Arbitron, in support of the webcasting industry, is asking Congress for a five-year moratorium on CARP-imposed streaming royalty fees. Arbitron released the letter and a press statement summary of it yesterday (the entire letter is reprinted below).

The letter followed urging of Arbitron by some webcasters to make a public statement regarding their stance on the issue.

Here is the text of Rose's letter in its entirety:

March 25, 2002

The Honorable F. James Sensenbrenner, Jr.
Chairman, Committee on the Judiciary The House of Representatives
2138 Rayburn House Office Building
Washington, DC 20515

Dear Mr. Chairman:

Arbitron is firmly opposed to the proposed digital rights fees recommended by the Copyright Arbitration Royalty Panel (CARP). We foresee that the impact of these fees will dramatically reduce the consumer’s choice of streaming content, limit the diversity of streaming "voices" on the Internet, stifle competition among content providers and distributors and impede the growth of a popular new medium. For these reasons, we propose a five-year moratorium on digital rights fees for Streaming Media.

Consumers indicate streaming media is a valuable and popular new medium
Arbitron has been a leading provider of audience data for more than fifty years. For the past several years, Arbitron and Edison Media Research have conducted groundbreaking research studies on how American consumers use the Internet and streaming media. Our latest findings (conducted in January 2002) show that streaming is highly popular among American consumers. Streaming media usage is at an all-time high, as an estimated 80 million Americans have tried streaming media. Also, regular usage of Internet audio and video increased substantially in the last year. The growth of residential broadband will stimulate greater usage. Twenty-seven million Americans now have super-fast, always-on broadband connections at home and 14% of those with dial-up access plan to get broadband in the next 12 months. Therefore, we believe that it is crucial to protect and stimulate this valuable and popular new medium.

Distribution through a wide variety of sources best serves the public by promoting competition, innovation and diversity of choices
Streaming media serves the interests of the public by making available thousands of signals from around the country and the world. In addition, streaming media enables small community organizations with the ability for their message, music and voice to be heard in an affordable manner. Broad access through multiple points of distribution is crucial to serving the public interest because it will encourage competition, spur innovation and ensure diversity of voices on the Internet.

Proposed digital rights fees are prohibitive and impractical
We contend that the fees proposed by the Copyright Arbitration Royalty Panel would be prohibitive and impractical and the consequence of these fees will be a business/regulatory environment that would severely restrict the wide distribution of music entertainment on the Internet.
(CONTINUED BELOW)

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(FROM ABOVE)

Examples:

Digital rights fees for a top-ranked music station in New York:
If one of the top-rated radio stations in New York rebroadcast its programming online and had the same audience on the Internet as it does over the air, that station would pay approximately $15 million per year in digital rights fees. Thus, the digital rights fees would be over 25% of what that station currently derives from selling traditional over-the-air advertising revenue (approx. $56 million per year). If that online station had original programming on the Internet (versus a rebroadcast), its digital rights fees would be approximately $30 million, or over half of the revenue a top-ranked music station in New York derives from its over-the-air advertising revenue.

Digital rights fees for a top national radio network:
If one of the top national radio networks had the same size audience online that they do over the air , their digital rights fees would be $358 million, which amounts to approximately 39% of the entire network radio advertising industry revenue today (approximately $910 million).

Digital rights fees for the entire radio industry:
If the number of Americans listening on the Internet to rebroadcasts of the programming of music stations equaled the size of the over-the-air audience, the radio industry would pay approximately $2.4 billion dollars in digital rights fees. This amounts to approximately 13% of radio’s total advertising revenue for 2001. Furthermore, the retroactive nature of the fees and the excessive data and reporting requirements set forth by CARP add overwhelming start-up and ongoing operational costs.
(CONTINUED BELOW)

(FROM ABOVE)

The business model for streaming media is not comparable to broadcast model
The business model for streaming media is far different from traditional broadcast, which makes the proposed digital rights fees even less practical. The cost of entry in broadcasting is high; however, broadcasters do not incur additional costs for each new listener. The opposite is true with Webcasting. The cost of entry is low, which encourages many small startup companies. However, webcasters have to pay additional bandwidth and hardware costs as the size of the audience increases. Broadcasting is an established and healthy advertising medium. Webcasting is a new advertising medium, which places a significant burden on its ability to sell advertising today. As a result of these issues, most organizations attempting to sell streaming media advertising via music-oriented webcasts have been unable to reach profitability.

