This is a very good read. Gives you an idea of what really is going on behind the curtains of your favourite internet radio station.

I am sort of 50 / 50 on this situation. I totally understand that the artists and copyrights people do need to get some kind of money for having their stuff being played on the radio but at same time these rates seem a bit too much for a Internet Webcaster like DI.fm and majority of this money will be paid to Record labels who in turn will take their contribution out of it and by the time the money reaches the artists we are talking few dollars here and there.

This has been decided upon by US Government by it indirectly implies to alot of us since alot of internet broadcasters are based out of US. I dont know if this would also mean that webcasters from other countries broadcasting in US will have to pay also since the music they might be playing is of those copyright people that are from US.


New Music Royalty Rates May Shut Down Internet Radio

On Friday March 2nd, the U.S. government, through the Copyright Royalty Board (CRB), made a determination of the royalty rates Internet Radio webcasters must pay the owners of sound recording copyrights to license the music they webcast for the years 2006-2010. The license is paid to SoundExchange, a nonprofit organization that collects royalty payments from digital music broadcasters and distributes them to rights holders.

The issue is that the new rates completely ignore the business and market realities of Internet Radio. In a nutshell they expect many webcasters, such as at Digitally Imported, to pay far greater money for licensing than we ever even collect from all of our services, effectively driving webcasters out of business.

For commercial and for larger non-commercial webcasters the judges set a pay-per-play rate of:


$.0008 per play for 2006
$.0011 per play for 2007
$.0014 per play for 2008
$.0018 per play for 2009
$.0019 per play for 2010
No need to adjust your glasses, you are seeing it correctly. Not only are the rates outrageous but they also continue to increase wildly every year. For example, by 2007 the rate jumps 37% from 2006!

What's ironic is that even if the Internet radio advertising market was fully mature, which it isn't, and we played as many audio ads for you as we could - then not only we'd be in for a prize for most ads played by any entity, as one other webcaster joked. But we still would be very far from reaching the required revenue numbers and being able to pay such rates. It's just completely unrealistic to expect any sort of a model to exist both now and in next years that would come close to being able to justify these rates. Maybe the big corporations of the world such as Yahoo and AOL could in theory afford to loose on such rates and still provide music, but that doesn't mean all other businesses have to go as a result. Do you really want to have just a few big corporations playing the music for you in the future?


You may ask us about why don't we just play unlicensed tracks or make an agreement with artists directly to avoid paying so much. The reality of the business is that it is virtually impossible to micromanage things this way. You'd have to have a world class communication company to be able to track down so many artists or labels, find where who is, who to contact, what forms to sign, talk them into it, etc. Plus you'd be surprised just how much of the non-mainstream music you love so much here is really signed to a label. That's why in theory the law that allows for a blanket license is really convenient - it's just that the rates which were set now are truly hopeless and stifle any kind of competition. What are we supposed to do, wave a flag and and turn into a payola service? Put a banner out that says "hey, whoever pays us the most in advance gets to have his or her track heard on the radio!"? Because that's the only model that is going to work with these rates.


This All Sounds Familiar, What Happened Last Time?

If this all sounds familiar it is because it is very similar to what happened the last time around 2002 and the Day of Silence campaign. Then too very bad rates were proposed for the period up until the end of 2005. Much hype was raised because then as now the industry was about to die. You wonderful listeners wrote in droves to your congressmen whether by submitting online forms, emails, letters, or phone calls, and they in turn heard your message. With the urging of Congressmen last time, SoundExchange and the small commercial webcasters such as Digitally Imported settled on a deal (SWSA) that allowed us to pay a percentage of revenue or expenses instead of per performance, with the rates ranging around 10-12%. Even though officially the rates set by the Copyright Royalty Board (CRB) last time were also bad, this negotiated deal allowed us to use another model and continue to exist. There was no such option allowed by the CRB this time, and the jury's still out on whether anything will be negotiated like it was last time.

Frequently Asked Questions

1. Okay, what's going on?
On Friday March 2nd, the U.S. government (specifically, the Copyright Royalty Board, or "CRB") announced its determination of the royalty rates Internet radio webcasters must pay the owners of sound recording copyrights to license the music they play for the years 2006-2010. The owners of these sound recording copyrights are, in the vast majority of cases, recording companies ("labels").

