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Today's previously-scheduled issue of RAIN,
featuring RAIN Vendor Guide Ver. 2.0, has been pushed
back a day so that we could bring you the following major
story. (Watch for that issue...and please support the fine
firms that bring you RAIN!)
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BY PAUL MALONEY AND KURT HANSON
The voluntary royalty deal between Yahoo! and the RIAA that
the Librarian of Congress announced as his template for the entire
industry last week  was
a deal crafted by Yahoo! to shut out
small webcasters and decrease
competition, Broadcast.com founder and Dallas Mavericks
owner Mark Cuban revealed to RAIN on Friday.
Although he had left the company by the time the deal was signed,
Cuban explained in a "RAIN Reader Feedback"
e-mail, printed in its entirety below, that the deal conceded a high
royalty price to avoid a "percentage-of-revenue"
royalty rate.
By doing this, Cuban explains, he hoped that low-revenue webcasters
would be unable to compete against
the well-funded Yahoo!
Cuban also explains that he wanted a per-stream deal because
he intended to use "multicasting"
technology to serve multiple listeners with a single stream
and report only the initial streams
to the RIAA!
The final deal between Yahoo! and the RIAA was the lone
"marketplace deal" upon which the webcast royalty rate was
based, both in the CARP recommendation last February and the Librarian
of Congress's final decision last Thursday.
Cuban sold his network of streaming broadcasters, Broadcast.com,
to Yahoo! in August 1999, for a reported $5.7 billion.
The thinking behind the deal structure, Cuban explains
below, was that smaller webcasters, who would be unable to afford
to webcast on their own under such terms (because of the fixed rates),
would be compelled to use the services of well-funded aggregators
like the Yahoo! Broadcast service.
IMPORTANT NOTE: The
villian in this story is not Yahoo! (They were simply being savvy
businesspeople!) The villian is the CARP process by which this anti-broadcaster,
anti-small-webcaster deal became the template for the industry! (See
"RAIN Analysis" below.) -- KH
Cuban's e-mail to RAIN follows in its entirety.
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"As
Broadcast.com, I didn't want percent-of-revenue pricing"
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It's very interesting that they built this
on the Yahoo!/RIAA deal.
When I was still there (the final deal was signed after
I left Yahoo!), I hated the price points and explained why they
were too high. HOWEVER, I was trying to get concession points
from the RIAA. Among those was that I, as Broadcast.com, didn't
want percent-of-revenue pricing.
Why? Because it meant every "Tom , Dick, and Harry"
webcaster could come in and undercut our pricing because we
had revenue and they didn't. Broadcasters could run ads for
free and try to make it up in other areas so they wouldn't have
to pay royalties.
As an extension to that, I also wanted there to be an
advantage to aggregators. If there was a charge per
song, it's obvious lots of webcasters couldn't afford to stay
in business on their own. THEREFORE, they would have to come
to Broadcast.com to use our services because with our aggregate
audience, if the price per song was reasonable, we could afford
to pay the royalty AND get paid by the webradio stations needing
to webcast.
More importantly -- and of course I didn't tell the
RIAA this -- we had a big multicast
network (remember multicasting? Yahoo! didn't seem to after
I left). Well, multicasting only sends a single stream from
our server, so that is what we would record in our reports for
the RIAA, and that is what we would pay on.
So that was the logic going into the Yahoo!/RIAA deal.
I wasn't there when it was signed, but I'm guessing and I've
been told that there weren't dramatic changes.
Now, no one asked me any of these things
prior, during, or after the first or second pricing. I'm not
sure that this matters. But if it does, here it is: The Yahoo!
deal I worked on, if it resembles the deal the CARP ruling was
built on, was designed so that there would be less
competition, and so that small webcasters who needed
to live off of a "percentage-of-revenue" to survive,
couldn't.
There you have it, if anyone cares.
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Mark Cuban
Dallas Mavericks |
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...
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...
This e-mail reveals more clearly than anything else to
date the complete breakdown in the U.S. Copyright Office's
royalty-setting process for Internet radio.
