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Webcasting Settlements?

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.

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March 21, 2008 - Posted by | Uncategorized

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