Apple to reportedly pay indie labels 0.13 cents per-performance, share of 15% of ad revenue

Thursday, June 27, 2013 - 1:00pm

As Apple prepared to unveil its upcoming webcast service iTunes Radio, it negotiated "direct deals" with the major labels to license the copyright sound recordings they own. Apple has reportedly now circulated "similar though not identical" licensing terms to independent record labels.

The Wall Street Journal reports that Apple is offering to pay sound recording copyright owners a combination of a "per-performance" royalty and a share of advertising revenue (a "performance" means a single listeners hearing a single song). For the first year of iTunes Radio, Apple will reportedly pay indie labels 0.13 cents (or $0.0013) per-performance, plus 15% of its net advertising revenue (proportionate to the music's play on the service). For the second year, those numbers increase to 0.14 cents and 19%.

There's some special conditions involved here too, to which other webcasters that pay through SoundExchange are not afforded. The Journal reports, "Apple won’t have to pay royalties for some performances of songs that are already in listeners' iTunes libraries," which makes sense -- or, interestingly (though perhaps confusingly too) "songs that might be on an album that a listener owns just part of." Further, Apple will get to select what it calls "Heat Seeker" songs to promote, which are also exempt from royalties, as will be songs listeners skip after 20 seconds or less. However, in either case, Apple only gets to avoid paying for two songs per hour per listener. [The publication Hypebot has more explanation and analysis on this here.]

As mentioned, the major labels' terms are similar to those Apple is offering indies, though the majors reportedly get cash advances on royalties.

The offer of terms document, the paper reports, also refers to the possible use of music as background or "bumpers" for talk, weather, sports, and news programming. Apple won't pay for such use of indies' music.

For reference, Pandora pays the "Pureplay" rate, offered by SoundExchange to firms whose primary business is webcasting. For 2013, Pandora pays 0.12 cents per-performance, which will increase to 0.13 cents next year, and 0.14 cents in 2015. Rates for 2016 and beyond have not yet been determined.

"'Pureplay' webcasters, like Pandora, pay significantly lower per performance royalties than either broadcasters or those paying under the statutory rate," points out industry expert David Oxenford, "but are required to pay a minimum fee of 25% of the gross revenue of their entire business." (In other words, Pandora pays the greater of the per-performance rate or 25% of gross revenue. Details of the pureplay agreement are here.)

The statutory rate Oxenford refers to is what was determined by the Copyright Royalty Board to be a "fair market rate" for webcast royalties. Those not party to one of SoundExchange's alternative licenses (under the Webcaster Settlement Act) would pay the statutory, which amounts to 0.21 cents per-performance this year, rising to 0.23 cents for 2014-2015. Read more from Oxenford here.

One further, and important note, especially in light of the criticism directed at Pandora from the recording artist community: The law requires royalties paid by webcasters like Pandora to be divied by SoundExchange, with 50% going to the actual owner of the sound recording copyright (in the majority of cases, this is a record label), 45% to the "featured" performing artist, and the remaining 5% to unions that represent background vocalists and musicians. When sound recording copyright owners make direct deals with operators, as they have with Apple, they are under no obligation to share the royalty revenue with performers. (The paper's reporting of Apple's deals is very general, and we're not suggesting we know performers won't get directly paid in them. We're just pointing out that the law does not mandate a share for performers in direct deals.)

Though no specific terms were reported by the paper in regards to music composition licensing, the Journal writes "Apple is also offering music publishers more than twice as much in royalties than Pandora does."

The Wall Street Journal article is here. You can also read more in Crain's New York here.

RAIN Summit West recap: The royalties panel

Friday, May 24, 2013 - 1:20pm

The annual spring RAIN Summit West gathering in Las Vegas last month closed with a discussion of the evergreen topic of music licensing costs and the effects on services. Somewhat encouragingly, the on-stage participants -- representing webcasters, the music industry, rights organizations, and performers -- seemed to agree on more than disagree. The panel, "The Song Plays On," was moderated by attorney and webcasting legal expert David Oxenford.

Attendees heard from artist Patrick Laird, a cellist in the classical/rock outfit Break of Reality. A strong advocate for webcasting, he says his band's experience has led him to believe play (that is, exposure) on Internet radio is far more valuable than the royalties his band earns from that play.

"I'd much rather be played," Laird said. "We've had over 16 million plays in a year on Pandora... we wouldn't get radio play otherwise... but our record sales tripled." He told a story of a promoter finding Break of Reality on line and booking them for a show which paid them more than all their royalties for an entire year.

When the discussion swung to the promotional value of Internet radio versus that of on-demand streaming, Laird (left) said, "Internet radio is what radio has always been, a discovery tool, a way to sell tickets, to fill concerts, to sell music, to get more fans. Internet radio is a better version of radio, it does all those things better. What's important is the growth of the medium. We need to support Internet radio, it's the future of the way people discover music... especially independent artists."

