x Over the weekend, several RAIN readers responded to the "Point-Counterpoint" article we ran on Friday based on John Simson's op-ed piece on BusinessWeek.com, pointing out that while I was in the process of claiming that John was mischaracterizing some issues, I was getting some facts wrong myself. (For example, I had written that there was a CARP for satellite radio a few years ago; in truth, there was just an impending CARP.) A revised version of that piece (with corrections underlined) is now available here. Your comments, as always, are welcome. -- KH x

From the New York Times online: "Since Pandora.com closed its box of digital musical delights this month to users outside the United States, the complaints have been pouring in from Dubai to Patagonia...

"With 6.5 million registered users, Pandora stands at the vanguard of the sprawling, global Internet radio market. But like other Webcasters, it faces an increase in royalty rates in the United States and is struggling with competing royalty collection agencies all over the world.

"On May 3, that chaos prompted Tim Westergren (pictured above)... to pull the plug on the international market (previous RAIN coverage here)...

"...[T]here is no one-stop global shopping for royalty collections, which means that Pandora has to negotiate separate agreements with institutions from each territory or directly with music labels...

"The expanding market has overwhelmed the existing royalty structure. But the International Federation of the Phonographic Industry in London has just completed an international agreement to develop a more manageable way to stream across competing territories and collect royalties.

“'In actual practice, companies had two options if they wanted to remain legal,' said Lauri Rechardt, a legal consultant who helped negotiate the agreement for the federation, which represents 1,400 record companies in 70 countries. Either they limited their service to certain territories for which they had cleared the rights, Mr. Rechardt said, or they faced the physically impossible task of striking deals with hundreds of record labels.

"Mr. Rechardt said he expected 40 national royalty collection agencies in the United States, Europe, Asia and Latin America to sign the agreement within the next few months...

"Last.fm... will be affected by the rate increases, but is not terribly worried because of direct deals that it has negotiated with major labels, according to Christian Ward, a spokesman for Last.fm."

Read the entire article at the New York Times online.

From P2PNet: "Do you remember taking math tests? Specifically, do you remember the warning you always got before you started?

"As I remember, the idea was that the teacher would be able to tell if you understood the concept or just guessed the answer (or cribbed it from the smart kid in front of you). You had to demonstrate that you had some grasp of the subject, and just weren't making things up as you went along, hoping to guess the solution without knowing the reasons why.

"It's time to tell SoundExchange, SHOW US YOUR WORK!

"This time the test is all about the real impact of H.R. 2060, the Internet Radio Equality Act (IREA)...

SoundExchange's "remarkable numbers"
"In his passionate, and increasingly lonely, defense of the CRB Internet Radio royalty rates, John Simson [pictured right], SoundExchange's executive director, has started throwing around some remarkable numbers [see SoundExchange press release here]. If he's right, H.R. 2060 will put every U.S. recording artist into debt to the big bad webcasters who are going to get a gigantic rebate on their 2006 Internet royalty payments...

"He was apparently able to keep a straight face when he blamed the crashing of CD sales on the rise of Internet radio while ignoring every other possible cause...

"It really is ironic that Simson is reduced to publicly suggesting small webcasters may be being used to do the bidding of the big webcasters as if, given his own organization's close ties to the RIAA, he thought this kind of subterfuge was a bad thing...

"Nevertheless, beyond all that, is Simson right about IREA? Is it going to be a disaster for artists? He gives us numbers that support his argument that it will be. But are they real numbers? Nobody knows, because he isn't showing us his work*...

"One good reason for that secrecy is that it permits them to make up numbers when they need them. Like right now, when all the hard work they've put in trying to cut Internet radio down to size is at risk of going for nothing because a lot of people don't agree with John Simson that there are too many Internet radio stations.

Simson says...
"John Simson says the IREA is going to be a $50 million dollar windfall for 'big webcasters.'

