College Broadcaster

Note: This was written in mid 2007.  Updates are coming.

In the past week, there has been press concerning settlements for webcasters. On Tuesday, select “small” webcasters received an email from SoundExchange with a settlement offer. Read the cover letter or the proposed settlement. Then on Thursday, it was announced that certain parties has reached a settlement concerning per station or per channel minimum fee.

Some may find the events of this past week surprising, but it was really very predictable.

The IREA house sponsors promised to push the legislation forward if progress wasn’t made by labor day. Other members of Congress have repeatedly pushed for the issues to be settled between the parties rather than through Congressional action. In order to avoid intervention and further examination, it is not hard to guess that SoundExchange wanted to demonstrate “progress” before the labor day holiday. Given the pending holiday, which many like to extend into the preceeding week, it is reasonable to assume that this past week was the target for SoundExchange to announce that progress had been made.

Has there really been progress??? Take a look at the first announcement this week in the form of the proposed settlement for small commercial webcasters (SCWs).

From the cover letter…

The attached rates and terms generally track those previously available under the prior agreement negotiated pursuant to the Small Webcaster Settlement Act (SWSA), which allow qualified entities to pay royalties based on a percentage of revenue (10% or 12%) or a percentage of expenses (7%) as
long as their total annual revenue (both direct and affiliated revenue) does not exceed $1.25
million. However, there are certain additional terms:

Many of the SCWs reject the revenue outright as the federal definition of a small business starts at a much higher level. They cite the following figures from the U. S. Small Business Administration Table of Small Business Size Standards
…

Subsector 515 – Broadcasting (except Internet) (annual average receipts in $MM)
515111 Radio Networks $6.5
515112 Radio Stations $6.5
515120 Television Broadcasting $13.0
515210 Cable and Other Subscription Programming $13.5

Subsector 516 – Internet Publishing and Broadcasting
516110 Internet Publishing and Broadcasting 500 employees

- These rates and terms are available for eligible nonsubscription transmissions for
2006-10, thus effectively extending the rates and terms negotiated pursuant to SWSA for an
additional 5 years.

The problem here lies in the fact that the proposed settlement is nonprecidential (see proposed settlement). That means that the rates agreed to by the parties won’t be admissible as evidence in future rate setting proceedings, such as the one that led to the current situation or the previous situation when rates were set under a different rate setting process. In other words, this is a band-aid intended to offer short term fix to a flawed process. Without reform, the process repeat in 2010 and the results are likely to be just as flawed.

- These attached rates only apply toward each webcaster’s first 5,000,000 aggregate
tuning hours (“ATH”) of usage each month. For any usage in a single month above 5,000,000
ATH, the webcaster must pay the applicable commercial webcaster rates (currently $0.0011 per
performance during 2007.) By way of example, a service would need to have an approximate
average of 6,945 simultaneous listeners, each listening for thirty consecutive days, 24 hours a
day, in order to exceed 5,000,000 ATH of usage.

While these numbers may seem large to some, let’s dissect this a little. Advertising is generaly sold by audience size. This is expressed in the term, cost per thousand or CPM. First we will start by rounding up the average number of simultaneous listeners from 6,945 to 7,000. In order to reach the $1.25 million dollar cap under the ATH cap, a SCW would need to charge $20 per ad if the CPM is under $3 and a has a full inventory of seven ads per hour.

SoundExchange, on the other hand says that at a CPM of $20, webcasters can sell six ads per hour. Simple math shows that 6*1000*7*24*365= $367,920,000.

- If a webcaster’s total annual revenue exceeds $1.25 million, it is no longer
eligible for these offered rates and terms. After the conclusion of a six-month “grace period,”
during which time it may continue to pay under the offered rates and terms, the webcaster must
calculate any subsequent liability using the applicable commercial or noncommercial webcasting
rates, as defined in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).
- Webcasters must provide census reporting to SoundExchange and be willing to
work with SoundExchange on implementing technology, developed at SoundExchange’s
expense, to track transmissions and provide the census reporting required under the agreement.
As with SWSA, a condition of this offer is that all parties affirm that this agreement is
non-precedential and does not reflect an agreement between willing buyers and willing sellers in
the marketplace. Rather, this agreement reflects the desires of certain members of Congress that
certain small commercial webcasters receive a below-market rate and as a compromise
motivated by the unique business, economic and political circumstances of small webcasters,
copyright owners, and performers. All parties agree that this agreement (including any rate
structure, fees, terms, conditions, or notice and recordkeeping requirements) may not be
introduced in any proceeding, including those related to the setting of rates and terms for the
licensing of sound recordings.
Please note that SoundExchange is making this offer only on behalf of its copyright
owner members and has no authority to make this offer on behalf of non-members of
SoundExchange. For transmissions of sound recordings owned by non-members of
SoundExchange, webcasters must comply with the rates and terms in the Final Determination of
the CRJs, published in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).
SoundExchange is working, however, to implement an industry-wide resolution that would apply
rates and terms similar to the attached for all eligible small commercial webcasters and all sound
recording copyright owners. In the event that industry-wide regulations are adopted by the CRJs
(or other appropriate authority) with rates and terms substantially similar to those contained in
this agreement, this agreement will cease to operate and all parties will be governed by the
industry-wide regulations. Ultimately, an industry-wide resolution will be easier for all parties to
administer, so it is our hope that such a resolution can be obtained.
If you are interested in accepting these rates and terms offered on behalf of
SoundExchange’s members, please sign the attached election form and return the signed form to
SoundExchange by September 14, 2007.

Note: This was written in late November/Early December 2007.  An update is coming.