Proposed digital rights fees likely to create an environment that will severely limit consumer access and choices
If the proposed fees are enacted, we foresee that very few companies if any would be able to pay the cost. Already, a number of radio station group owners and webcasters have indicated that they will cease streaming as a result of the proposed new fees. Thus, the proposed fees are likely to create a business/regulatory environment that will limit competition, stifle innovation, reduce consumer choices and diminish diversity by concentrating the distribution of music to a handful of sources.

American public will be upset by loss of streaming sources
Our research shows the public would be upset if these digital rights fees caused their favorite online stations to go away. Sixty eight percent (68%) of people who listened to audio online in the last week say they would be upset if the radio stations they listen to online were no longer available due to fees Internet broadcasters would have to pay.

Excessive fees will limit the ability to use the Internet to promote and sell music online and offline
For years, radio has served as a vital public service and an outstanding marketing vehicle for promoting music to American consumers. Radio’s exposure of music to the public has contributed significantly to retail sales of records, tapes and CDs. Consumer research indicates that radio airplay exposure of music is the number one reason why people purchase a CD. The Internet promises to be a valuable new way to promote and sell music to the public. However, overwhelming digital rights fees will limit the number of choices for consumers which in turn will limit the medium’s ability to drive the additional sales of music both offline and online.
(CONTINUED BELOW)

(FROM ABOVE)

Streaming music on the Internet does not pose a significant threat to retail sales
Streaming technology is different from the digital download models such as Napster and its successors. In the case of the digital download models, retail music sales could be cannibalized because consumers could make unlimited copies of the content. It is our understanding that, music that is streamed cannot be downloaded and cannot be copied. Therefore, the risk of consumers making copies of music from streaming sources does not pose a significant threat to retail sales.

Moratorium recommended for digital rights fees
For these reasons, we believe there should not be any digital rights fees implemented or, at a minimum, there should be a five-year moratorium on digital rights fees for streaming media. In addition, the retroactive aspect of the current proposal should be eliminated. Little would be lost by giving the industry the breathing room it needs to grow since streaming media has not yet generated significant revenues and since the streaming of music on the Internet does not pose a threat to retail music sales. Furthermore, a moratorium would enable the popular but fledgling streaming media industry to grow. Most importantly, the public interest will be better served by assuring the broad distribution of programming needed to stimulate competition, foster innovation and promote diversity.

Sincerely,

Bill Rose

. .

Note that there's a big difference between (A) the government being willing to forego tax collections, which is what happened in exempting e-commerce from sales taxes, and (B) the government exempting one set of businesses (webcasters) from paying monies due and payable to another set of businesses (record labels). On the other hand, the only reason those monies are due and payable in the first place is because Congress said they were (in the 1995 Digital Performance Right in Sound Recordings Act (DPRA) and the 1998 DMCA). So perhaps if Congress giveth, Congress can taketh away. More importantly, most efforts to keep Internet radio alive that have been launched in the past few weeks are focusing on trying to encourage the Librarian of Congress to "set aside" the CARP recommendation on royalty rates and set new royalty rates based on the existing evidence. In taking this stance, however, Rose seems to be arguing for Congress to amend the Digital Millennium Copyright Act (DMCA) — in other words, to withdraw the instruction that Congress, via the DMCA, gave to the Librarian of Congress (and thus the U.S. Copyright Office) to set a royalty rate. The question is, Could Congress move quickly enough with a legislative solution to save the current set of webcasters? -- KH ..