QUICK HITS: Hoopla streaming; SoundExchange anniversary; Jeff Price

Thursday, October 3, 2013 - 1:05pm

Library music streaming: You can borrow ebooks from public libraries with an intermediary app called OverDrive. Now, a similar service has arrived for borrowing music and movies from local libraries, assisted by software app Hoopla. Hoopla stands between provider (media owners) and libraries, which must grapple with a buying model different from CDs and DVDs. The result, when it all comes together, is that library patrons can “borrow” music and movie titles by streaming them. Only a few dozen libraries across the U.S. are in the program currently.

SoundExchange celebrates its 10th: Anniversary, that is. SoundExchange, an important part of the commercial music ecosystem, is a performing rights organization that collects and distributes royalties to musicians and labels. Those royalties derive from many different venues, though broadcast radio is legally exempt from paying royalties to performers and labels. (Some broadcast groups do pay artist/label royalties in accord with open-market negotiation. That is a key point in the recently introduced Free Market Royalty Act.) Here is an infographic summarizing SoundExchange’s growth and collection amounts.

Jeff Price unloads: Jeff Price, founder of Audiam (which finds and distributes hidden royalties on YouTube) and TuneCore (a digital distributor of independent music), unleashes a meaty rampage (here) on the thesis of why selling music is no longer important in the age of Internet radio. “Spotify doesn’t need to stream the music it carries, nor be profitable from those songs it does stream, in order for its investors and owners to reach their financial finish line of selling the company or taking it public to make billions.” It might seem unusual for an accomplished venture entrepreneur to expound an Occupy Startups theme, but it does provide a knowing perspective.

SoundExchange wants "$50 to $100 million or more" from SiriusXM for back royalties

Tuesday, August 27, 2013 - 12:55pm

SoundExchange, the record industry body that administers sound recording performance royalties for digital (Internet, satellite, and cable) radio, has filed suit against SiriusXM for what it calls "a massive underpayment" for the period between 2007 and 2012.

According to SoundExchange, SiriusXM "took a number of impermissible deductions and exemptions in calculating its royalty payments... including deducting for pre-1972 sound recordings and certain channel packages containing music."

Federal law didn't protect sound recording copyrights until 1972 (older recordings are protected by state laws). As The Wall Street Journal explains, "Because of that, Sirius has never paid to use these songs, even though such oldies account for an estimated 10% to 15% of the satellite-radio company's total airplay, according to SoundExchange Inc. Sirius sets aside the revenue generated by these pre-1972 spins before it calculates the royalties it owes rights holders."

Last year the federal government (Copyright Royalty Board) set new statutory licensing terms for SiriusXM to cover a five-year period. According to that decision, the satellite broadcaster is to pay 9% of gross revenue this year, rising to 11% by 2017. Read more here.

Part of that settlement was an amendment that explicitly allows SiriusXM to cut its SoundExchange payment by subtracting the share of revenue from pre-1972 recordings from gross-revenue. This allowance for older recordings was not explicitly part of the licensing terms for the 2007-2012 period, however. The Journal reports that SoundExchange plans to present the new regulation (which it's appealing) as "evidence that such an exclusion didn't exist before."

The suit was filed yesterday in U.S. District Court for the District of Columbia. SoundExchange says it is seeking to recover "$50 to $100 million or more." We haven't yet seen a public comment from SiriusXM on the matter.

Read more in The Wall Street Journal here.

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.

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.

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.

Pink Floyd parrots record industry talking points for anti-Pandora tirade in USA Today

Monday, June 24, 2013 - 3:50pm

The three surviving members of rock royalty Pink Floyd attacked leading webcaster Pandora today for its efforts to reduce its music licensing costs in USA Today.

An op-ed from the band seems mostly constructed around oft-repeated talking points from the RIAA and music industry lobby group musicFIRST.

After the record industry corralled recording artists for its campaign to stop the "Internet Radio Fairness Act" (more here) in the last Congress, Pandora began to reach out to artists for support. The webcaster hopes to show Congress that there are recording artists who value Pandora as a promotional vehicle, and understand that royalty relief may be vital to its survival.

Again, using the well-worn tropes of earlier music industry efforts, Pink Floyd characterizes Pandora's efforts as an attempt to "trick artists" in their efforts to "slash royalties." Even the peril of an "85% artist pay cut," and the accusation that Pandora wants "growth of its business directly at the expense of artists' paychecks," are nearly word-for-word rehash of SoundExchange press releases.

One more-interesting sentiment from the band's op-ed: They want Pandora's help to get them royalties from AM/FM radio.

"Artists would gladly work with Pandora to end AM/FM's radio exemption from paying any musician royalties," Pink Floyd wrote, in apparent belief that webcasters' lobby on Capitol Hill could achieve something the record industry's can't.

Read Pink Floyd's op-ed in USA Today here.

Hanson speaks at (and sends photos from) the New Music Seminar in New York

Tuesday, June 11, 2013 - 12:30pm

RAIN publisher Kurt Hanson is in New York this week for the New Music Seminar conference, and sent along a couple snapshots.

Kurt spoke yesterday on a SoundExchange-presented panel called "The Digital Radio Explosion – The Fuse is Lit." The panel was moderated by Andrew Hampp, Senior Correspondent, Branding, at Billboard. Joining Kurt on the panel were Brian Benedik (Head of U.S. Ad Sales, Spotify), Rick Song (EVP of Digital Sales, Clear Channel), Alex White (CEO, Next Big Sound), John Rosso (President, Market Development, Triton), Steven Kritzman (Sr. VP of Advertising Sales, Pandora), and Sara-Beth Donovan (VP Director of Media Mintz + Hoke).

You can see thumbnail photos of Tommy Boy Records founder Tom Silverman's State of the Industry opening speech; and panel discussions "Music Subscription: Getting To A Billion – Building A Strategy For Success" and "SoundExchange Presents: Radio on the Edge."

Click the thumbnail photos to see the full-size image. Check out the panel descriptions and rosters (so you know who's in the photos) here.

Below: Tom Silverman on stage.

Pictured below: "Music Subscription: Getting To A Billion – Building A Strategy For Success." Pictured left-to-right: Moderator Stephen Bryan (Executive Vice President, Digital Strategy and Business Development, Warner Music Group), Mark Piibe (Executive Vice President, Global Business Development and Digital Strategy, Sony Music Entertainment), Sachin Doshi (Head of Development and Analysis, Spotify), Jim Cady (President & CEO, Slacker), Andy Chen (CEO, WIMP), and Jon Irwin (President, Rhapsody).

Below: "SoundExchange Presents: Radio on the Edge." Pictured left-to-right: Mike Dougherty (CEO, Jelli Radio), Kevin King (, Stephen Valenta (Reporting/Finance/Ad Ops, 8Tracks), Eric Davich (Co-Founder/COO, Songza), Paul Campbell (CEO, Amazing Radio), and moderator Corey Denis (VP Digital Strategy & Marketing, Toolshed).

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