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.)

In addition to the very important standards change, first of all, the IRFA calls for rates set by Webcaster Royalty Act settlements expiring in 2014 be extended through 2015. But perhaps more importantly, the bill removes "the precedential effect" of past royalty decisions. Moreover, it "explicitly put(s) the burden of proof on the parties seeking a royalty that the royalty... is reasonable -– a standard that is common in ASCAP and BMI rate court litigation, but is not at all addressed in the current Copyright Act addressing the sound recording performance royalties set by the CRB," Oxenford writes. Additionally, the IRFA changes the law in that it specifically removes "any suggestions that certain aspects of recent royalty decisions were in fact the preferred way of reaching a royalty decision." 

One important (and contentious) point between record labels and webcasters has been the "promotional" aspect of online plays. Remember, broadcasters' exemption from this royalty for over-the-air plays of copyright sound recordings is based on the fact that playing this music helps sell it. The record industry has a long history of reinforcing this very argument by way of promoting music to radio (even as far as committing payola, in some instances). But labels have gone out of their way to claim that online play doesn't at all help their sales (despite evidence to the contrary). The Chaffetz bill requires that a royalty rate decision should give "full-value" to "the promotional value of the playing of music by the service" and "the costs of the digital music service in putting together the programming that it features," Oxenford explains. Oxenford adds that the bill would also change to the law regarding "ephemeral" royalties -- for the use of music that's reproduced as cached files on servers, etc., which he intends to explore in a later piece.

Read Oxenford's report in Broadcast Law Blog here.

Professor says Internet Radio Fairness Act is better path to growth for webcasters and artist royalties

Thursday, September 27, 2012 - 6:55pm

UCLA professor John Villasenor has penned columns for Forbes, and a white paper for the Brookings Institution (where he's a nonresident senior fellow) that bring clarity to the matter of Internet radio royalties, calling for fairness in how actual rates are determined (we've covered these in RAIN here).

The idea Villasenor advocates, by the way, is the central goal of legislation introduced last week by Reps. Jason Chaffetz (pictured) and Jared Polis, and Sen. Ron Wyden, called the Internet Radio Fairness Act of 2012. That is, to instruct Copyright Royalty Board judges to base their determinations for Internet radio royalties on the same standard that is used for satellite and cable radio royalties -- known as 801(b).

This week Villasenor has an excellent and easy-to-understand piece advocating IRFA, published by Future Tense, a collaboration among Arizona State University, the New America Foundation, and Slate (read it here).

The 801(b) standard is a set of four criteria the U.S. Copyright Office has historically used to determine royalty rates for various uses of copyright, including all prevalent forms of digital radio except Internet radio. They are:

  • Maximize the availability of creative works to the public;
  • Insure a fair return for copyright owners and a fair income for copyright users;
  • Reflect relative roles of capital investment, cost, and risk, and;
  • Minimize disruptive impact on the industries involved.

Read 801(b) of the Copyright Act here.

By the late nineties, "the music industry, traditional broadcasters, and Congress were struggling to come to grips with the growth of then-new communications technologies enabling the delivery of perfect digital copies of songs to consumers," Villasenor explains. "But as so often happens when policy decisions are motivated more by fear of new technology than by recognition of the opportunities it creates, the resulting legislation ended up impeding growth rather than fostering it."

At the time, what was to become the Internet radio industry had little to no representation in Washington, certainly not like that of the music industry. Incumbent broadcasters, at the same time, while owning an even louder voice in Washington than the music industry, paid little attention to upstart digital technologies. So, not surprisingly, law crafted to manage music and digital technology was heavily influenced by the wants and needs of music labels, who saw the digital delivery of music as dangerous to their traditional business model.

The result was 1998's Digital Millennium Copyright Act, which put noninteractive digital audio services (Internet, cable, and satellite) "into two categories based on, among other things, a snapshot of the digital music broadcasting industry taken on July 31, 1998."

Services like Sirius and XM (now Sirius XM), Muzak, and Music Choice that existed by that time were "grandfathered in and given access to the 801(b) standard." The music industry, however, convinced lawmakers to abandon 801(b)'s aims to maximize the availability of works to the public, fairness to both sides, and minimum disruption, and change the standard for the new Internet radio medium. Thus, royalty judges were to decide royalties using a new standard, called "willing buyer/willing seller."

