SoundExchange

SoundExchange opens audits on Cumulus, Saga streaming music use

Friday, June 7, 2013 - 10:50am

SoundExchange, the recording industry body that administers royalties for digital uses of copyright sound recording (like webcasting and satellite radio) has reportedly begun auditing broadcast groups Cumulus Media and Saga Communications.

Broadcasters aren't mandated to pay royalties for their "on-air" use of sound recordings, but do become SoundExchange customers when they stream.

Inside Radio reports SoundExchange is "policing station logs to ensure broadcasters are paying what they should in streaming royalties," and that Beasley and Greater Media have already been under SoundExchange's microscope. SoundExchange will need to pay for the audits unless they find a licensee underpaying by 10% or more.

Industry groups that administer composition and publishing rights, ASCAP, BMI, and Sesac, conduct similar audits.

Inside Radio says SoundExchange is using an outside firm to conduct the audits. Read more 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.

More ads, lower music costs make Slacker "gross margin profitable" on every listener, it claims

Monday, May 13, 2013 - 10:55am

Webcaster and on-demand subscription service Slacker last week revealed it's reaping the fruits of its February relaunch in the form of surging audience growth. The company also claims it's attracting Pandora users shut out by that company's recent 40-hour/month listening cap on free mobile streams.

What's more, CEO Jim Cady says his company is "gross margin profitable" on every listener in part because "direct" royalty deals have made it less expensive for Slacker to license music than for its competitors.

In a press release, Slacker says since its February relaunch (including a redesign of its web site and mobile apps), more than six million new listeners have registered, including over 100-thousand paid subscribers. And the amount of time the average user listens has jumped 25%. Among new listeners, 3.5 million listen via mobile devices. Its user penetration on Apple devices has more than tripled.

Slacker partners for content with ABC Radio. Its general manager Steve Jones told USA Today, "Our audience has grown 3% to 4% every week since February. We're thrilled."

And they're ready to bring on even more users. According to paidContent, Slacker is close to sealing a deal with "a major telco provider" -- a move Cady predicts could be worth "millions of paid subscribers" to his service. Last week we covered news (here) that Slacker had entered a partnership with Vodaphone which would enable them to enter the UK market, but it's not clear if this is the deal of which paidContent wrote.

Early in March, leading webcaster Pandora announced, as an effort to reduce music royalties, it would limit mobile listeners to 40 hours per month of free, ad-supported listening (paid listening by subscribers is not limited, nor is listening on Pandora.com). While services make significantly less on advertising to mobile listeners, music licensing costs remain the same -- meaning heavy users of free ad-supported mobile streams are hardest to monetize for webcasters.

Cady says his service has gained listening partly due to Pandora's move. Adding to that, he tells numerous sources (like VentureBeat), Slacker's "proven business model" enables Slacker (unlike Pandora) "to monetize users with free accounts" -- even mobile users.

First, Slacker simply runs more ads than Pandora. Wedbush Securities analyst Michael Pachter explained this to USA Today: "Slacker is one-sixth the size of Pandora, and both run ads. Slacker does three minutes per hour, Pandora one per hour. It's that simple."

But perhaps even more interesting is that Cady (pictured) says his "direct deals" with record labels and publishers save the company big money. Slacker told Evolver.fm it doesn't pay SoundExchange -- the music industry body that collects and distributes royalties for those services that operate under statutory licenses. Slacker claims their direct deals enable them to pay a lower royalty than do SoundExchange customers (like Pandora).

Slacker, which launched its digital music service in 2010, has raised $50 million in investment. The company also recently expanded its operations, opening offices in Palo Alto, CA and New York.

Read more in coverage from paidContent here, USA Today here, VentureBeat here, and Evolver.fm here.

Digital Music News reports CC rumored to be paying small label partners "1% of revenue" as on-air royalty

Monday, May 6, 2013 - 1:00pm

Digital Music News today revisits the topic of radio broadcast groups forging licensing deals with small record companies that effectively discount streaming fees for a small revenue share for on-air play.

Clear Channel is the largest radio operator engaged in these deals, with label groups like Big Machine, Glassnote, and more. Other broadcasters with similar deals include Entercom and Beasley.

While the terms of these deals aren't public, Digital Music News writes, "In return for getting royalties for airplay, rumoured to be around 1% of revenue, the labels agree to bypass SoundExchange and so cut their online royalty rates to what's rumoured to be around 3% of revenue." [Most AM/FM radio stations pay nothing to use sound recordings on-air. This year most broadcasters will pay $0.0022 per song, per listener for songs streamed online. See more in our royalties round-up under "Commercial Broadcasters" here.]

If it's true radio sees the end of free broadcast use of sound recordings coming, broadcasters might be trying to stay ahead of government regulators by voluntarily entering deals, rather than waiting for the Copyright Royalty Board to set a less favorable rate (see "Internet radio"), as the article suggests.