Consultant Ted Cohen, of TAG Strategic, while maintaining that "radio should pay," respects the benefit to artists of being played on services that can now reach "a hundred, two hundred million people." He said, "We're somewhere in the sweet spot -- I don't think the artists and labels are entitled to more... I'm not sure how much less they're entitled to."

This led to panelists considering how services could be even more beneficial to artists. Laird really liked the idea of linking directly to artists' presences on Facebook or YouTube ("that's money right there"), and suggested giving tghe artists themselves an interface to maintain those links.

But SomaFM GM/Program Director Rusty Hodge (right) feels the statutory license is a barrier to some of these methods of promoting new music. He suggested the need for a wider range of licenses, that could, for example, allow for use of music that's currently prohibited by the "performance complement" of the law (such as a rule forbidding play of more than three songs by a single artist in two hours, among others). It "keeps you from doing a lot of creative things," Hodge explained.

Cohen agreed that constraints on webcasters' use of content, even when promoting artists, held back creativity.

Moderator Oxenford then brought up the fact that some services like iHeartRadio and Apple's upcoming service are negotiating directly with copyright owners (and going around the statutory license) to, among other things, avoid the constraints of which Hodge complained. And while services going this route would lose the convenience of a "one-stop" for all their licensing, Cohen said the process of direct licensing has become much easier in recent years: "The goalposts have gotten wider."

Getting back to the statutory license, Oxenford asked if a "percentage-of-revenue" royalty model, such as those employed by publishing performance rights organizations, makes more sense for a young industry like Internet radio (The statutory rate is based on a "per performance" rate, a performance being one song/one listener.).

SoundExchange Senior Counsel, Licensing & Enforcement Brad Prendergast explained "the beauty of a per-performance" royalty is that "every transmission of a track is valued the same -- it's 'delivery mechanism neutral.'" It helps protect the value of the music from an operator that would use a high volume of music but make very little money from the service. (He also reminded the panel that there are indeed some statutory agreements to which SoundExchange is a party that use a percentage of revenue, such as the small webcasters' license).

One recent development the panel brought up was the announced withdrawal of digital rights by some publishers from performance rights organizations (PROs) like BMI and ASCAP. BMI VP/New Media & Strategic Development David Levin (left) explained that publishers are seeing record labels making much more licensing music to services than they are, because the PROs operate under federal regulations that they feel supress the rates they can charge. The publishers tell BMI, Levin said, "Because of the government structure you operate under, we can get a better rate outside of this monopoly, by going direct."

Cohen empathized with the sentiment. "The labels are getting 90% of the revenue, the publishers are getting 10%. That pendulum has to swing a little bit."

We have audio for all of our RAIN Summit West content (including this panel) available via SoundCloud. Look for the links in the right-hand side of kurthanson.com.

Aereo case calls into question definition of "public performance," explains royalties expert Oxenford

Monday, April 22, 2013 - 1:10pm

Industry attorney and expert on webcasting performance royalties David Oxenford points out an interesting possible implication for radio and webcasting of a recent court case concerning the streaming of broadcast television signals. It comes down to the government's definition of a "public performance."

Last week the Second Circuit upheld (here) a lower court finding to allow the company Aereo to continue to stream television content it captures from broadcast signals without paying royalties to the original broadcasters or program producers. According to the Court's finding, there is no "public performance" in the case of a service in which "programming is streamed to the viewer individually, at their demand, rather than transmitted all at once to multiple consumers," Oxenford wrote.

A "public performance," according to the Copyright Act, includes any transmission or retransmission of a performance to multiple individuals. The design of Aereo's system allows it to argue that ultimately, it's each individual viewer that receives broadcast content, using her or his "own antenna," and who directs the delivery of the content, not Aereo.

"Thus, the Court determined that the transmission of the television signals was not a public performance by Aereo, but a private one at the direction of the ultimate user," explained Oxenford.

It's interesting to think about what this might imply. For instance, is a service like Spotify, when it's giving a single user on-demand access to a song, making a "public performance" for which it's obligated to compensate rights holders? Listeners to Pandora (and other webcasters like AccuRadio) each have their own dedicated stream (so as to allow customization, song-skipping, etc.). Given that, are Pandora and AccuRadio making "public performances" of this content (or does this not satisfy the "at the direction of the ultimate user" element of the decision Oxenford cites above)?

"The issue could also be resolved by Congress, just as it did when cable first came on the scene, by passing legislation to redefine a public performance," Oxenford concludes.

Read Oxenford's latest in Broadcast Law Blog here.

RAIN Summit brings in experts to discuss revenue models and royalty matters

Friday, February 15, 2013 - 12:05pm

We're happy to announce Triton Digital's Dominick Milano and leading webcasting legal authority David Oxenford as speakers at RAIN Summit West this April.

