BY PAUL MALONEY
The other half of the CARP decision on webcasting royalty rates was made public yesterday. "Appendix B" is the document that complements and explains the Appendix A (the actual rate table) that was released Wednesday.

After a brief look at the filing, we found a few interesting issues.

First of all, in defining what an actual "performance" is, Appendix B says the definition does not include "incidental performances." These include "bumpers," the musical transitions to and from commercials often heard on talk radio (like Pretenders' "My City Was Gone" on Rush Limbaugh's show). Music beds played under the voice of a disk jockey, show themes songs, and "ambient noise" music from a coverage of a public event (like the stadium PA speakers blaring that "Y'All Ready Fah Dis?" song during a hockey game).

There's still the question about the 0.07 cent charge for "webcasters" (see Appendix A here, and look at item 1. (a)). Appendix B defines a webcaster as "a Licensee, other than a Broadcaster..." Fine. But Appendix A item 1. (a) provides for a webcaster simulcasting an AM or FM signal (Item 2. (a), below that, is the provision for AM and FM retransmissions). So is item 1. (a) a provision for companies like StreamAudio and SurferNETWORK, which repurpose broadcast signals?

Appendix B also makes clear that yes, CARP did maintain the "retroactive" clause of the royalty fees. In fact, it provides a mechanism for estimating back royalty liabilities.

Long story short: Calculate your "aggregate tuning hours" back to back to October 28, 1998. Royalties will be due on a basis of 15 songs per hour for Internet-only's, 12 per hour for music-based AMs and FMs that stream, and one per hour for news/talk/sports broadcasters.

However, DigitalCoastReporter quoted an unnamed DiMA representative as saying "rather than having to account for every song and listener, companies will most likely come to an agreement for flat fees with the recording industry."

"For the making of unlimited numbers of ephemeral recordings in the operation of broadcast services...a Business Establishment Service shall pay a...ephemeral recording royalty equal to ten percent (10%) of the Licensee’s annual gross proceeds derived from the use in such broadcast service of the musical programs which are attributable to copyrighted recordings."

The "Business Establishment Service" term was a question for us, but the second half of the CARP document shed some light there too. It seems the rate is for companies that supply music for stores, restaurants, nightclubs, etc. (similar to Muzak), but via the Internet. Since it would be impossible to gauge the actual number of listeners (there would only be one computer connection per establishment, but any number of people hearing the "performances"), a "per performance" rate wouldn't make sense. So, CARP simply made the "ephemeral recording" royalty rate as 10 percent gross revenues for the service -- which seems astronomical!

This royalty amount will be prorated for the amount of material this type of webcaster plays that has RIAA-owned copyrights (based on "playing time" for classical music, and actual number of songs for other formats).

Most of the rest of the document deals with legalities about making the actual payments, and record keeping. As expected (and as radio does for ASCAP/BMI/SESAC payments), it's up to the licensee to make the report of what's been played. But while radio stations only have to report a single week's worth of play once a year, every day of the entire year must be reported for the CARP fees. Appendix B also indicates that these reports will be subject to audit.

Carp's Appendix B is here. You can read Appendix A here. Both documents required Adobe Acrobat.

...

... There are still a few questions on our (and readers') minds: -- Why are webcasters paying a rate double that of broadcasters? -- How in the world did the RIAA get 9 percent extra for "ephemeral" copies? These are for "caching" purposes, right...just to improve performance? A listener only hears one copy of a song at a time, yet the RIAA collects for more. And 9 percent -- that's like a hefty sales tax!! -- How do these rates compare to those paid by webcasters who settled with the RIAA in a separate deal? Did their gamble pay off? It it legal for them to divulge their terms now that CARP has released its recommendations? -- What about unrated webcasters? How will an ATH be estimated if they weren't rated, and no records were kept? -- How does this affect foreign webcasters? -- For webcast services that offer a "skip" button on the player, if a listener hears one second of a song before hitting "skip," is that a "performance?" Ten seconds? A minute? -- Will the broadcast and satellite radio industries increasing use of the Internet to carry "pre-broadcast" signals and information constitute "performance" under these laws? Would these be "ephemeral?" ...

From the New York Times: "'Over a million people play our free service every month," said Dennis Mudd, chief executive of Musicmatch, "and it's going to be impossible to even come close to breaking even with these new rates. Radio on the Web should be able to serve the same function that radio over terrestrial airwaves performs, and it's not going to be able to do that because of these rules...'

"'At least this will allow them to create business models,' said Aram Sinnreich, a senior analyst at Jupiter Media Metrix, an Internet market research firm. 'The question that remains, though, is: How many online broadcasters are going to be able to develop business models that can handle this kind of structure?'

"Jonathan Potter, executive director of the Digital Media Association, said the recommendations would probably lead to more interactive offerings, which allow a user to select a list of songs to be played, because the panel rejected the recording industry's request to impose a premium on such services."

This article appeared in yesterday's New York Times. Click here to read it.

From the New York Times: "'Certainly, we would have to take a serious look at the business going forward if this were to remain the rate,' said John Jeffrey, executive vice president of Web broadcaster Live365 Inc...

"Live365 Inc. streamed 6.5 million listening hours in January at a rate of about 15 songs per hour, Jeffrey said. Under the proposal, it would owe about $2 million a year plus retroactive fees since 1998.

"If approved by the librarian of Congress, the expense could lead to the end of another free Internet service. Web radio would be dominated by subscription services and stations operated by companies with deep pockets, wealthy parents or multiple revenue streams, analysts say...

"The proposed rates also would create an extremely high barrier for companies looking to enter the Internet radio business. Capital, once readily available for dot-coms, has all but dried up. 'It's questionable whether any new series will be able to get off the ground now,' said P.J. McNealy, research director of Gartner G2."

Read this article in today's New York Times, or click here.