"The reason (Clear Channel would agree to these terms) must be to drive down the overall royalty rates it has to pay," Digital Music News reasons.

After the news source gets its customary digs against Pandora and Clear Channel in, it points out that while these deals do give recording copyright owners (labels) a bit of a royalty for on-air play (for which they're legally entitled to nothing under current U.S. law), they may not be ideal for performers. For one, there's no guarantee of a consistent rate from deal-to-deal.

And record companies have an extra incentive to forge these agreements: unlike SoundExchange payments, labels aren't legally required to share them with performers.

Industry legal expert David Oxenford has some excellent analysis of these deals in Broadcast Law Blog here.

Read more in Digital Music News here.

NAB task force to prepare for new streaming music royalty negotiations

Wednesday, May 1, 2013 - 12:50pm

The National Association of Broadcasters has reportedly formed a dedicated task force in anticipation of upcoming negotiations on streaming music royalties.

The NAB reached a streaming royalty deal with SoundExchange (the music industry body that adminsters royalties for the online use of copyright recordings) in February of 2009 (ending in 2015), the top-level terms of which are here under "COMMERCIAL BROADCASTERS".

Inside Radio reports Beasley Broadcast Group CFO Caroline Beasley will head the task force. As chair of the NAB Radio Board, Beasley "was actively involved in 2010's performance royalty negotiations," Inside Radio wrote.

Her company is one of the ownership groups which, like Clear Channel and Entercom, have entered into royalty deals outside of the NAB/SoundExchange deal, with some smaller labels. Though the terms of the deals are never made public, it's commonly understood that in exchange for significant royalty discounts on the music they stream, radio groups pay a small royalty on the broadcast use of the labels' recordings (which the radio groups characterize as an "advertising revenue share").

Part of the NAB's deal with SoundExchange, by the way, waives limits on music use imposed by the Digital Millennium Copyright Act, known as the “sound performance complement,” which presumably makes online channels like iHeartRadio's two-artist "Beatles & Stones" stream (see our coverage here) legit.

Industry expert MacDonald figures nearly half of SX's $502 million revenue was Pandora royalties

Thursday, April 4, 2013 - 12:30pm

According to a guest columnist in Audio4cast today, nearly 50% of the over half a billion dollars SoundExchange collected from services last year came solely from Pandora!

SoundExchange is the music industry body that collects and distributes royalties for the digital use of copyright sound recordings. When services like webcasters, satellite radio (SiriusXM), cable radio (Music Choice), and business establishment services (DMX) perform copyright sound recordings, they pay SoundExchange, which then distributes money to copyright owners (labels) and performers.

SoundExchange last week released its 2012 financial report (here), revealing it had collected $502.2 million total from services last year (up 35% from 2011's $372.2 million). Digital media attorney Angus MacDonald compared the SoundExchange report with Pandora's most recent 10-K filing (here) and concludes that the top webcaster alone accounts for all of SoundExchange's 2012 revenue growth.

"Pandora paid 55.9% of its revenues to SoundExchange for the fiscal year that ended January 31, 2013," MacDonald wrote in Audio4cast today. "Pandora’s total revenues last year were $427.1 million. Based on the above figures, Pandora paid SoundExchange over $238.7 million ($427.1 million multiplied by 55.9%)" in that fiscal year. "That $238.7 million figure represents 47.53% of SoundExchange’s total royalty revenues ($502.2 million) in 2012," says McDonald.

Pandora paid about $132 million more for royalties in 2012 than in 2011. So while SoundExchange's collections increased by $130 million in a year, that means Pandora completely footed that increase (and a little more). MacDonald also points out that Pandora's FY 2013 royalty bill ($238.7 million) was close to its total revenue for the previous year ($274.3 million for FY 2012).

Pandora strongly backs legislative efforts (such as the Internet Radio Fairness Act, more here) to reform the process that determine royalty rates, in the hopes of decreasing that obligation. Recording industry groups like SoundExchange and the RIAA have strenuously opposed such efforts.

"With Pandora’s ever-surging listening hours and royalty payments, SoundExchange (as well as the record labels and artists who split the royalties collected by SoundExchange) need a healthy Pandora as much as Pandora needs a reasonable Pureplay-like rate for the next royalty term (2016-2020)," MacDonald concluded.

RIAA CEO Cary Sherman recently told The Verge's Greg Sandoval, "Access models" (industry terminology for services that license digital recordings, like Pandora, but also Spotify and YouTube) "are our present and our future... [This] underscores how vital it is to protect these increasingly important revenue streams."

Read MacDonald's guest column in Audio4cast here.

The RIAA issued its revenue report recently which showed $462 million of its 2012 digital revenue -- about 45% -- came from non-interactive digital services like Pandora and SiriusXM (see more in RAIN here).

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