After reading the entire 115 page decision, spending time pondering the arguments, then re-reading and reviewing portions a few times more, I think I now have a good feel for the impact of this decision. My first reaction to the news of this decision and the ensuing reaction by internet broadcasters and web bloggers was one of extreme outrage, as this ruling almost certainly results in the complete demise of independent small webcasters throughout the United States.
Not wanting to totally rely on quick shot analysis derived from highly passionate bloggers and broadcasters that clearly are unhappy with this ruling (of which I include myself), I wanted to dig deeper and find out the true impact myself. The place to start, the 115 page decision. Reading that truly takes patience, stamina, and some thick skin. A lot to absorb in a single sitting, so I spent some time mulling over what I read and started defining the topics, their area of impact, and what they meant to me and my future as an internet broadcaster.
After first run through of the decision I was initially encouraged by what appeared to be the application of common sense to rules and regulations that have confounded internet users and broadcasters to scholars and thinkers alike. Early on, the CBR judges listened to arguments and rebuttals about the separation of Title 17 112 empirical recording fees and 114 statutory license fees. They concluded that the industry as a whole, both willing buyer and willing seller (you’ll hear a lot more about that), placed little to no market value on the empirical recordings used during the digital transmission of copyrighted sound recordings and chose to combine these in to a single royalty rate structure. I’m thinking this a smart common sense approach to simplify determination and collection of royalty payments.
Another aspect of the ruling that I became more encouraged with was better definition of quantitative aspects of internet broadcast like the mythical ATH (Aggregate Tuning Hours). Previous rulings and settlements were vague and all inclusive, therefore ATH was often calculated as the number of listeners times the amount of time they were tuned in, period. In this ruling, there was further clarification to indicate that ATH was supposed to be calculated as the number of listeners for the total amount of time that they were tuned in and actually listening to the direct broadcast of copyrighted material. More specifically that broadcast of non-copyrighted material (radio talk shows, DJ speech, etc.) and works that the station holds a signed release from the copyright owners are not to be included in the ATH calculation. Eureka I’m thinking, now we have a way to control and/or offset ATH with DJ’s, ads, and building of direct copyright owner releases. This would provide an avenue for the station to grow it’s listener base and not become buried in mounting costs.
In other decisions the justices concluded that there was really only two models that applied to internet broadcast, Commercial and Non-Commercial. Therefore they would only apply one specific model to each of these areas. They likened it to the electric companies having rates for both commercial and residential users. This is outstanding I’m thinking, but this is were the aspects of the ruling start to become more difficult to understand, how they evaluate these market models, and how to choose what best applies to each sector. Not being a market or business expert myself, these where the parts I spent most of my time reading, pondering, and reviewing again to get a better grasp of their thinking processes.
In short, since licencing is compulsory, it is the job of the CRB panel is to determine what the balance would be between two parties in a hypothetical marketplace, also known as the “willing seller, willing buyer” standard. This is to insure that the seller is fairly compensated for a market value of their works and the buyer is given a fair rate by which the market can grow and survive. If the value of the works is set too high, then the market dies, too low and the people creating these works suffer and are unable to continue their trade.
This is where things start to fall apart. After several proposals of what market model should be applied to each sector, rebuttals, and more arguments, the justices settled on a simple “Pay Per Play” structure for Commercial Webcasters and Flat Rate for Non-Commercial Webcaster. Again, on initial glance this has the flavor of simplification and efficiency. Further, to prevent abuse of the Non-Commercial sector the justices chose to place an ATH cap that Non-Commercial Webcasters must stay under for their flat fee. Not too bad, I’m thinking, as we now have a way to offset ATH we now have a fair chance at growing the station under the cap and work out a more profitable model before we step across the sacred Commercial / Non-Commercial boundary.
Time to break out the calculator and start to crunch the numbers. Since these fees are retro-active to the beginning of 2006, I’ll used the numbers that we generated though last year. We averaged somewhere between 60,000 to 80,000 ATH through out the year, so I’ll use 70,000 ATH for my model. Now the rates, $0.0008 per performance, which means that will be the cost per performance of each sound recording for each listener. Since the average music broadcast oriented station plays 14-16 songs (no commercials) per hour, we’ll use 16 to error on the side of fair play. OK, $0.0008 seems like a small unassuming number, lets do the math.
