"Pureplay" Webcasters Settlement Still Stinks

SoundExchange, negotiating for the record labels, and webcasters struck a compromise announced yesterday that defines more reasonable royalty payments for a longer period of time -- 2006 (retroactively) to 2015.

There's no doubt that the compromise is better than the Copyright Royalty Board's initial verdict that would have seen webcasters paying the labels virtually 100% of their revenue or more.

Hey, that kind of makes 25% -- one quarter -- look good, right?

Not so fast.

If webcasters were dead with the last iteration of SoundExchange's taxation, they are only half dead now.

Dead nonetheless. Life in prison instead of death by lethal injection.

If you haven't seen the nuts and bolts of this compromise forced by Congress and signed by the President, Kurt Hanson is my go-to man on these kinds of issues.

The compromise doesn't cover terrestrial radio streams and broadcasters should be on their knees thanking God for that. Not that terrestrial streaming has much of a future in webcasting. It's just that radio has enough problems already.

Kurt outlines the three main benefits for those who choose to swallow this bitter medicine:

1. It cuts the CRB per-performance rates for 2007-10 by approximately a third to a half.

2. It establishes per-performance rates for 2011-15 — with annual increases, to be sure, but nowhere near as huge as the kind of annual increases the CRB was coming up with, and without the risk and expense of participating in another CRB proceeding for that period.

3. And it gives smaller webcasters a chance to grow into these rates — with a “percentage of revenues” royalty rate for a webcaster’s early years (about 14% until they hit $1.25 million in annual revenues, and 25% for about a year thereafter). (Note, however, that this provision expires at the end of 2014.)

Expect to keep more records -- and I don't mean vinyl.

Webcasters would have to provide SoundExchange with census reports -- actual tunes played and total listenership -- and retain server logs for a minimum of four years. And smaller webcasters can pay a "proxy" fee, skip the paperwork and be poorer yet.

This compromise stinks.

It's barely a compromise if the net effect of it is to hamstring a potential growth industry that is beneficial to the labels.

I say that because the record industry is holding music discovery hostage by taxing businesses that actually promote their songs and artists.

And if you think paying up to 25% of your revenue is a good deal, I wonder if the labels would like to pay up to 25% of all their revenue to webcasters or radio stations in return for the privilege of exposing their artists.

Congress and your local music label -- local to Washington -- have ganged up on entrepreneurs who want to fully utilize the Internet for one of the things it does best -- music discovery.

So, Pandora may opt for these new rates but it's a bad deal for them -- remember, 25% is the starting maximum and rates will go up.

This fish stinks the longer it's on paper.

The labels have effectively killed off their own business by not buying Napster when it could -- opting to sue it instead and encouraging clones.

Trying to tax radio stations even though every young person knows radio stations are the last place to go to discover new music. Let's be honest.

If the labels could have gotten this deal in 1950 for radio airplay, they would have killed off their golden age of manufacturing vinyl and keeping all the profits. And after all, the record labels were the ones who screwed the starving artists they now romanticize as they lobby away.

Now the labels -- through SoundExchange -- have the momentum. They are getting their way. Instead of flat out killing off the webcasters of the future, they've hog-tied them.

Celebrate if you must, but there's very little to be happy about.

Any agreement that starts -- starts -- by taxing the webcasters on one-fourth of their revenue over $1.25 million is a no-win for all parties.

Webcasters can't sell enough Google AdSense to be viable and if they could, their viability just decreased when they accepted this offer of Hemlock from the labels.

Webcasters might argue that they were under a deadline to come up with an agreement or else have the terms decided for them. That is true.

But my answer is -- if the agreement doesn't work for webcasters, come up with another business.

Feature only music that is rights free.

Music is free anyway to the next generation -- look around and see how many young people actually pay for music.

Freeze out the labels from the webcasting world -- let them have up to 25% of nothing.

A much smaller, more reasonable charge is prudent but in today's economy accepting the "pureplay" compromise is tantamount to dooming an entire emerging industry.

If you want a business model, don't look at the record labels to come up with it. Look at their record.

So, webcasters can survive but not thrive.

Pandora can continue.

This year Pandora will do about $30 million and right off the top, 25% of that goes to the record labels under this deal.

Some economic stimulus plan, eh?

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