Netcasters Cautiously Optimistic About Renegotiated Royalties

Kurt Hanson: Net Radio Wants An Offer It Can't Refuse

Leading Net radio figures were guardedly optimistic that the just-passed Webcaster bill (NET NEWS, 9/X), will give the Net radio interests and label-backed SOUNDEXCHANGE the time to craft more affordable royalty rates. Their comments were made during an online discussion presented by EDISON MEDIA; participating were PANDORA founder TIM WESTERGREN, RAIN publisher (and ACCURADIO founder) KURT HANSON and industry attorney DAVID OXENFORD.

According to WESTERGREN, "The right way to frame this whole discussion is to recognize the exchange of value. The music is obviously the backbone of our service, which gives value to us. PANDORA, like [terrestrial] radio stations, provide promotional value to artists. Those are undeniable truths, The problem is that there's been a pretty dramatic chasm in terms of perceived value by each side. There has been an unrealistic expectation of what revenue Net radio can generate and the value Net radio can provide.That's the underlying problem for all these discussions.

We're not asking for guaranteed profit margin ... just a royalty in the ballpark of common sense

HANSON brought up the discrepancy in royalty rates between commercial radio and Net radio. "In all other forms of radio, for decades, the royalty paid to songwriters have been about 4-5% of revenues, in countries that pay performance royalties [not the U.S.], that's also around 4-5%. We're in same playing field, but the CRB rate works out to anywhere from 70-200% of our revenues; that's what makes webcasting not viable for almost everybody. We're not asking for guaranteed profit margin ... just a royalty in the ballpark of common sense."

WESTERGEN also noted that terrestrial radio in the U.S. pays no performance royalties (although that is currently being debated in Congress), while Net radio parties do. The bill currently on Pres. BUSH's desk won't change that, nor will it lower the proposed royalty on Net radio. It will simply lengthen the negotiating time between the rival interests until FEB 15th. 2009. SOUNDEXCHANGE could very well decide not to lower its demands and see that rate go into law on FEB 16th. When ALL ACCESS asked the panel if they believe SOUNDEXCHANGE will renegotiate in good faith considering the situation, the consensus was yes ... they hope.

"That remains to be seen," OXENFORD said. "Large broadcasters actively involved in the process say they're pretty close to a deal, and that SOUNDEXCHANGE has an interest in a new deal. If they settle on a deal with big broadcasters, then we'll see what happens with everyone else. At least that's what happened in 2004. There are no guarantees; SOUNDEXCHANGE could stonewall the whole process. If that happens, we have a couple alternatives. One is overturning [the CRB royalty decision] in the Court of Appeals. We have oral arguments next couple month, with a decision expected in 2009, but there's no guarantee there, either. Also, Congress passed this act to encourage a settlement. If there isn't one despite the broadcasters' best efforts, Congress may try to legislate a settlement. I don't think they want to, but if both parties aren't negotiating in good faith. the Internet Radio equality act could be revived and Congress could attempt to set a rate."

"The thing is to keep labels negotiating in good faith," HANSON added. "If they fail to do so and Net radio is going to shut down, at that point the Net Radio Equality Act becomes a higher possibility. And that could bring down the rate to 7.5% of revenues, which is much lower than what the labels want."

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