Creative Destruction

May 11, 2007

The Day The Music Died

Filed under: Popular Culture — Off Colfax @ 9:08 am

As of now, the day the music dies will be on July 15th, 2007.

I wish that was mere poetic license on my part. Regretfully, it is far too close to being a reality.

The Copyright Review Board, part of the United States Library of Congress, issued their final ruling (Large PDF warning.) on May 1 regarding the increase of royalty rates for music streamed over the internet. For the small internet-only audio streams, the verbose language can be summed up in three words:

You are screwed.

Per-listener per-song per-“channel” fees will be raised for the time beginning Jan 1, 2006, and late fees assessed for failure to pay on time, with a payment due date of Jul 15, 2007. There is no consideration for revenue generated by the stream.

You ask yourself, “So. What does this terse unhelpful legalese mean in the real world?” Glad you asked.

1.FM, one of the top-rated stations in the US, crunched their numbers for this Wired.com comment. With an average of 32 thousand listeners per day, the retroactive bill comes out to approximately $8000 to $12000, including late fees.

Per day. Which sums up to approximately $3.6 million for 2006 alone.

But wait. There is more.

Using both the CRB numbers and Arbitron ratings for the largest listener-base on the web, which is unsurprisingly America OnLine, the Radio And Internet Newsletter crunched numbers a bit more. For November, 2006, alone, the royalty obligation runs at $1.65 million. Translated into a full year, that becomes upwards of $20 million.

But wait. There is more.

Live365 will have to pay $350,000 per month, not including the “per-channel” designation. The prototypical kid in his basement hammering away with tiny revenue streams and 100 listeners will now be paying $6,000 per month in royalty fees. Your favorite terrestrial over-the-air station that streams their broadcast through their website will be paying an additional $1000 per month on top of their contractually established royalty payments. Yes. Even National Public Radio stations. (It is unknown at this time whether MTV’s royalty-free video broadcast agreement will apply to their own multiple-stream stations. If it does not, the per-annum numbers will be on the close order of $100 million.)

And this is on top of the royalty fees already being paid by on-line radio stations across the country.

To gain attention to the cause, many streams went dark for a day last week in order to show to their listeners exactly what will happen when they are faced with ruinous royalty increases and are forced to declare bankruptcy. With this virtual Sword of Damocles hovering over the industry’s head, there is only one avenue of recourse: Congress itself.

Fortunately, they have responded with speed. In the House, Representatives Jay Inslee (D-WA) and Don Manzullo (R-IL) introduced H.R. 2060 (Small PDF warning), the Internet Radio Equality Act, setting internet broadcast royalty rates at 7.5% of revenue or $500, the same rates as paid by Sirius/XM satellite radio channels. In the upper chamber, Senators Ron Wyden (D-OR) and Sam Brownback (R-KS) introduced companion legislation. (Bill number unassigned at the time of publication.)

Hopefully, Senator Graham will realize his penultimate error when he authored the Platform Equality and Remedies for Rights Holders in Music Act of 2006, for the PERFORM act has performed beyond all expectations for its beneficiaries and beyond the worst fears of the webcast community.

Please contact your Senators to voice your support and urge the immediate passage of the bill. Contact you Representative to urge them to join the bipartisan list of co-sponsors to H.R. 2060.

In closing, I fear that I must fall back on a previously published work of mine and quote Christian Slater.

Keep the air alive.

12 Comments »

  1. I’ve also been mulling a post on Copyright, the RIAA, and public perception. You beat me to the punch. My take on the issue, however, will be quite the opposite of yours: the public just doesn’t get what Copyright is about. It’s a result of technological developments that have made copying (infringing) cheap and widespread. Either you believe there is something protectible or you believe you should get things for free (or perhaps free part of the time, or perhaps free to you but someone else pays). The Copyright Review Board and the RIAA definitely understand the issues better than the general public, but the policing of copyrights is wildly unpopular. Go figure. It’s like getting a speeding ticket, except that your ticket is for all the speeding you’ve been doing since such and such date. That’s a big ticket, and it’s gotta be paid.

