BY KURT HANSON
The "Small Webcaster Amendments Act of 2002" (a/k/a H.R. 5469) that was passed in a voice vote by the U.S. House of Representatives on Monday afternoon and is hopefully scheduled to be voted on by the Senate this week, seems to be a bill that offers benefits to almost all parties involved in webcasting.

There's no question that it's not a perfect deal for anyone. (For example, the royalty rates involved for artists and labels are up to 400% higher than those received by composers...or by artists and labels in other countries. That's not great for the webcasting side.)

On the other hand, that rate is merely an option that webcasters are simply free to either accept or ignore. For many of the pioneers of webcasting, accepting the option will allow them to stay alive after October 20th; without the bill, they could be bankrupted by their retroactive royalty obligation (at the Librarian of Congress's $.0007/performance rate).

In yesterday's issue of RAIN (here), we summarized the content of the bill without making qualitative judgments. Today, let's look at the pros and cons:


Better retroactive rate
for any popular small webcaster
For almost any webcaster that had an AQH audience size (a/k/a "average simultaneous streams") of more than 20 listeners, the retroactive royalty rate option in the bill will prove advantageous, even despite the higher minimum payment (of $2,000 per year or fraction thereof).

Let's do the math: If a small commercial webcaster had been running an ATH of 500,000 hours per month for two years (that's about 1,000 simultaneous streams Mon-Sun 6A-12M), his obligation due on October 20th under the Librarian's decision would be about $140,000. Since his revenues, given the depressed advertising market of the past two years, would be a fraction of that amount, he'd be bankrupted. Not only would this be bad for the entrepreneur, who would have wasted two years of his life, but artists and labels would see no money either!

If this bill becomes law, the webcaster would have the option of paying 8% of his revenues for the period (or 5% of his expenses, whichever is higher) — and making those payments in three installments over the next year.

Better yet, this option is apparently also open to certain terrestrial broadcasters! If it turns out that courts rule that the sound recordings performance royalty does apply to broadcasters' simulcast streams, it appears that any broadcaster who set up a separate corporation for his webcast initiative can take advantage of this rate! (Most wholly-owned subsidiaries won't be eligible to elect the optional rate in 2003-2004, but they do seem to be able to do so for the retroactive portion.)

(On the other hand, the bill is not perfect. It won't help everyone. If you're an individual whose "day job" is running a restaurant, this bill could help you. But if your "day job" is in the entertainment or "Internet service" industries, you apparently have to pay a 8% of that income as a royalty for your webcast! That's not right. (But of course SoundExchange might only choose to pursue such a claim from an individual who was trying to deceptively divert webcast revenues into a fake "day job."))

Who benefits? Certain pioneer webcasters (those with an AQH of >20 listeners), certain broadcasters who stream (those with an AQH of >20 listeners who set up a separate subsidiary), and artists and labels (who will collect more money from webcasters who are alive than from those who are bankrupt).


Clears up conflict between labels and artists
The bill has benefits for record labels and recording artists in that it clarifies certain points about how royalties should be distributed — specifically, that (A) SoundExchange gets to deduct relevant legal and administrative costs from royalty collections before proceeds are distributed, and (B) that artists and musicians get their distribution directly, rather than the funds passing through the labels first.

Both points are as generally understood, but if the two sides feel that existing law and regulations are ambiguous, and they want this codified in law, that seems appropriate. Labels benefit from point (A) above, artists benefit from point (B).


New option: Set up a nonprofit organization!
An unexpected new component of the bill is the establishment of a new class of "noncommercial, non-FCC broadcasters" who the copyright owners agreed could pay the discounted $.0002/performance rate that was established by the CARP for operators of noncommercial FCC-licensed stations.

This is great! This option helps, for example, high schools and colleges that have a carrier-current station today or have (or want to start) a web-only radio station.

Furthermore, the true hobbyist — e.g., the fan of 1930s blues music or Broadway scores of the 1960s or contemporary bluegrass or whatever — can set up a tax-exempt ("501(c)(3)") nonprofit corporation and pay only 3/10 of a penny per listener-hour in royalties, with a minimum of only $10/week. That's a reasonably-affordable hobby.