While successful webcasters which have built loyal audiences can usually cover most of their costs from their revenue (and sometimes even make a little profit), these new rates will almost certainly destroy the Internet radio industry, as they amount to well over 100% of even the most-successful webcasters' online radio revenues. In other words, these fees are grotesquely disproportionate to any other expense a webcaster would normally face, and certain to bankrupt him or her.


2. Are the rates really that high?
First of all, the rates webcasters pay are "per performance," meaning any time ONE listener hears ONE song (or any portion of a song), that's a "performance." If ONE listener hears ten songs, that's TEN performances. If 1000 listeners hear ten songs, that's 10,000 performances. Still with me?

The rates announced for 2006 (long story, but the licensing term is for 2006-2010, and it took this long to figure out the royalty rate, thus webcasters will pay "retroactively" for 2006) are $0.0008 per performance. Now, that's only 8/100ths of a cent, but let's do the math to see what happens.

Let's imagine a webcaster with an AVERAGE audience of 10,000 listeners (obviously, listeners come and go, and no one listens 24 hours a day, but we're talking about an average number... so sometimes there'll be lots more than 10,000 folks listening, sometimes lots less... but for math's sake, let's deal with the AVERAGE audience). Our webcaster plays 16 songs every hour, 24 hours a day, 365 days a year, to an audience that averages out to be 10,000 people.

$0.0008 X 10,000 listeners X 16 songs/hr. = $128. It'll cost our imaginary webcaster $128 to play one hour of music for 10,000 people.
At the end of the day, that's $3,072 ($128 X 24 hrs./day) -- for just a single day! After a week goes by, it's $21,504 ($3,072 X 7 days/wk.). And for all of 2006, this webcaster with a steady average audience of 10,000 listeners would owe $1,121,280!! (the $3,072 X 365 days/yr.)

That takes care of 2006. For 2007, the rate increases 37.5%! So, with no audience growth, the cost of streaming music for the year would increase to $1,541,760.

And the royalty rate goes up another 28% in 2008, and another 28% in 2009, topping out at a $.0019 per performance rate in 2010 (resulting in a royalty obligation of $2,663,040 for that same audience averaging 10,000 listeners) for that year. I wish my boss gave me raises at those rates!

3. What about the commercials I hear? Aren't webcasters making money from those?
Advertising rates are expressed as a "cost per thousand" ("CPM," as M stands for thousand). Rates vary, but national radio ads (pretty comparable to Internet radio) go at about a $2 to $3 CPM. In other words, an advertiser would pay $2 or $3 for every 1000 people that heard their commercial one time. For our hypothetical webcaster, let's go with a $2.50 CPM. The webcaster would earn $25 ($2.50/1000 X 10,000 listeners) to run a commercial.

If this webcaster ran an average of 5 commercials an hour from 6 am to midnight every day, not only would he or she win the "set of steak knives" for selling more ads than any other webcaster ever, but would earn $821,250 in ad revenues ($25 X 5 commercials X 18 hrs./day X 365 days/yr.). Not a bad job, but unfortunately, it'll cover just about three-quarters of our webcaster's royalty obligation for 2006 ($1,121,280). And you can be sure ad rates won't increase 37.5% in 2007, 28% in 2008, another 28% in 2009, etc. like royalty rates do.

4. Can't you make a "percentage of revenue" deal -- you know, the more money you make, the more you pay?
Not this time... small webcasters were able to operate with just such a deal for the previous 5-year term, but the CRB made sure all webcasters would be subject to the "per performance" method of royalty calculation.

5. Well... independent music is cool. Why not just play independent music?
This is very important to understand, as lots of people see this as a solution. The statutory webcast license covers ANY copyright music, from the biggest labels, down to the smallest, and even independently-released music. Again, the license covers ANY copyright music. The copyright owner need NOT be part of SoundExchange or the RIAA. The ONLY exceptions to this are (A) direct deals with each and every sound recording copyright owner, (B) copyright owners that are willing to make a blanket "waive" of fees, or (C) non-copyright, public domain music.

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Let's bring the change!!!

Last edited by TranceGrooves on Mar-15-2007 at 22:18