    Comment by Brutus — May 11, 2007 @ 10:32 am | Reply

  2. With an average of 32 thousand listeners per day, the retroactive bill comes out to approximately $8000 to $12000, including late fees.

    Per month. Which sums up to approximately $3.6 million for 2006 alone.

    I believe that you mean “per day” and not “per month,” in the quoted material above.

    Comment by ohwilleke — May 11, 2007 @ 12:41 pm | Reply

  3. The Copyright Review Board’s job is to attempt to replicate a market royalty in the absence of actual contract negotiations (on the assumption that the transaction costs associated without contract negotiations outweigh the benefit of conducting them every time a song is played, and given the small number of sellers who may otherwise receive excess oligopoly benefits, and the large number of buyers who are expensive to engage in negotiations with).

    When the royalty rate is far in excess of the market revenue generated by the streaming audio for almost every participant in the streaming audio marketplace, it is clear that the Copyright Royalty Board screwed up.

    IIRC, RIAA can contact around the official rate in individual contract negotiations, although it does so in the shadow of the official rate. Essentially, what RIAA has done with the Copyright Review Board’s complicity, has set a default rate so high that the Copyright Review Board has basically put itself out of business and de facto repealed the law that created it in this part of the market.

    RIAA has done this because it believes that online streaming hurts record sales through direct to MP3 copying more than over the air broadcasting does, and wants to shut it down until it comes up with a way to prevent it from happening, which it hasn’t figured out yet.

    Comment by ohwilleke — May 11, 2007 @ 12:54 pm | Reply

  4. ohwilleke: Thanks for spotting that. Error corrected.

    Brutus:

    Either you believe there is something protectible or you believe you should get things for free (or perhaps free part of the time, or perhaps free to you but someone else pays).

    Brutus, how much do you pay to turn on the radio in your car?

    To use your speeding ticket analogy, internet radio has paid their tickets. Royalty fees have been paid to SoundExchange, and then on to the RIAA, as a price of doing business, just as everyone else has. Now, for a specific type of vehicle, say a domestic hatchback or sedan, the fines on your speeding tickets over the last 18 months have been legally raised by 1500% while everyone else continues to pay the original rate. How, exactly, is this a proper principle of free-market enterprise?

    Before the CRB and RIAA can maneuver to eliminate the threat of pirated music due to internet radio broadcasts, they must first show a credible and definitive threat of piracy occurring due to streaming audio. And when it comes to the wide range of options here on the internet, ripping tracks from an audio stream is not the simplest option available as it takes more than two clicks of a mouse to accomplish.

    In my view, this is on the same level as suing the little old grandmother who don’t have a computer. Overprotectiveness spawning heavy-handedness spawning contempt from the public at large.

    Comment by Off Colfax — May 11, 2007 @ 6:00 pm | Reply

  5. I don’t listen to the radio, but that’s just me.

    I went back and reread your post and followed up with further reading on the subject. In light of what I now know, I’m more inclined to agree with you. The rate hikes and methods of calculating royalties are pretty clearly designed to hobble if not destroy Internet radio. Either that, or it’s a rather robust money grab (which I doubt).

    In any business model, there’s a sweet spot between price and cost that enables businesses to operate. It’s not quite clear why decision makers would want to bankrupt this particular business model when it’s still just getting underway. (The future points to much more content being delivered via the web, probably through subscription services rather than being free to end users.)

    So I misjudged on this one (or at least misunderstood the issue) and will wait to see if the grassroots campaigns bring things closer in line with reality and end up striking a better balance.

    Comment by Brutus — May 11, 2007 @ 11:11 pm | Reply

  6. Either you believe there is something protectible or you believe you should get things for free (or perhaps free part of the time, or perhaps free to you but someone else pays).

    There is a third possibility:

    You believe that there is something protectable, and that other people should work for you for free.

    Comment by Daran — May 12, 2007 @ 4:17 am | Reply

  7. From Vilon’s comment here being responded to here to prevent cross-thread contamination:

    If you start your own webcast and reach 5,000 people (and that is very generous), you shoud get $50 in revenue from that add flashing on the bottom of the screen and will be forced to pay 5c to 6c to the song author. In my book, that is fine.