70,000 (ATH) x 16 (songs per hour) x 0.0008 (pay per play) = 896
Ok now wait one minute here, must be something wrong with my calculator. Redo the numbers again... No Way! 896 Dollars!!! That’s more the 10 times the amount we paid each month (which included other license payments to BMI SESAC, and ASCAP). This is $896 to SoundExchange alone! And this is for payment of a year that has already pasted on by. Rates for 2007 are even higher. Things are starting to smell rotten in Denmark.
So not a problem I think, we were under 159,140 ATH (the Non-Commercial cap set by the justices) cap each month, and we rely mainly on user donations for income, so we must certainly qualify for Non-Commercial, right? Not necessarily, digging even further into the portion of the ruling which will be directly written into law I find that in order to qualify as Non-Commercial Webcaster we must qualify for IRS Article 501 tax exempt status. Wait one damn minute here, you mean if we don’t create a corporation, trust, or other public domain organization we don’t even qualify here either? What happened to the commercial and residential user (a.k.a. electric company comparison) models you talked about, now I’m supposed to be a charity? At this point I’m becoming downright irrate.
So I dig even more it the arguments looking for the methods, proposals, and rebuttals that lead up to these rates. Funny, not there. You’ll find plenty of this regarding their application of business models, and even more on why they chose SoundExchange over Royalty Logic as the primary or “collective” as they say, for the collection and distribution of royalty payments. But barely one full page on the rates and almost no discussion on how they concluded that these rates were fair and balanced for the market. Pretty much, “here’s the rates SoundExchange wants and they can have what they want”, period. Hmm, chose SoundExchange’s rates and the same party to officiate over the collection, interesting. Beyond that, there is zero discussion or mention at all about IRS Article 501 requirement for Non-Commercial Webcasters.
So now I’m left with little optimism for the future of internet radio. What just happened here? I am only left with few logical conclusions in all this mess, most obviously orbit around a nasty little word called “corruption”. Can’t say for sure who, what or where, but there is most defiantly something behind the scenes here, payola, bribes, extortion, blackmail, you name it. I bet they can’t write them any better in Hollywood. Now why would any rational thinking human come to this conclusion? Well, that is my exact thoughts about this ruling. How can a panel of highly trained, well educated individuals with years of experience and the trust of the public issue a ruling that would be so damaging to new innovative marketplace known as the internet.
As any rational person would, let’s look at the facts.
First: the rates. There is absolutely no supporting data in the ruling as to why these rates would even be considered as possibly being fairly negotiated in a open “willing seller, willing buyer” marketplace. Think about it, you don’t have to be a market analyst to understand one simple factor. Would any “sane” business manager opt to purchase anything that he knew could never be paid for by company income? There’s even one or more of the justices own comments characterizing their ruling as no guaranty of market sustain ability. Not to mention the data that now supports the assertion that these rates would be 100-125 percent of the average (not biggest, not smallest) internet radio broadcaster. Sound like the definition of a “willing buyer” to you? Sounds more like the seller is “willing” to make sure the buyer shuts up and does what he or she is told to do.
Second: if you are ruling on a very controversial issue that can have a huge impact on peoples lives, wouldn’t think you just might need to explain your decision just a little beyond simply saying “here’s what they want, OK”. Why is any supporting information for these rates curiously absent in 115 pages of discussion and rulings? I’ve got a high school diploma, a computer, and the desire to understand your point of view. So where’s the data? To better prove the point that big business won’t pay a fraction of what we are looking at being slapped with, just look at the responses of AOL, Yahoo!, and others associated with the DiMA, which was one of the groups arguing against rate hikes. That’s right, there are few to none. AOL itself very well might get hit with more than 22 million dollars in back fees from 2006 alone and yet there is not a single word of disgust or outrage regarding this ruling. Maybe they already have the inside track and know that they are off the hook.