In the Digital Millennium Copyright Act (DMCA) of 1998
(excerpted here;
see section 114), Congress instructed the Librarian of Congress,
in the absence of a successful negotiation between record
labels and webcasters, to set a rate as follows:
"The copyright arbitration royalty panel shall
establish rates and terms that most clearly represent the
rates and terms that would have been
negotiated in the marketplace between
a willing buyer and a willing seller. In determining
such rates and terms, the copyright arbitration royalty panel
shall base its decision on economic, competitive and programming
information presented by the parties, including —
"(i) whether use of the service may substitute
for or may promote the sales of
phonorecords or otherwise may interfere with
or may enhance the sound recording copyright owner's other
streams of revenue from its sound recordings;
and
"(ii) the relative roles of the copyright owner
and the transmitting entity in the copyrighted work and
the service made available to the public with respect to
relative creative contribution,
technological contribution, capital investment, cost, and
risk.
"In establishing such rates and terms, the copyright
arbitration royalty panel may"
— emphasis ours — "consider the rates
and terms for comparable types of digital audio transmission
services and comparable circumstances under voluntary license
agreements..."
The CARP, and subsequently the Librarian of Congress,
ignored virtually
all of Congress's instructions.
Instead, the arbitrators decided
that if any agreement had actually been negotiated in the
relevant marketplace, that would reflect
the willing buyer/willing seller price.
In other words, instead of looking at what a willing
buyer and willing seller WOULD
have agreed on, in a world where willing sellers existed,
the CARP chose to simply look at what one grudging seller
(the RIAA negotiating as a collective) and one extremely-atypical
buyer DID agree on!
(This approach ignores the possibility that the RIAA
labels, as a group, were essentially an unwilling
seller, licensing their material only because they
were required to do so under the DMCA.)
As for all the other criteria that Congress instructed
the CARP to consider, the arbitrators glibly wrote in their
report, "We would expect these considerations to be fully
reflected in any agreements actually negotiated between webcasters
and copyright owners in the relevant marketplace."
In reality, however, the considerations Congress asked
to be considered were trivial compared to the actual
motives of the parties in this deal. (The RIAA
was constructing a case for the upcoming CARP, and Yahoo!
wanted to squeeze out less-well-funded competitors.)
If I were a Congressman, I'd be FURIOUS
right now:
In setting a statutory license designed to encourage
the growth and diversity of a new industry, the arbitrators
and the Librarian ignored Congress's instructions and used
the terms of a deal that was specifically
constructed to have the opposite effect! --
KH
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YOUR firm! Call Kurt at 1-312-527-3879 or e-mail us here.
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BY PAUL MALONEY
From an industry that was capable of generating so much noise
for the past four months, now comes an ever-increasing rumble of
silence. Beginning the parade that many webcasters fear they will
soon following, popular San Francisco webcaster SomaFM.com
has shut down its streams, unable to pay mandated royalty fees for
the music it plays.
The Librarian of Congress on Thursday announced his final
determination of the royalty rate webcasters must pay the copyright
owners of sound recordings. Even though that rate was reduced to
half of what an arbitration panel had recommended for Internet radio
stations like SomaFM, most webcasters still insist the rate is too
high for them to operate a viable business.
The royalty he would owe is "still way more than our
revenues are," SomaFM founder Rusty
Hodge told CNET. According to Shoutcast rankings (here),
the webcaster was among the industry's most popular.
NetRockRadio.com has
also gone silent, on its homepage claiming itself a victim of
royalty "rates...specifically designed to shut down small webcasters."
The announcement on the site of another webcaster gone silent
-- "Tag's Trance
Trip" site was somewhat more upbeat: "I want to
thank the hundreds of listeners and friends who have e-mailed me
or called me over the last few days to offer their support. I was
shocked and amazed to discover that we had a positive impact on
so many peoples lives."
On the SomaFM site, Hodge claims the royalty rate would obligate
him to pay record labels $500 per day in royalties.
"Yes, you read right. $15,000 a month,
$180,000 a year," it says on the homepage.
"To say the results are disappointing is an understatement...Just
to expose you to new music that you wouldn't hear anywhere else.
Just to help you buy more records. Do they just not get it, or is
the RIAA just greedy?"
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"There
is even MORE promotional value..."
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I expect more Broadcasters will be going through the painful
and necessary
business decision that Entercom just did [see RAIN coverage
here]: The return
on investment for streaming just isn't there. We aren't surprised
at all that the rates didn't change. We all know the
governmental process of a CARP is flawed -- it has a history of producing
ill results.