And I believe even broadcasters can take advantage of this! If, say, Mix 109FM wants to launch a "Local Music Channel" with all proceeds benefiting local charities, I see no reason why they couldn't set up a 501(c)(3) corporation to do so.


Recordkeeping rules are tough
As noted in RAIN yesterday, one of the "give-ups" that small commercial webcasters gave up in putting this deal together was fairly aggressive recordkeeping and reporting, including the date and time of each play of each song.

However, the requirements don't go into effect until January 2003, and the technology does exist. I believe it could be doable for most webcasters who would like to take advantage of this rate.


Other parties also benefit
Keeping webcasting alive and diverse is also good for consumers (a constituency that deserves more attention than the passing mention I'm giving them in this paragraph), for the broadband industry (as Internet radio could be one of "killer apps" driving broadband's rollout), and for others as well.


In conclusion...
Apparently the passage of this bill in the Senate this week is not certain, particularly with the war-against-Iraq issue needing to be resolved (and undoubtedly a higher priority than this).

But it's a bill that deserves to pass. It's clearly better than the alternative...which is no options for webcasters to choose from at all.

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From the WFMT-FM/Chicago website: "Joining hundreds of other radio stations, the management of 98.7 WFMT, Chicago's classical fine arts station, has made the difficult decision to discontinue streaming the station's signal over the Internet. WFMT's signal streaming will cease on Monday, October 14.

"'The substantial cost of maintaining a streaming service over the Internet combined with potentially huge royalty payments for that service has forced WFMT to discontinue streaming. That's the same conclusion reached in recent months by broadcasters across the country,' said Steve Robinson, Vice President for Radio...

"'We feel very badly that we can no longer provide WFMT to listeners outside the Chicago market.'..

"WFMT's management is prepared to find the funds to cover royalties, retroactive to 1998, once a federal plan for determining such payments is finalized. Moving forward without a royalty payment structure in place for future web casting, coupled with the expense of maintaining a high quality web broadcast was simply too much for the station to bear financially.

"'We hope to be able to being streaming again at some time,' said Robinson. 'We just can't afford to do it at this point.'"

Read WFMT's entire explanation of their decision online here.

"The negotiated deal will allow you to survive..."

While H.R. 5469 does not provide relief for all webcasters, it does provide a degree of relief for the group it was intended to provide relief for: small commercial webcasters.

As all have made clear, it is a less than perfect solution -- one representing a great deal of compromise from both parties. It is the product of a negotiation by and between two parties who have been somewhat entrenched in their positions.

It is also a solution that will allow many small commercial webcasters like radioio to continue operations in the US.

Frankly, I am outraged that those who do not directly benefit would oppose a bill providing the only likely short term solution -- albeit an imperfect one. I am also confused by the claims of some that the deal provides only marginal relief. I will use radioio's September numbers to illustrate:

Hours streamed: 789,000
Income: $12,003.00
Expenses: $15,860.00

Under the LOC proposal, radioio's liability for September would be:

789,000 * 15 * .0007 or $8284.50

Under the negotiated deal / H.R. 5469 proposal, radioio's liability for September would become:

7% of $15,860.00 or $1110.02

The entire negotiating group, in a voice vote, approved every single point of the final deal before David [Oxenford, attorney representing the webcasters] acknowledged our agreement with it to the RIAA and the House Judiciary.

Folks, you have a retro bill due next week. You have an investment of your time, money, and energy in your operation. You have a choice, do the LOC deal, the negotiated deal, shut down, or go offshore. Pick the one that's best for you.

For the moment I believe strongly that be best option for any true small (revenue definition) commercial (you're in this to make a buck) webcasters (you're actually doing it and not yapping about it) is to support the negotiated deal -- one that will allow you to survive long enough to fight another day.

"Perhaps a stance by webcasters against downloads... "

"'Artists are left with no money'.. "