Webcasting royalties: indies v. majors

I know that it is a necessary prerequisite for admittance in the union that all journalists prefer everything "indie" to everything non-"indie," but I would hope you would dig a little into a press release before treating things at face value. Live 365 is saying that 55% of its music paid is indie. What it doesn't say is how many are listening to each stream. To get a true comparison to sales (which is what you refer to when you cite physical market share) you have to multiply each stream by the number of listeners. Indeed, that's how the royalties are paid to SoundExchange, and that's how SoundExchange then pays members. The analog of "songs played" in the analog world would be number of records released. In fact, well over 55% of all releases are "indie." Therefore, I would say that Live 365 is even more major oriented than the physical market.

I won't even get into whether the narrowcast of a track to a listener is promotional, except to notice that you assume it is rather than noting that it is an issue being debated heatedly.

I see no reason why big webcasters (and the last thing I want is for broadcasters to dominate, by the way) can't play as much "quality" as a little guy (which, by the way, Live 365 is not, but that's another story). The economics from the lack of scarcity of channels and the lack of costs in narrowcasting allow it. SoundExchange's interest is purely in maximizing royalties, which means maximizing the number of tracks played and listeners listening. I don't see how indies and majors interests diverge in that.

Any indie (and I mean a sound recording company, not an artist who chooses to give away music to make money other ways) who thinks webcasting should be used as promotion rather than a revenue source is missing what the future is about. All music use is substitutional for other uses. Everything you do in life substitutes for doing something else. Every bit of evidence we've seen shows that new media reduces sales in old media. Obviously, sales in new media haven't made up for it. On average, heavy satellite radio users spend less money on music (other than their subscription fees) than they did prior to subscribing. Likewise with internet radio. There's just less of a need to own. Promotion is fine, but if you need to get money in from the sound recording, I'll take payment any time. Indie labels are realizing that majors aren't their enemies. Their enemies are corporations who want to make money by performing music and not pay the performers for the privilege.

"SoundExchange's interest is purely in maximizing royalties, which means maximizing the number of tracks played and listeners listening.

I am afraid that cannot be the case. If it were, SoundExchange would not be pushing for the CRB rate scheme which would force the vast majority of existing webcasters off the air. If SoundExchange were concerned about royalties it would not be pushing for CRB rates which would reduce Internet radio to but a handful of RIAA favored large corporate webcasters who are forced to sign sweetheart direct license deals with the major labels at reduced rates.

SoundExchange collects nothing when webcasters enter into direct license deals. SoundExchange collects nothing when a station shuts down and no longer streams music. And yet that is exactly what SoundExchange is pushing for. And I don't buy for a minute the premise that the people in charge over their are a bunch of fools who are not aware of the consequences of what they are advocating. They know exactly what the new rates will accomplish - which means that what they and their bosses at the RIAA are after is NOT maximizing the amount of royalties collected by SoundExchange.

"see no reason why big webcasters...can't play as much "quality" as a little guy.... The economics from the lack of scarcity of channels and the lack of costs in narrowcasting allow it."

This ignores the fact that under statutory royalties large webcasters face the exact same economic reality that small webcasters do when it comes to narrowcasting: recordings by unknown artists and from obscure genres do not have the same power to attract a large audience that more widely familiar recordings do. Under the statutory rates, playing a recording by an obscure local Ukrainian folk band will cost the same .019 cents per listener that it costs to play whatever recording happens to be at the top of the charts. Such a scheme is a grotesque injustice to anyone who produces such recordings and to those who are fans of them. It basically prices them out of the market in the exact same way that a government imposed a $50 price minimum on chairs would cause all chairs that currently cost less than $50 to disappear from the market. Clearly such a move would benefit those who make chairs that are worth more than $50 as it would eliminate low end competition. And I think that is quite obviously the motive here.

Sure, a large webcaster might be able to aggrigate many small streams and sell advertising across them - which is what Live 365, in fact, does. But the $500 per channel "administration fee" - which is still not off the table without DRM strings attached according to the latest news reports - would kill that from the get-go. And even without the $500 minimum, it is still not economically viable under the proposed CRB rates. If a small station on Live365 playing Ukrainian folk music manages to work up to an average of 30 listeners at any given moment and plays an average of 19 songs per hour (very small stations play more songs than big ones because they are usually automated with no voiceovers), under the 2010 rates that station's SoundExchange royalties will be $9,847 per year. Let's say that Live 365's insertion of ads cuts that down to an average of 17 songs per hour. That would only bring the SoundExchange royalties for that stream down to $8,488 per year. And that is JUST for SoundExchange royalties and does not take into consideration ASCAP/BMI/SESAC royalties, bandwidth costs and other overhead.

