On Friday March 2nd The United States Copyright Royalty Board announced new royalty rates for webcasts, effective from 2006 to 2010. In doing so, Listening Post reported that the board ignroed the argumetns of the International Webcasting Association and other webcasters and apparently endorsed the proposal of the RIAA-associated SoundExchange royalty organization, which represents the major--and a few indie--record labels.
The new rates for webcasters were set at an escalating rate to rise in every year over which the changes were to take effect. Specifically, the rates, whcih force webcasters to pay for each song streamed to each user, will increase as follows:
2006 - $0.00008
2007 - $0.0011
2008 - $0.0014
2009 - $0.0018
2010 - $0.0019
These fees will obviously add up quickly for large webcasters, increasining in number in recent years. The Radio and Internet Newsletter (RAIN) calculates that, assuming the average station plays 16 songs per hour, sites would have to pay "about 1.28 cents" per listener per hour using the 2006 rate. This amount is to be appliced retroactively too.
RAIN added that: "Even adding in ancillary revenues from occasional video gateway ads, banner ads on the website, and so forth, total revenues per listener-hour would only be in the 1.0 to 1.2 cents per listener-hour range. That math suggests that the royalty rate ecision--for the performance alone, not even including composers' royalties--is in the ballpark of 100% or more of total revenues."
How could this decision have been made? Why is the RIAA-sponsored SoundExchange presumably able to operate on this rate schedule while independent webcasters and small independent websites can not?
Part of this has to do with the continued existence of controlled composition clauses which, while barred with respect to sound recording royalty rates as part of the Digital Performance Right in Sound Recordings Act of 1995, still predominate in musical composition contracts signed by songwriters, particularly in major label record deals.
These controlled composition clauses, in short, enable record companies to offer lower than statutory rates for musical compositions purchased or licensed by companies and represent, in my opinion, the highpoint of disparity in negotiating power between artists and record labels when negotiating contracts.
Part of the motivation underlying not only the prevalence controlled composition clauses, but also the tendency in recent years for record companies to push to have non-anticipated uses of sound recordings covered under existing contracts, is grounded in protecting the bottom line of record labels. For example, licensing rates for cell phone ringtone licensing is a particularly hot legal topic these days because record companies and major independent labels fear that once the floodgates open -- which is to say licensing organizations can opt out of existing licenses regarding royalty rates by claiming that certain uses of compositions and/or sound recordings were unanticipated by signed contracts -- a slew of new "rate debates" will ensure. This means that once it is ruled that cell phone licensing were "novel" or "unanticipated" uses, new contracts would have to be negotiated and place record companies at strong disadvantages in such negotiations considering that online use of songs has been particularly disputed recently angering many licensing organizations, artists, and musicians.
The same is true of webcast royalty rates. Record companies can push rates up because their margins are already higher allowing them to maintain their own webcast sites at the new rates. Conversely, small webcasters, not beneficiaries of controlled composition clauses, have to license these songs for webcast at these statutor rates without any coincident revenue to sustain their continued business. As a result, I think the rising royalty rates represent a market grab by major retailers in order to push out small webcasters and eventually push toward the market themselves. SoundExchange represents the first major move by the RIAA (and therefore major labels) to put a foot in the door of internet broadcasting. How this will play out in subsequent years remains to be seen.