Good News, Everybody! Or Not - They Changed Webcasting Royalties Again

[While reading Fark, I stumbled over this piece about a recent webcasting royalty "victory". I'm thinking, well, not so much. Here's the explanation I posted at Fark, and since it was nice and long, I figured I may as well post it here, too.]

Okay, firstly, full disclosure: I run a web radio station at Live365.

(must...fight...urge...to...get...a...kick...out...of...this...)

I play the kind of music that, back in the 80's, we'd call alternative (as opposed to today's "alternative" which, back in the 80's, we'd have called "rock" or "metal". Nothing against that, mind you, it's just not what I play. Unless it's really good. Which I get to define. Neener. And get off my lawn.)

Anyway, I'm seeing the usual confusion about this stuff here. Let me try to hack through it.

Major point: people whose music I play should be compensated. Period. The question is: how do we do it fairly? Who should be compensating the artists, and why?

Second major point: there's two separate kinds of royalty, and almost everyone on this thread has gotten them confused - which helps the record companies win this argument in the court of public opinion, actually.

First, there's the royalty for the people who actually write the songs. Any time someone uses that bit of intellectual property, whether it's a live performance, a recorded performance, or a public playback of a recorded performance, those folks deserve a cut for their effort, for a reasonable amount of time after they've created it. (In addition to being a DJ, by the way, I'm an inventor with four patents registered and a bunch more pending, and I've got 17 years to exploit my inventions. I think that's reasonable. The same should apply to songwriting rights, but it doesn't, which is strange, but I digress.) The point is, if you're a songwriter and I play your song, you're due that sort of compensation, and because I'm deriving a benefit from your work that you're not otherwise compensated for, it's up to me to pay you for that benefit.

ASCAP, BMI, SESAC and other songwriting royalty clearinghouses are responsible for collecting that money and distributing the proceeds, and they only collect it if the songwriter contracts with them to collect it.

And in this article, that's NOT the royalty they're talking about. Put that royalty concept aside; it's as different from the agreement they're talking about as property tax is from income tax.

Here's what they're talking about: a royalty due to the record company for playing the recording itself, on top of the royalty we just discussed. Essentially, from us webcasters' point of view, they'd like us to pay them for the privilege of advertising their products.

The reasonable fee for this royalty was decided a long time ago - the mid-fifties, in fact. Back then, the courts decided that the correct royalty for playback of a recording over the radio was ZERO.

The reason was that it was found to be a quid-pro-quo arrangement; while stations generate ratings (and thus income) by playing interesting recordings, the owners of those recordings also generate income because the more radio plays their recordings, the more people know about and buy those recordings. The promotional value of radio play was considered fair compensation to the recordings' owners for playback of the recording in question; they'd get nothing but sales ... which, actually, is everything.

You'd think the same rules would apply for Satellite and Internet radio, but the record companies saw an opportunity to argue that it was a different situation and that the decision I mentioned above (meaning they would continue to get nothing but promotional value) should be revisited. And their argument was a lie.

The argument went like this: Internet broadcasting is "digital", and as we all know from the marketing they put out about CDs, "digital" is "perfect". These Internet broadcasters - and anyone else who broadcasts digitally - are distributing perfect copies of their recordings, which listeners could then theoretically capture and keep, effectively losing them sales. Why would anyone buy their CDs if they could get the music for free? (There's another gaping problem with that argument, by the way - by reducing the packaging around their releases to, essentially, disposable plastic and forgettable CD inserts, they themselves reduced the value of their own product...but that's another argument for another time.)

They then convinced Congress that they should be compensated for the loss of sales. *That's* the fee TFA discusses. The record companies have gotten Congress to take it as conventional wisdom that one play of a song on Internet radio is equivalent to giving every listener of the station at that moment a free copy of the song being played.

Never mind that virtually all Internet broadcasting (whether it's MP3, WMA, RM, or what have you) is, by it's very nature, an imperfect reproduction of their product. There's a reason that the data compression necessary to play music over the Internet is called "lossy" - technically and audibly, what comes out of it is not the same as what gets put into it. Clearly, nobody ever treated Congress to a side-by-side comparison of a 64k MP3 versus a CD of the same material (versus an FM broadcast, by the way.)

You've listened to Internet radio. Is this argument anywhere near the truth?

Also, Sound Exchange (the royalty collector for this royalty) collect this fee from broadcasters regardless of who or what they play. You say the band handed you the disc and said "please play this, we don't care about royalties"? Doesn't matter - the broadcaster has to pay. What if the band hasn't contacted Sound Exchange to get their cut? No matter - Sound Exchange will be happy to sit on that money for you, and really can't be bothered making the effort to find you and give you the money.

So, long story short, the right answer for the royalty in question - not the one that compensates songwriters, but rather this bogus one the record companies created that is based on a lie - continues to be a big fat goose egg. But who wants to muster up the political will to drive that point home?

- Record companies? Nah, they're grasping badly enough as it is, having reduced their product to commodity status while wondering why everyone wants to treat their property like a commodity. Plus, having fought for it, they're not likely to say "no, you're right, give us less money."

- Terrestrial radio? Nah, they like the idea that a potential competitor was getting sucker punched...although they narrowly avoided an attempt by the record companies this year to charge them this royalty, which could cause them to change their tune a little.

- Web broadcasters? Not in the disorganized fashion they've been going. It's every broadcaster for themselves, with Pandora hailing this latest decision while whistling past the fact that the minimum fee just went up from $5,000 to $25,000, effectively shutting out smaller players (guess they don't like enabling potential competition either.)

It ain't fair, but it's what we've got. But Good News, Everyone - web radio will soon get a lot less confusing because you'll have fewer web radio stations to pick from! Ain't that grand?