"How was that figure calculated? Does that mean they're going to be asking for, and getting, $50 million back from SoundExchange for payments already made? Is it just that they won't have to pay that much more that would have been due under the CRB? Is that windfall just for 2006, or does it go through 2010?..

"Is that total calculated with regard to the possibility that those big webcasters would probably end up signing direct licenses with the major labels that would permit the webcasters a discount from the CRB rates and permit the labels to cut out the artists completely?..

"Simson says passage of IREA means that artists are going to have to write refund checks.

"If the checks for 2006 that've already been paid to the artists were on the basis of royalties already paid, how does the failure to get an increase on the previous rates result in the need for a rebate? This sounds like the basest of scare tactics...

"Simson says 'small webcasters' only paid 2% of the royalties in 2006.

"Extrapolating SoundExchange's 1st Quarter 2006 royalty statistics, total 2006 royalties were approximately $56 million. Two percent of that is about $1.1 million. Live365 claims to have paid, just by itself, over $1 million to SoundExchange...

"Simson says artists, on the average, received $360 in royalties last year...

"The number he's quoting now just doesn't match up with other numbers they've used in the past. It is impossible to tell which is accurate and which is made up unless they SHOW THE WORK.

"p2pnet's Jon Newton... saw the reserve for unregistered artists and labels was $5.7 million [SoundExchange statement here], which was more than ten times higher [here] than the amount that SoundExchange claimed was at risk when it started that half-hearted attempt to find people before the royalties for webcasts before March 31, 2000 were forfeited...

"It just don't add up. By Simson's 'average,' that $5.7 million reserve would be sufficient to cover over 13,000 'average artists' or over 4,000 more than SoundExchange admitted they couldn't find in October, 2006.

"Furthermore, that $5.7 million is a full 40% of the entire royalty pool. In other words, SoundExchange is admitting it can't pay out 40% of the money it's collected because it hasn't found the people who earned it...

"Simson has said he seeks transparency in SoundExchange affairs. This is the time and place to start, if he was serious... They've got to show their work."

Read veteran entertainment and music lawyer Fred Wilhelms' entire article at P2PNet here.

Here's feedback from SomaFM's Rusty Hodge on John Simson's math...

"SoundExchange is inciting labels and artists against webcasters..."

want you to give back $12 million

Photo credit: Eric Thomas, WMIZ

"But all is not lost. Webcasting may spiral into its own dark ages, but the resulting debate over royalties could drive Congress into overhauling copyright law and finally forcing the music industry, kicking and screaming, into the future (or at least the present). Of course, that's no help to webcasters now...

"Webcasters are taking a three-pronged approach to finding a solution. They're hoping for a federal judge-issued emergency stay that comes out of the appeal process or a deal with SoundExchange or, perhaps, congressional intervention...

"DiMA Executive Director Jon Potter said his organization... will also file an appeal before the May 31 deadline.

"One component of these appeals is the request for an emergency stay to postpone SoundExchange's royalty collection for the duration of the proceedings. Jessica Litman, a lawprofessor at the University of Michigan, and Ross Dannenberg, an attorney at Banner & Witcoff, Ltd., agreed that the yet-to-be-assigned judge will most likely issue this emergency stay...

"If the appeals fail, an emergency stay won't come cheap for webcasters. Those massive royalty payments will accumulate interest until they are due,...

"If the court grants the stay, as expected, congressional intervention becomes more likely because SoundExchange would have less incentive to deal with  webcasters directly...

"The big question: Why might SoundExchange be so afraid of congressional intervention? And, conversely, why do webcasters want it so badly? Because Congress could do more than just rejigger a royalty rate, and that gets me to my big point:...

"With any luck, the Copyright Royalty Board's decision, initially so terrifying to the online community, will be seen as a helpful seed in the edifice of copyright law that germinated, cracked the foundation and brought down the whole rickety structure, allowing webcasters, labels and Congress to build something that makes sense today as opposed to 50 years ago."

Read the entire article at Wired online.