Feeling the pain of small webcasters forced into new royalty
rates that easily exceed some outfits’ total revenues, SoundExchange issued
a new royalty structure that consists of webcasters only paying 10 to 12 percent of their annual
revenue. Webcasters, however, are only eligible for the new deal if their annual revenues fall below $1.25 million and their audience is below a certain size.
The agreement will be offered to small webcasters
individually, and they have until September 14 to sign it. “By providing each
small webcaster with an agreement that extends the terms of the Small Webcaster
Settlement Act, it takes the uncertainty out of the air as to most of their
programming, and lets them continue streaming,” said SoundExchange’s Executive
Director, John Simson. Webcasters who do not agree by the deadline must pay the
higher rates, or stop broadcasting.
Despite reduced rates, the new deal still faces harsh
criticism that the $1.25 million minimum is impractically low. According to David Oxenford,
an attorney who represents half a dozen smaller stations, the $1.25 million cap “[limits]
the ability of the small commercial webcaster to grow its business, and you
can't bring in investors to invest in new programming or new facilities or
publicity. Who's going to invest in a business that can't get bigger than [$1.25
million] in revenues a year?”
“This would be a huge step backward for us,” said RadioParadise.com
operator Bill Goldsmith, who thinks that the ceiling should be set at $6
million in accordance with the guidelines set by the Small Business
Administration. According to Rusty Hodge, operator of San Francisco’s SomaFM, the
maximums specificed are too small “by any type of radio standards.” Reflecting on
ramifications of SomaFM’s growth in his blog, Rusty on Radio, Hodge wrote:
“If
we exceed [the] revenue cap, our royalties would go from $150,000 a year to
over $2 million or more a year. In fact, if we extrapolate our current revenue
to royalty ratio, our rates would go from $150,000 to $5 million at the point
we hit the $1.25 million revenue cap.
“So
if we can increase the size of our business to over 1.25 million dollars, we'll
be forced out of business.
“This
isn't an offer. This is a restraint of trade.”
The deal’s audience limit is also “very low,” wrote Hodge. Stations
are allowed no more than 5,000,000 Aggregate
Tuning Hours per month at reduced rates, or the equivalent of 6,945
simultaneous listeners, each listening for thirty consecutive days, 24 hours a
day. “At the rate we're growing, in 2 years we'll be over that limit with our U.S.
listeners.”
SoundExchange’s new offer closely resembles the original
rates that webcasters paid, albeit without the revenue ceiling. It “was a fine
deal in 2002, when everyone was just getting started and trying to figure out
how to make money, and the audience wasn't huge,” said Oxenford. Nowadays, times
have changed and internet radio has become a much more accessible — and lucrative
— source of music for consumers.
Although the new rates only apply to music by artists who
have signed up with SoundExchange, it says it is hoping for “an industry-wide
resolution that would have to be implemented by the Copyright Royalty Judges,”
noted Michael Huppe, who is SoundExchange’s General Counsel.
“This is an unworkable offer, and it is not in any
webcaster's interest to accept this offer,” wrote Hodge.