The time has come to do what has been needed to be done from
the beginning -- amend the DMCA. After all, why is listening to radio
online any different for consumers from listening to your car or home
radio? If anything there is even MORE promotional value for artists
and labels with online listening with displaying the artist and song
title for example. Pure webcasters should still pay the music license
fees just as broadcasters do -- the playing field should certainly
be the same -- which means if in the future broadcaster's are exempt
from sound performance royalties, so should Webcasters.
Let's just hope Congress takes away the royalty entirely, but
I won't be holding my breath! That said, this far from over.
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Amy Van Hook, Director of Internet
Operations
Entercom |
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"This
is NOT a time for compromise..."
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This is a sad day for Internet radio. The RIAA claims they
are displeased, but I believe this is what
they expected all along. I do not believe they want independent Internet
radio to survive (or any for that matter), because the RIAA's best
case is a "non-digital" music world...or at least one they
can control. The Copyright Office has played right into their hands.
This is NOT a time for compromise. This is a time to fight.
This must be challenged at every level and through every means possible.
This decision is anti-business and will squelch the many voices the
Internet has to offer. Internet radio was the one hope that radio
could regain its soul.
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Eric Rhoads
Radio Ink and Streaming Magazines |
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"Say
goodbye to WOVRadio.com..."
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 After
2 1/2 years and tens of thousands invested on the 'Net and 26
years in broadcast radio I thought maybe we had a haven from the greedy...but
I was wrong.
Say goodbye to WOVRadio.com...it was fun while it lasted.
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"With
the right technology, everywhere is 'international waters'..."
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All I can say is: "Route around it."
That is, if there are 3,000 stations still streaming, the RIAA's
legal crew could conceivably send 3,000 cease &  desist
letters -- but what if there were 30,000? 300,000?
If you haven't already, everyone go grab a copy of Shoutcast
or Darwin Streaming Server and start sharing the love. Using "frequency
hopping" techniques -- i.e., onion routing, constantly shifting
IP addresses, anonymous rendezvous points to locate active streams
-- broadcasters could use the vast, distributed nature of the sprawling
Internet to give the RIAA fits -- and let them waste vast sums of
money trying to track down each and every streamer. On the Internet,
with the right technology
everywhere is "international waters!"
Raise the pirate flags, y'all!
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"The
RIAA and major record companies are jumping for joy..."
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I am sickened and saddened, but not surprised by the news of
the ruling. As an independent artist who receives play on Internet
radio (although probably not for much longer), I have found the exposure
to be worth much, much more than the royalties could ever be.
One more victory for corporate America. I can tell you this,
the RIAA and major record companies are jumping for joy right now,
no matter what they say in public. The monopoly lives another day.
This flat sucks.
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"Ours
is the same as any radio station..."
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The decision of the Library of Congress is completely out of
bounds with the rest of the radio industry. While broadcast radio
is being paid to play the music that they broadcast, we in the Internet
radio business are
being pushed out of the industry because of this type of unfair and
overwhelming fee. While I understand they are upset with groups like
Napster it should not be taken out on groups that are not operating
in the same manner.
In operating a streaming station, we aren't putting music on
the Internet that could be copied and used at a later date by the
listener. Ours is the same as any radio station.
I am very upset and disappointed with the decision of the
Library of Congress and this decision. This will destroy a budding
industry and will remove a venue for artists to have their music heard
and purchased by the buying public.
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 From
R&R: "'We'll stream as long as it makes sense...We are
disappointed that the rate wasn't reduced for AM and FM broadcasts,'
Clear Channel spokesperson Pam Taylor tells R&R in reaction to
yesterday's decision by the Librarian of Congress...
"'But what really threatens to take us out of the game
is the reporting requirements, which have yet to be fully illustrated
by the Librarian's office. From what we can see, it appears they've
taken a step in the right
direction...'
"Though yesterday's decision didn't specify any changes
to those recommendations, a couple of weeks ago the Copyright Office
released a considerably streamlined set of requirements that it said
would likely be part of the final package."
Read news in Radio & Records here.
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| July 8-9, 2002 |
PLUG.IN:
Jupiter Music Forum: New York, NY |
| July 25-28, 2002 |
The
Conclave 2002 Learning Conference: Minneapolis, MN |
| Sept. 12-14, 2002 |
NAB
Radio Show 2002: Seattle, WA |
| Oct. 1-4, 2002 |
Streaming
Media East: New York, NY |
| Oct. 30-Nov. 2,
2002 |
CMJ
Music Marathon 2002: New York, NY |
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