Villansenor explains, "Despite the innocuous-sounding name, willing buyer/willing seller requires identifying 'market' rates in the absence of a true competitive market. Unsurprisingly, this has produced skewed results."

The result can be seen in today's royalty landscape. The CRB-determined rates for SiriusXM using the 801(b) standard require 8% of the company's gross revenues for royalties in 2012 (up from 6% in 2008 and 7% in 2010). Pandora's 2012 royalty obligation, on the other hand, is almost 50% of its revenues. "And that is after a 2009 agreement provided a substantial discount to CRB willing buyer/willing seller rates that risked driving Pandora and other webcasters out of business."

Villasenor concludes, "For these reasons and more, the Internet Radio Fairness Act of 2012, which would move to a uniform 801(b) standard, is the far better path forward... Setting music royalty rates too low is unfair to recording artists, and lowers the incentive to create music. But if royalty rates are too high, as has occurred with Internet radio, companies providing broadcasting services will continually struggle to turn a profit, impeding market—and ultimately royalty—growth."

Again, read the entire article here.

Leading webcaster enlists D.C. law firm to lobby for bill, creates user resources page

Wednesday, September 26, 2012 - 2:40pm

Pandora is once again enlisting the power of its massive listenership -- not to mention some good old-fashioned professional lobbyists -- in hopes of getting lawmakers on board the recently-introduced Internet Radio Fairness Act.

The IRFA would instruct copyright judges who determine copyright royalties to use the same legal standard for Internet radio royalties as are used for satellite and cable radio. Internet royalties are currently based on a different standard, and webcasters pay a vastly higher percentage of their revenue to use music than other forms of radio.

Shortly after the bill dropped this week, Pandora began directing users to its dedicated "Support the Internet Radio Fairness" page. The page features a one-minute video of founder Tim Westergren explaining the bill and how to contact their Reps and Senators (using links on the page). There's a "frequently asked questions" section with further explanation, and links to post to Twitter (you can search the hashtag #FairNetRadio to see the traffic) and Facebook. Pandora listeners also received an e-mail from Westergren (here) requesting their help.

Pandora has in the past asked listeners to get behind its legal fights, with enthusiastic results.

Meanwhile, the company has also reportedly enlisted Washington, D.C. law firm Constantine Cannon for lobbying help with lawmakers. According to LegalTimes' blog The BLT (here), Pandora spent $90,000 on federal lobbying during the first half of this year.

Congress won't likely touch Internet Radio Fairness Act until after elections

Monday, September 24, 2012 - 12:25pm

The webcasting industry-backed Internet Radio Fairness Act, introduced to both chambers of Congress on Friday (see RAIN here), made The New York Times this morning, and journalist Ben Sisario presented the complicated manner in as clear and straightforward a way as we've seen.

"Willing buyer, willing seller. Those four words would seem innocuous, but in the world of Internet radio nothing is more contentious," read the opening paragraph.

As we reported, the bill would move noninteractive webcast services from the "willing buyer, willing seller" standard to the one used to determine rates for SiriusXM Radio and cable radio like Music Choice (known as 801(b), which is also the standard that record labels are happy is used when the rates for royalty rates they pay to songwriters and publishers are determined).

"That model would let the panel of federal judges that set the rates consider evidence both on the value of the music and on the effect the royalty rate would have on the industry overall. Pandora and its supporters believe that standard would yield lower rates," according to The Times. "Record labels and artists... believe that the existing rates are fair and accuse Pandora and others of wanting to deprive copyright holders of the income they deserve."

Congress will likely wait to deliberate the issue until after the national elections in November ("and probably into the spring," wrote Sisario).

We highly recommend Sisario's concise and even-handed treatment of the matter, and recommend you share it with listeners and clients. You can see it in The New York Times here. Finally, for a clear and entertaining analogy that demonstrates why "willing buyer, willing seller" can't work, please see RAIN publisher Kurt Hanson's "State of the Industry Address" from last week's RAIN Summit Dallas here (you can also launch the audio from the box in the right-hand margin of RAIN) -- scroll ahead, it's near the end (about 20 minutes in) of the speech.

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