Our plans for our annual RAIN Las Vegas Summit, which will be held all day on Monday, April 16th at the Renaissance Hotel in Las Vegas, continue to develop. Check here for more info on the Summit as it is confirmed.

From RoyaltyWeek: "One of the major players in the online music distribution arena is DiMA — the Digital Media Association, which includes as members many of the major online music distributors including iTunes, AOL, Yahoo, RealNetworks and others. Additionally, DiMA represents major webcasters including Live365 and Pandora, and streaming video companies including YouTube...

"In this issue we feature an exclusive interview with (DiMA’s executive director) Jonathan Potter [pictured below, left], conducted by RoyaltyWeek publisher Mark Northam on March 22..."


Direct deals will hurt indie artists, labels
MN: "Let’s move on to the Copyright Royalty Board and their recent webcaster decision [in RAIN here]... The American Federation of Musicians sent out a bulletin to it's members last week, encouraging them to pressure Congress to make sure that these new higher webcaster rates are maintained. What are your concerns about the webcasting decision, and where do you think it should go?"

JP: "I think that as a matter of business, the AFofM has every right to seek the highest price they want. But if they think that large webcasters are going to pay these royalty
rates and stay in this business, they’re sadly mistaken.

"And the outcome? The only way there will be a strong and thriving webcasting industry under this new statutory rate structure, is if record labels undercut the statutory rate and provide webcasters with lesser-priced, negotiated deals. Those lesser-priced, negotiated deals will be payment from the webcaster directly to the record label, not through SoundExchange. And when the payments don’t go through SoundExchange, there will not be a 50-50 split with the musicians and with the recording artists. The only money that has to be split 50-50 with the recording artists and the musicians are monies that are paid pursuant to the statutory license through SoundExchange."


MN: "So these side-deals, or direct licenses, may not be good for the musicians and the artists?"..

JP: "We have also heard from many, many indie labels and artists, who are frustrated that the major record labels jacked up the rates, and in the end the result will be less interesting webcasting and less focus on indie music and indie labels... And then, like I said, direct licenses are not helpful to the recording artists either. And there are some who believe that the direct licenses will also have, as part of their terms, playlist demands. The non-monetary equivalent of payola!" ..


MN: "So with these direct licenses, then, there could be playlist demands the labels could get involved in picking and choosing which of their artists get more or less play?"

JP: "They certainly could. Or just insuring that it’s their label that gets played."


'Major labels not interested in small artists,
just major-sellers'
MN: "What about all the small webcasters that are not members of DiMA... it seems like these new higher rates could be a big problem for them, too."

JP: "...There’s just no doubt about it: the royalties will far exceed their revenues. So, they’re either gonna go underground and just keep on doing what they’re doing because, what are you going to do, find them? Hunt them down and shoot them,
because they’re playing music? This is gonna be like Prohibition?"


MN: "There’s a J.P. Morgan study [see RAIN coverage here] that’s quoted by some supporters of the new rates who say the study shows a big increase in the Internet radio advertising dollars spent."

JP: "I don’t believe that’s what the study says. I believe that the study talks about $500 million in total revenue for Internet music, excluding of course, things like digital download sales... I think number one, the J.P. Morgan study is, it’s a $500 million figure, it’s not an Internet radio figure, it’s a global Internet music advertising figure. Number two, if you look just at Internet radio, our numbers suggest that depending on how some of the big radio stations allocate their revenue from when they sell packages of online and terrestrial, the advertising number could be as low as $100 million and perhaps as much as $200 million, at the most.

"Having said that, the royalties are unbelievably high, and if the royalties are gonna be 30 or 50 or 80% or revenue, and the royalties are going up 30% a year, those numbers are insane; broadcasters pay zero. XM Radio pays 3%, 5%, 7%, depending on which analyst’s report you’re reading. And we’re being asked to pay 30%, or 50% or
80% or more, or 200% of r evenue?

"The lesson that the RIAA needs to learn is when to be in royalty extraction mode, and when to be in market development mode. And the Internet and Internet radio in particular, creates opportunities for baby bands, for niche bands, for folks who need to make connections...

"This is the best marketing platform these guys have for bands nobody’s ever heard of. Which is why they’re not interested in it; because the major labels are interested in hits, they’re interested in major sellers... that’s why they like big radio; as much as they squeal about payola, and being squeezed into it, and things like that, the system doesn’t work unless there’s a payor and a payee."


'Promo guys at war with finance, legal depts.'
MN: "Any final thoughts on the webcaster royalty situation?"

JP: I think the marketing departments and the promotions departments at the record companies are at war with the finance guys and the lawyers.

"The lawyers want to confirm that they have the right, and they have the ability to cut anybody’s throat whom they don’t like that day — take them to court. The finance guys need money. Their business is falling off a cliff, they need current revenue. The marketing and promo guys say, 'Wait a minute, we should be giving these guys the music, and letting them play it. And begging them to play it.'

"The record companies need to figure out the business of the future, and they’re still figuring it out. And I think that Internet radio is suffering as a result."

Read Northam's entire interview with Potter in the current issue of RoyaltyWeek here (note: URL subject to change pending archiving of RW issue!) Last Thursday in RAIN we highlighted segments of a RoyaltyWeek interview with SoundExchange executive director John Simson, here.

From NPR's All Things Considered: "Webcasters and others who transmit music digitally say a recent ruling that raises the royalty rates for online music could put them out of business. The claim comes in the wake of higher royalty rates  for Internet radio sites and other groups that stream music online that were recently announced by the Copyright Royalty Board...

"AccuRadio's founder and CEO Kurt Hanson says he makes money by selling advertising time, but the new royalty rate increase would far exceed the revenue that ads bring in...

"One group that pushed for the higher rates is SoundExchange,... John Simson, the president of Sound Exchange, says the market should determine who can afford to stay online.

"'Whether you're a corner market versus a big supermarket,' Simson says, 'you both have to pay the same amount for the milk that you sell. It's not like the little guy gets a cheaper price for milk.'

"Simson argues that Webcasting is a growing business — and one that musicians should get a share of... But critics have charged that SoundExchange is concerned primarily with major labels and their artists — a charge that Simpson denies. He says he is concerned with 'fighting to get fair value for our constituents.'

"Critics say that approach is short-sighted.

"Greg Scholl is president and chief executive of The Orchard, a Web-based company that represents artists and labels providing digital music to online retailers. The Orchard collects revenues and royalties for those companies and musicians.

"In the long run, Scholl says, the new online royalty rates will hurt his clients.

"Aside from the short-term gain of more money, Scholl says, 'higher rates means less diversity of programming; it means slower development of the digital music space; and it means more difficult time for independent artists and labels to take advantage of this incredible new medium, which is the Internet, to build audiences and make and sell music.'"

Read the entire article at the NPR website.

...

... Regarding Simson's analogy: What if there were, for all intents and purposes, just one wholesale source of milk for the industry, and the price of the milk was not determined on the market, but rather by the government, which determined the wholesale price to be far higher than the retailers could even afford, much less sell to consumers? Retailers wouldn't sell it, consumers wouldn't be able to buy it, and stores that derive a major portion of their revenue from milk sales would go out of business. -- PM ...

"According to mSpot CEO Darren Tsui, mobile-based streaming radio is a growing favorite amongst wireless media  users. 

"'Radio programming is among the most requested mobile content,' Tsui said."

Read the entire article at Digital Music News.