There is no way that a stream that only has 30 listeners can be economically viable under such conditions. First off, no service such as Yahoo or AOL would even attempt it because the staff time it would take to program a station playing an obscure genre - i.e, purchasing and auditioning recordings, generating playslists, etc. - would not be cost effective. Such programing efforts that currently exist in places like Live 365 are labors of love made possible by a considerable amount of donated time on the part of the individual webcasters. Under the proposed CRB rates, somebody has to pay those royalties - and there is no way that the vast majority of those who program obscure material as a labor of love would be in a position to subsidize their programing to the degree that the CRB rates would require.

So the bottom line effect will be that unknown artists and niche genres will not get airplay on the Internet - and isn't that what SoundExchange and your employers are really after, Mr. Kenswil?

"Any indie (and I mean a sound recording company, not an artist who chooses to give away music to make money other ways) who thinks webcasting should be used as promotion rather than a revenue source is missing what the future is about."

Your statement dismisses those artists who choose to give music away in order to make money other ways, but isn't that exactly the sort of thing that your employers fear the most - i.e., that artists beyond merely those wannabes hungry for exposure will begin to regard recordings as little more than promotional loss leaders? Your employers wouldn't be able to survive if enough artists found it worthwhile to do that, would they?

Isn't what your employers really fear more than anything is that venues such as Internet radio will enable artists to get airplay and public attention without having to sign terribly one-sided contracts with the major labels? Isn't what your employers fear is the fact that the more the public has easy access to independent artists and niche genres, the more they will embrace them and thereby reduce the level of interest in the mass market hit recordings that the labels depend on for their survival?

Isn't that what this whole royalty mess is really about, sir? Isn't the reason RIAA/SoundExchange supports the CRB rates so strongly because they will have the effect of driving webcasters who play less well-known music off the air and replace them with large corporate webcasters who will have sweetheart direct license deals with the RIAA labels and only play FM type formats because 1) playing indie and niche music would require them to pay cost prohibitive statutory rates and 2)"rocking the boat" by playing too much indy stuff might not be particularly smiled upon so nicely by the labels when the direct license arrangements come of for renewal?

If that is NOT the motive of RIAA/SoundExchange - then please inform us of what other possible motive they might have for driving webcasters either off the air or into direct license deals.

"Live 365 is saying that 55% of its music paid is indie. What it doesn't say is how many are listening to each stream."

You can slice, dice, twist and rationalize the Live 365 statistics in any manner that you want. Regardless of how you do so, one very simple fact remains that cannot be disputed: Every month, thanks to Live 365, tens of thousands of artists and hundreds of thousands of recordings are able to receive airplay that they would NOT have received back in the days when the only radio in town was AM/FM and who will no longer receive airplay if your employers and RIAA/SoundExchange get what they have been asking for. To use your own words: "Everything you do in life substitutes for doing something else." And all those hundreds of thousands of people out there who are discovering and becoming loyal to thousands and thousands of small time stations that play stuff that most people have never heard of before and are content to stream to only a few dozen people or less are people who are NOT behaving like good little sheep and listening to the recordings that your employer wants them to listen to.

THAT is what this royalty situation is all about: who gets airplay and who does not. The RIAA labels know full well that they will lose market share and a good deal of their relevance BIG TIME if Internet radio achieves its full potential - and like Luddites they are trying to use the law of the land in order to kill off the emerging competitors in order to protect their technologically obsolete marketplace relevance.

I don't lack sympathy for people and companies who are displaced by technological advances - my father was forced to close down his business when technological advances rendered his services useless to his major clients. But he did NOT go out and demand that the law of the land be used to force those who used the new technologies into bankruptcy. He simply went out and found a different but related line of work. I am, quite frankly disgusted by the behavior of RIAA/SoundExchange on this matter - and so should you, Mr. Kenswil.

It's no secret that the major record labels are pushing the industry towards subscription services and away from purchased music. It won't be secret for long that major labels intend to not only fulfill the role radio once did, via online listening, in being the distribution center for what music and artists get promoted (although the labels do that now, solely by setting their promotional budgets in a way that broadcast radio knows which songs will get "support" and are more likely to be hits), but also to use its own music streams to sell advertising.

One of the reasons Live365 users play more indie is because they simply receive less phone calls, free meals, concert tickets and other "Swag" from label representatives trying to persuade them to get Nickelback, etc., in heavy rotation.

Kenswil doesn't identify that he's a SoundExchange boardmember in his post .. nor that he has testified on their behalf in front of the CRB.