Third: there is most defiantly not a single practicing business analyst in the world that would ever in a million years predict guaranteed market growth, ever. Yet the adoption of these rates would be more than 10 times what we paid as a small webcaster for a year gone by and continues to guarantee a 150% growth in 5 years with complete disregard to content quality, quantity, economy, or marketability. My, my, the record industry seems to have crystal ball technology and just absolutely knows that their collective works will be worth so much more that ever before. Shall we call this “American Idol” syndrome.
Now some might start thinking that maybe it’s not corruption here, maybe we are talking incompetence. Can’t say I would buy that argument, these judges are very learned individuals that have risen through the ranks, been recognized by the public for the expertise, enough so for the Library of Congress to recognize their knowledge relevant to copyright law and appoint them to this panel. I’m just not buying the “they didn’t know what they were doing” clause. They could have seen what they were doing with a 2 dollar calculator, “what Mr. Justice, dead batteries in your calculator? Didn’t pass 2nd Grade Math?”
Besides, I’m now reading about an apparent gala event that was held after the ruling was issued where the CBR panel judges were allegedly in attendance. By how industry and officials are responding in this matter you might begin thinking that the just legally wrote their own winning lotto ticket. Pretty sure all parties involved knew “exactly” what they were doing.
Fourth: they were very careful to outline there choice of Commercial Webcaster model which afforded them a few “easy outs”. One, the pure “pay- per-play” model would virtually and logically eliminated any need for a smaller or scaled classes of webcaster. Their logic, the more you use the more you pay, simple. Wrong, in a real free market, the more I buy, the cheaper it gets. Two, they would be better able to approve the application of SoundExchange’s proposed rates with little to no justification. Meaning, they can reference other internet music service models that have little or nothing to do at all with noninteractive internet radio broadcast. By their own admission, they attempt to compare interactive and non-interactive service models as if they were identical, with absolutely no difference to service value at all. So why not choose the more expensive of the two. Meaning all of you would willingly (remember that “willing buyer” thing) pay the same price for a non-interactive music service as you would pay for an interactive one. Yeah right, I’d love to buy a Chevy Corvette for the price of a Ford Fiesta. What? You don’t agree, but they both have an engine, steering wheel, and four tires, they must be the same...
Why didn’t they apply a model more like terrestrial radio? I’ll tell you why, the record industry has spent many long lobbing hours making sure they keep terrestrial radio separate from the internet world for one big reason, they already control most or all of terrestrial radio. Their argument? That there is no way to track actual listener levels on terrestrial radio, true to a degree, but I’m pretty confident that if you were a retail outlet trying to buy some on-air advertisements they would break out 100's of pages of demographics and listener levels, charts and graphs that would drown a whale. Just look at the Arbitron rating system. But when it comes to paying royalties, well mum is the word, “we have no idea how many listeners we have, could be 1, could be 1,000,000".
Bottom line, terrestrial radio would go out of business over night if they were imposed with the same rate structure. We know that, they know that, but apparently these learned expert judges have no idea the damage that they would do. And I’ve got a bridge in Arizona I’d love to sell you. There are already well documented figures that place the cost of a terrestrial radio listener at about $1.50 or so a month, raising toward $2.00 a month in 2010. The rates outlined in this ruling would start (or should I say started in 2006) at near $9.00 and raise to over $15.00 a month for internet radio in 2010. If there were any model more applicable to internet radio, terrestrial radio would be it. Terrestrial radio, Internet radio, and Satellite radio, all broadcast music in a non-interactive way regardless of the method of transmission. I don’t care if the method is via radio signals, digital bits, satellite, or bubbles floating up in your toilet bowl, we are all simply radio stations that broadcast music, period. Now they will say that internet is different because it’s digital. Wrong, not different, why? The music we stream from our station is played via computer, enters a set of processing gear as an analog signal, then gets redigitized for streaming. Most defiantly NOT the original recording bit for bit, which is the basis of their argument that anyone can make direct digital copies of the exact works. Not true.
So why the imbalance you ask? Cause the record industry has been screaming for decades now about all this fictitious money they’re losing. What’s fictitious money? Well, I have a box, I say that box is worth $10.00, I put this box on eBay to sell it (no reserve, a.k.a. open market). A week later I notice that my box has sold, but for only $2.50, so now I run around crying I just lost 75% of my revenue cause someone else must be selling boxes cheaper or they’ve been illegally giving boxes away for free. There you have it, fictitious money. So now all the RIAA has to do is reference any of 100's of studies or polls that indicate levels of music downloads and scream that there is our lost revenue. Like any study or poll, I’m pretty certain that we’d find some inflated numbers, always depends on how you ask the question or log your numbers.