Milano's company, Triton Digital, is a digital services provider for broadcast and Internet radio. Its products include in-stream ad services Streaming Console and Station Console, and audience measurement service Webcast Metrics. Triton recently announced the launch of its targeted audio ad exchange solution a2x (here), and its partnership to launch "programmatic audience buying product" Xaxis Radio (more here).

Milano, a Triton partner since its inception, was recently named (in RAIN here) President of Publisher Development when the company realigned its executive structure. All publisher-facing activity is now managed centrally by Milano, who's spent the last five years evangelizing for, and helping clients with, local media's digital transformation.

Milano (right) will speak on the panel "Jump Start Your Revenue," an examination of the wide array of revenue strategies, from subscriptions and donations to ad networks, ad exchanges, and affiliate programs.

Washington, D.C.-based partner with Wilkinson, Barker, Knauer LLP David Oxenford is Internet radio's leading authority on issues related to performance royalties, the Copyright Royalty Board, and the Digital Millennium Copyright Act. An esteemed veteran of our RAIN Summit events, Oxenford (left) represents broadcast and digital media companies, including a number of Internet radio companies, before the Copyright Office, the CRB, and other government agencies. He advises on music royalty issues as well as other general business and regulatory matters.

Recently, Oxenford wrote about real marketplace royalty settlements (involving both SiriusXM Radio here and broadcasters like Clear Channel and Entercom here) and the potential impact on CRB-determined industry Internet radio royalties. Oxenford will lead the panel "The Song Plays On," and discuss the ongoing royalties matter, taking into account both musicians' and webcasters' points of view.

RAIN Summit West is Sunday, April 7 in Las Vegas. The annual full-day Internet radio conference is a co-located education program of the NAB Show. Now in its 12th year, the Summit focuses on the intersection of radio and the Internet. Keynoting the even will be RAB president and CEO Erica Farber (more in RAIN here) and Rhapsody International president Jon Irwin (more here). Register today (then you can get a jump-start on your travel plans!) via the RAIN Summit West page.

Beasley latest radio group to swap on-air royalty for streaming discount with Big Machine

Tuesday, February 5, 2013 - 1:20pm

Beasley Broadcasting is reportedly the latest radio group to ink a deal with Big Machine Label Group to soften streaming royalties in exchange for a small on-air royalty for the group's sound recordings.

Like other broadcasters such as Clear Channel and Entercom, Beasley will pay Big Machine a percentage of revenue from on-air ads to play artists like Taylor Swift, Tim McGraw, Rascal Flatts and Reba. In exchange, Big Machine will "allow digital simulcasts of the over-the-air signals by Beasley Broadcast to scale affordably to support the growth of Beasley's digital platform." (In other words, reduced streaming royalties.)

Industry attorney David Oxenford recently suggested deals like this may have an effect favorable to webcasters in upcoming royalty rate determinations: "The pro-record company outcome of the CRB proceedings may well be changed if these deals can be shown to be representative of the real value of the public performance of the sound recording." (Read more in RAIN here)

Read more on Beasley and Big Machine from RadioInfo.com here.

Oxenford: Individual rights deals may eventually set precedent for blanket licenses

Tuesday, January 22, 2013 - 1:20pm

Industry attorney and rights/royalties authority David Oxenford is suggesting the system of simple, one-stop music licensing that has enabled services to easily pay for the use of copyright music, and rights-holders to earn on their creations, may be breaking down.

Last week news broke (here) that webcaster Pandora's bill to perform compositions held by Sony/ATV will go up 25%. Pandora's agreement with ASCAP and BMI no longer covers Sony/ATV work, and they must settle separately -- without the oversight of a rate court. Some fear this is just the first domino falling, soon to be followed by other publishing groups breaking away from the Performance Rights Organizations (PROs) ASCAP and BMI, which aggregate rights and rightsholders (making the licensing of music simpler for both copyright owners and users). See our followup to the Sony/ATV and Pandora news here.

Oxenford joins those warning that if more large publishing groups withdraw from the PROs, the process gets harder for music users -- with no rate court oversight (to regulate rates).

Keep in mind some owners of sound recording copyrights have peeled away from the collective -- in this case, SoundExchange. In those cases, labels or label groups like Big Machine have made separate deals with broadcasters that decrease webcasting royalties.

But, if this fragmenting of rightsholders continues and accelerates, life could become more complex and expensive for smaller players -- both smaller services and smaller rightsholders. As Oxenford points out, smaller services don't have the manpower to negotiate all they agreements necessary for a comprehensive service; smaller publishers may be left relying on the PROs, and with fewer members, admin costs as a percentage of earnings will rise.

"Note, in some cases, any advantages of the larger players may fade away, as marketplace agreements can often be the best evidence of what the royalties set by a rate court or the CRB should be, in which case these directly licensed rates will end up being extended to all players in the industry," Oxenford writes.

Given the direct deals for sound recording and publishing rates so far, "we might see higher rates for music publishing, but lower rates for sound recordings over time."

Read his entire blog post at Broadcast Law Blog here.

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