    There are a number of misconceptions here. Let me attend to them one by one.
    1) “If you start your own webcast and reach 5,000 people (and that is very generous)”
    I am afraid that this is far from a generous outreach for the smaller stations. This is a copy/paste of the Top 5 Stations found on Shoutcast.com (As seen at 4p MDT 05.15.07):
    1 [Ambient Chill] CLUSTER Groove Salad: a nicely chilled plate of ambient beats and grooves. [SomaFM] 3463/4140
    2 [Pop Rock Top 40] CLUSTER .977 The Hitz Channel 3029/4600
    3 [hip hop urban rap rnb] CLUSTER -=[:: HOT 108 JAMZ ::]=- #1 FOR HIP HOP – 128K HD) * CONNECT FROM OUR WEBSITE http://www.hot108.com 2930/4200
    4 [Soft Smooth Jazz] CLUSTER S K Y . F M – Absolutely Smooth Jazz – the world’s smoothest jazz 24 hours a day 2689/4013
    5 [Vocal Trance Dance Pop] CLUSTER D I G I T A L L Y – I M P O R T E D – Vocal Trance – a fusion of trance, dance, and chilling vocals 2350/4010
    The numbers in bold falls under the category of Current Listeners / Maximum Streams Available. All of these specific channels are under 5k available streams. There cannot be any more listeners than there are streams for them to hook into. This is due solely to specific technological limitations, including but not limited to available bandwidth and originating software. (For bandwidth purposes, it is required to have, at minimum, a clean cable connection to be able to broadcast fifty high-quality 128 bitrate streams. For five thousand 128 bitrate streams, a high-T3 or OC3 connection or higher is required.) These specific channels listed are typically the most listened-to of those that use the shoutcast.pls format. For stations numbered #300 through #18547, it is highly rare that their listener rate will cross the threshold of two hundred.
    So right off the bat, there is a significant difference between preconception and reality.
    2) “you shoud get $50 in revenue from that add flashing on the bottom of the screen”
    This shows another significant difference between preconception and reality. A vast majority of internet radio stations are formatted to be played directly through a standard media player such as WinAmp, iTunes, Quicktime, RealMedia, and Windows Media Player. All that is required to listen is a compatible player and the URL of the stream itself. There is no need to visit the homepage of the station in order to listen.
    The most popular stations that have a homepage visit as a requirement are most terrestrial over-the-air radio that will stream content, plus Pandora, and AccuRadio.
    Banner advertisements on a per-impression contract will not be useful for a vast majority of internet radio stations.
    3) “and will be forced to pay 5c to 6c to the song author.”
    6c is approximately correct. However, this is six cents per song, per listener. Which, even on a case of 100 listeners and 18 songs per hour, comes out to US$108 in royalty fees per hour of operation. This total is a far cry from the predicted advertisement revenue under your scenario and does not yet include server fees.
    4) “In my book, that is fine.”
    Can you still say that now?

    Comment by Off Colfax — May 15, 2007 @ 6:54 pm | Reply

  8. [CENSORED] Akismet filter taking out the paragraph and table formatting!

    [CENSORED] WordPress not letting me change it back to the way it was!

    *insert head in monitor*

    Comment by Off Colfax — May 15, 2007 @ 7:03 pm | Reply

  9. […] and grandmothers, or one that seems hellbent on instituting punitive royalty rates. I goofed in my first comment on this subject, as I didn’t get that new royalty rates for streaming content will likely put […]

    Pingback by Copyright in Transition « Creative Destruction — May 21, 2007 @ 2:29 pm | Reply

  10. […] Brutus and I have disagreed about the subject of the RIAA many a time on these pages. His points are from the […]

    Pingback by Zero Income « Creative Destruction — January 2, 2008 @ 4:43 am | Reply

  11. I used to never listen to country music, but it’s changed. A lot of it is more mainstream and I like that. Plus the women are hot and that makes everything better!

    Comment by country musician — March 4, 2008 @ 11:31 am | Reply

  12. […] The Day The Music Died « Creative Destruction […]

    Pingback by Directorio Geobloog » Blog Archive » Wordpress Music — March 14, 2008 @ 9:51 am | Reply


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