For those who watch these issues on a daily basis, there are no surprises. Much of what is and is not happening is just what has been expected. But for those who don’t watch the issues on a regular basis, they might be surprised at what is happening. Looking back on what has and has not developed, there has been a lot to report, even when those reports seem to be nothing but more of the same. Let me summarize the events and non-events for you, because, many of the non-events are important.

IREA - The Internet Radio EqualityAct appears stalled in congress. While it has gained a significant number of sponsors (143 as of this writing), no additional sponsors have been added since September to the House version of the bill. The bill was referred to the Subcommittee on Courts, the Internet, and Intellectual Property, and due to the leadership of the committee, the bill is not likely to see a vote.

The Senate version of the bill holds even less hope with only 5 cosponsors and none have been added since June 2007.

The general attitude on the hill has been that the webcasting rates and terms of the CRB should be decided through negotiation. So how has the negotiation process fared to date?

Negotiations

Minimum Fee Cap - Back in August 2007, DiMA, which represents many of the large commercial webcasters reached an agreement with SoundExchange concerning the minimum per channel/per station fee. The two ended up “agreeing that the $500 per channel minimum fee imposed by the Copyright Royalty Board (”CRB”), which might have by itself driven many webcasters like Pandora or Live 365 out of business had it not been resolved, would be capped at $50,000″, according to the David Oxenford Blog. This means nothing to college stations.

When don’t Small Commercial Webcasters=small commercial webcasters? David Oxenford represented a number of “Small Commercial Webcasters” during the hearings to set the rates and terms for webcasting. After the CRB announced its final rate determination and protests arose from many sectors, SoundExchange offered a settlement offer to small commercial webcasters. According to SoundExchange 24 entities agreed to the terms of the settlement offer, but none of them were the parties represented by Oxenford. See his blog for details.

Commercial Broadcasters - The NAB has reached no negotiated settlements with SoundExchange to date.

Noncommercial Broadcasters/Webcasters - This, at least according to the CRB proceeding, includes three areas, lumping Broadcasters and webcast only outlets into the same boat. This includes NPR/CPB stations, Religious Stations and College Stations. Community broadcasters were not represented in the CRB hearing.

NPR - NPR/CPB qualified stations had the sweet heart deal under the old royalty regime. A negotiated settlement, prior to the close of the rate setting process required a payment of approximately $100 per station per year which were covered for the stations. According to many published reports (one example) attributed a statement by John Simson of SoundExchage to say that he was hopeful a settlement would be reached by the end of September. It appears that the continuation of negotiations hinges upon the outcome of a “wide-ranging survey” of listeners. This seems a little odd in that NPR took issue with many portions of the CRB determination, three of which seem central to their objections, including the “average” number of listeners on-line, at which point stations would need to pay the commercial rates and the ability of stations to track the number of listeners and provide reports of use. I say it seems odd because the it appears to be contradictory that the stations can’t report the data concerning listeners, but the survey, at least according to the provided quote appears to hinge on listener data. Further, the reports of use only partially require listener data. The balance of the reports require the logging of specific information concerning the sound recordings transmittd over the Internet.

The following was sent to station managers concerning the status of negotiations on November 19, 2007.

Dear Colleagues,

NPR and CPB continue to press forward on acceptance of a reasonable and affordable negotiated settlement with the recording industry to supplant the May 2007 decision of the Copyright Royalty Board. With tremendous assistance from stations, the Integrated Media Association and the Station Resource Group we have been able for the first time to gather an extensive and accurate snapshot of music webcasting data from stations throughout the system. This information has been shared with the recording industry and forms the basis for our settlement discussions.

We deeply appreciate your cooperation with our requests for information and your responsiveness to our calls for congressional contacts. It’s almost impossible to put a time-frame around this process, but we are working diligently to bring it to a successful conclusion as soon as possible.

Bruce Theriault
Senior Vice President, Radio
Corporation for Public Broadcasting

Dana Davis Rehm
Senior Vice President, Strategy & Partnerships National Public Radio

Greg Schnirring
Vice President, Radio
401 Ninth Street, NW
Washington, DC 20004-2129

So it appears that the lynch pin for future NPR/CPB negotiations is in place, even though September is a memory. Given the holiday season, I don’t expect to hear of a settlement before the end of the year.

NRBNMLC - This entity represented the noncommercial religious broadcasters before the CRB. We have seen little to no public evidence of negotiations. This is likely due to the fact that this group will use the NPR/CPB settlement as a means to negotiate a separate rate or perhaps ride the coat tails of NPR/CPB. The other thought is that they don’t want to propose anything that would hurt the NPR/CPB negotiations.

College Stations - As you might expect, this is the least well funded portion of the noncommercial group. It also potentially represents the ground floor where rates and terms will be negotiated. Neither these stations or those obtaining income from this group are in a hurry to settle as they wait and see what comes from other negotiations. Perhaps the biggest losers in this process are the artists. Under the terms of the SWSA noncommercial settlement, College stations paid a fee in lieu of recordkeeping and the submission of reports of use. For some unexplained reason, SoundExchange has not distributed a single penny collected from these stations to the artists. As the negotiations continue to become extended, the data that SoundExchange so desparetly claims it wants continues, in most instances to be uncollected and therefore undistributed. A true artist representative would have found a reasonable set of terms to collect the available data and find a reasonable proxy for the data that is not obtainable while finding a way to stick a carrot in front of student stations to report more data in the future.

The Appeal of the CRB decision - Statute provides the parties to the CRB hearing process the ability to appeal the decision in the courts. Not surprisingly, the courts don’t move quickly! This RAIN article outlines some of the details of what happens next. In short, it may be 2009 before the court takes any action on the appeal.

The next entry I will post to this blog will concern the likely introduction of a bill that would require FCC licensed broadcast stations to pay a royalty fee for the performance of sound recordings. Remember, this would be in addition to the fees already paid to ASCAP, BMI and SESAC.