Here’s even another model your Honors forgot to evaluate. The public library system. It can easily be argued that because we have libraries that allow the public to read and consume copyrighted works for free that it would undermine the rights of authors and copyright owners everywhere. Funny, seems to be a book store(s) in every mall, even book clubs on the internet. Hell, successful novels (need and example, Harry Potter) net millions and millions of dollars annually in spite of the public library systems which offers each member of the public FREE interactive access to copyrighted works. Hmm, must be a fluke...
Fifth and Lastly: this all comes at a very convenient time. Face it, the power in congress has shifted as of the beginning of 2007. SoundExchange, the RIAA, and all relevant parties were dragging their collective feet on making any rulings til after the elections. The panel was appointed in the beginning of this year after the power shift so that the proper players could be selected. The Democratic Party has been closely aligned with the entertainment business for several decades. Blah, blah, blah, need I draw you a road map. I typically lean more conservative, but I have to laugh when I hear people accuse Republicans of solely being aligned with big business and big oil. Look who’s aligned with “big business” also... Enough of my political rant.
So where does this leave us? Us independent dreamers that have embraced a future were many can share in the dream of musical expression. I for one, as a musician myself, feel obligated to share anything I produce with the fruits of my labor as a internet radio webcaster with all those that have made my dream come true as a participant in this industry possible. But really, do I owe them everything? Is my work as a internet radio service provider amount to no value whatsoever to the industry and artists? Does my enthusiastic promotion of this trade earn me a death sentence, and enough financial debt to choke the proverbial horse?
Fortunately for us we’ve been licensed through a broker to cover all our fees. These guys might get stuck with the bill if we go off air and/or cannot find other economic solutions. They’ve provided us with a great service, but we simply don’t have the financial ability to continue broadcasting through the appeals process. Don’t be fooled, this process is by design, the record industry knows damn well that we don’t have the finances to fight them on an individual basis. Even if they ultimately fail in the long term, they will successfully kill hundreds of stations before all is said and done. All by design. We are hoping that Congress, the officials we elected with the charter to protect us (remember us? We The People...) from these injustices, will act soon enough to save this industry, no... this art form.
My biggest fear today is that this is all falling on deaf ears, clogged with the single minded empty ideology of corporate efficiencies and bottom dollar thinking, leaving no room whatsoever for innovators and dreamers. This will ruling will most certainty destroy internet radio for the sake of corporate interests (don’t fool yourself, artists won’t get a penny more, record industry has stolen their rights too), and furthermore this will serve as a huge injustice for emerging artists everywhere, for from hence forth they will also have to submit to the cooperate system that will refuse access to the ears of the public unless they sign over their rights as well. Interesting thing about Capitalism, it’s a system of constant re-invention, yet here we have an example of an out dated business model’s desperate attempt to crush innovation and a truly free market. Tell me I’m wrong, just make sure you PROVE IT!
Please, save our radio. Kevin Steidel, rock5150@kqlz.org
Now that I've cleared my chest, tell me what you think. Please post your comments below. Love to hear what you think of my analysis (aka RANT).
Funny how AOL & the other 'big boys' aren't shouting out in anger from the tallest tower.
I, for one will be absolutly gutted if the plug is pulled on this station which for various reasons (lack of a life etc) is like a second home. It is a kick in the balls to everyone who participates as just a listener, a forum poster, donator or contributor.
Don't forget the very artists/bands that get played on Pirate Radio. If the plug is pulled then they won't get any royalties, is that protecting & fighting for their payments RIAA??
The other big disapointment, but no surprise, is the lack of action by the 'masses' As usural they leave it to a few passionate individuals to do all the running around. I say to you - "Get off your lazy asses and do something about it, you don't really think that things will stop here while corporations fight for digital world domination"
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Where is everybody?
"baconneck" $56.78 
Donation Legend
Read the whole CRB ruling here
