Royalty Board Ruling Rocks Alliance of Webcasters, Musicians, Indie Labels

“The parties’ arguments in their respective motions amount to nothing more than a rehash,” the judges said. They also refused to withdraw or change the aggregate tuning hours threshold and per-play rate structure because the challengers “failed to assert such claims during the proceeding.” Requests for relief from the original ruling’s recordkeeping and reporting requirements were “not germane to this proceeding and will be addressed in a future proceeding,” judges said.

The judges refused to hold up the application of some rates and terms set in their original ruling until appeals are completed. “Congress, not the Judges, determined the effective dates for the royalty rates and terms the Judges established,” and it did so “notwithstanding any pending motions for rehearing,” the judges said. The judges clarified 2 points at the petitioners’ request: Judges allowed the use of an aggregate tuning hours option for 2006- 2007 to smooth the move to the new fee structure. They also rephrased the term “Internet transmissions” in the original ruling as “digital audio transmissions.”

As the judges issued their ruling, webcasters, musicians and independent labels were announcing formation of the SaveNetRadio Coalition to fight the March 2 CRB ruling on webcasting rates (WID March 5 p1). The CRB more than doubled royalty rates for webcasters; by 2010, they will be 0.19 cents, up from today’s 0.08 cents per stream. The Board also erased an exemption granted small independent webcasters by the Small Webcasters Settlement Act of 2002 (WID March 5 p1).

The decision “virtually ensures the U.S. webcasting industry will be shut down,” AccuRadio CEO Kurt Hanson said. The ruling, retroactive to Jan. 1, 2006, will wipe out 85% of webcasters as soon as it takes effect May 15, said Johnie Floater, gen. mgr.-media at Live365. Live365 will owe $10 million right away, he said. Major record labels will benefit because they want to control the Web and kill competition, said Outbound music founder and CEO Courtney Delaney: “They want only music that they are selling to be promoted on the Internet.” SoundExchange, whose proposal for a new royalty structure was adopted by the CRB, represents major labels, iFanz Pres. Andrew Frances said.

The ruling “disconnects artists and independent labels from fans,” said Rob Waller, co-founder of independent label Western Seeds Records. Independent musicians need webcasters to reach listeners, said Joe Kennedy, pres. of webcaster Pandora. His operation streams music from 33,000 artists, most with no major label to promote them, he said. Music from independent artists makes up 37% of net radio airplay, in contrast to traditional radio’s 10%, Delaney said. The ruling is a “step backward for Internet accessibility,” said Cody Remaklus of the band Sol'Jibe: “Net radio offers a smorgasbord of opportunities to put food on [musicians'] plates.”

Net radio is good for music, Roots Music Assn. member J.T. Coldfire said: “It’s an avenue to express selves more truthfully, more creatively and more effectively,” he said. Internet radio also serves diverse tastes and boosts music sales, Kennedy said. Among users of web station Pandora surveyed, 99% said they buy more music because they use the webcasting service, he said.

Pledging support for the coalition is the Digital Media Assn. (DiMA), made up of AOL, Yahoo and other major webcasters, which is among the parties demanding a rehearing (WID March 21 p10). DiMA is “encouraged by the support coming from artists, labels, music retailers, music fans and other who are joining this campaign and creating a loud, unified voice to tell members of Congress they must not let May 15 be ’the day the music died,'” Exec. Dir. Jonathan Potter said in a written statement.

The CRB ruling also worries public broadcasters. NPR and DiMA member companies are working on proposed legislation that will “redress the deficiencies” in the CRB decision, said NPR Vp-Govt. Affairs Mike Riksen. The draft will emphasize “public radio’s unique circumstances,” he told us. Station executives in Washington next week for Public Radio Capitol Hill Day will lobby Congress for “reaffirmation that public radio is a unique distribution activity” and deserves a fee structure acknowledging its public service mission, he said: “We want Congress to affirm the flat fee concept that existed in the expired agreement between public radio and SoundExchange and RIAA.” A flaw in the CRB decision is its stipulation that public radio adhere to a commercial revenue model and a commercial measuring metric that “we don’t have in place,” he said.