Senate in session now The "Small Webcasters Amendment Act of 2002" DIDN'T make it to the Senate floor on Wednesday night. (See stories lower on this page regarding the Senators whose offices had not "cleared" the bill for passage.) On the other hand, the Senate didn't go into its end-of-the-season recess, either: They are in session now. (See Senate calendar here; watch the proceedings on C-SPAN here.)

BY KURT HANSON AND PAUL MALONEY
The issues surrounding the possible passage of the Small Webcaster Amendments Act of 2002 (H.R. 5469) and how it will affect the Net radio industry in the months and years to come have caused a divide among webcasters. We've heard some compelling ideas and arguments from both sides, and want to present both sides of the matter in a clear and fair fashion.

Below are what we see as the possible benefits and drawbacks should the SWAA become law. If you have an argument for either side that you don't see addressed here, please contribute by e-mailing us at feedback@kurthanson.com.

To see the language of the bill, click here, and in the "Bill Search" box in the left column, in the "Keyword" field, type in "Webcaster." RAIN's October 8th summary of the terms of the bill is here.

[an error occurred while processing this directive]

The following essay was written by Michael Papish, who is CEO of MediaUnbound and represents Harvard University's WHRB. It was submitted to an industry e-mail group, and was (minimally) edited and reprinted here with permission.

This entire process (DPRA, DMCA, CARP, HR5469) needs to be looked at with a wider lens to understand the benefits (and drawbacks) for various parties. Lacking this perspective, we tend to misjudge the intentions of the RIAA and fail to see the impact the outcome will have on the Internet radio industry in 2, 5 and 10 years and the impact it will have on the music industry in general 10 years from now.

From the RIAA's viewpoint, this fight has never actually been about Internet radio. It's as if the webcasters (as a whole), walked into a yard sale and started haggling with the owner (RIAA) to buy an old rake. The webcasters (as is in their rational economic interest) just wanted to buy the rake for as cheap as possible. The RIAA didn't really care about the price of the rake because they were actually planning on selling the entire house and wanted to use the price (and terms) of the rake sale to benchmark the value of their entire house.

The RIAA has not been fighting over the price of digital sound recordings for webcasting this whole time; they have been fighting over the future expected value of sound recordings, period.

If we look at the history of the music industry (and IP in general), we see several periods of intense technological change (e.g. player piano, phonograph, radio, FM radio, CDs, the Internet and digital transmissions). Each of these periods opens up a frenzy of negotiating which sets the dynamics of the entire music industry for decades to come.

In our current case, record labels (the best capitalized and organized group on the copyright owners' side of the fence) are actually a bit confused with how to deal with the Internet.

It's a much different jump than that from vinyl to CDs. There is the distinct possibility that people will not buy "albums" anymore. It's even conceivable (though 5-10 years out) that music will not be bought but instead rented or paid for with a flat subscription fee. Even radio (traditionally a broadcast medium) might morph into more of a one-to-one model with each listener getting an individualized stream -- a blending of buying music and listening to the radio in one. Internet radio is the first small step towards these future possibilities.

Now, who knows if any of the futuristic rant above will every come to pass -- and that's the point. The RIAA does not know what the future will hold. The only constant is that they own and produce sound recordings. Therefore, they must at all costs promote the value of sound recordings. Sometime in the future, they might be dragged kicking and screaming to a CARP for setting a rate to allow wholesale, on-demand downloading of their entire catalogs. (You think our CARP fight was tough, oh boy!). Every negotiation, every statute set in stone, every decision made today has implications and precedence for the future.

One reason the RIAA is very happy with HR5469 is that it sets a benchmark for valuing sound recordings at three to four times that of song compositions. This is a great precedent to have given Congressional (and Presidential) approval. Sure, we can start adding language to "hide" this from future proceedings, but, it's impossible to completely hide a U.S. Law.

They are also happy because that section at the end of the bill (yup, the one which artists got real angry about for an evening and then forgot) sets some important precedents for SoundExchange in terms of cost structures and competition with other royalty collection agencies.

So, while the RIAA is looking down the road 10-plus years in their negotiations for the future of music, where are the webcasters' heads?

The small, commercial webcasters were worried about October 20, 2002 (that would be exactly 3 days from today if you're counting down at home). This certainly doesn't make them evil. From their perspective this was the most rational economic decision. Make a deal or go out of business were the options. But, as outlined above, the dynamics of this negotiation had much larger ramifications than October 20 or even 2004 when the deal expires.

It is my opinion that the only way to "beat" the RIAA is to totally understand their motivations and have a time horizon even greater than their own.

This is why I would feel heartened if you are a hobbyist or non-profit, educational station. These groups aren't really fighting for today. Most of them are still experimenting with the new options Internet radio brings. Groups like Collegiate Broadcasters Inc. (CBI) and Intercollegiate Broadcasting System (IBS) are trying to fight for the 10-plus years window when Internet radio might start making gigantic inroads into FM radio as it exists in its muddled state today. And, by understanding some of the limitations of the RIAA's thinking ("Internet radio itself will never get that big. Well, they only have 10 listeners. We need to worry about the commercial folks, that's the only place where the precedent and money will be. Those college kids don't even play our best artists!"), these groups can score substantial wins.

Now, where does that bring us to the question which needs to be answered by today: what to do about HR5469?

Well, if the question is: "Is it bad for the industry as a whole?" I think that's a definite yes. It was negotiated in an environment and with a group (through no fault of their own) that had a massive short term problem which needed solving. There was no way they could meet the RIAA on its own ground -- precedence for the future of webcasting and the music industry in general.

In my opinion, the bill has massive ramifications for the future and should not pass. However, a few caveats:

(1) This does not mean that the small commercial webcasters should drop support for the bill? It is their right to "save their own hides" and would probably be the rational economic decision when faced with immediate bankruptcy. (Though many difficult questions arise, like will it help them to build a business in the future?, etc.)

(2) The CARP and Librarian's decision do not set good precedents either. Having a "per performance" rate is probably not good for the future of this industry. If the hope is to some day rival the terrestrial radio world, the fee structure set up by the Librarian will not make it possible. The solution is to fight in the courts, work for CARP reform and participate in the next CARP and (using our advantages) negotiate with the RIAA.

That's my rant for the morning. Make sure to see all aspects of the situation before making a decision.

From The Hollywood Reporter in Yahoo!: "Legislation that would dramatically lower the royalty rate that small webcasters pay for streaming music over the Internet now hangs by the slimmest parliamentary thread after the Senate failed to approve the measure Wednesday night.

"The bill that won approval by the House last week ran into trouble on the Senate floor as first a Republican and then, at the last minute, a Democrat jumped up to oppose the legislation.

"While staffers from both sides admitted that it was a Democrat who put a last-minute 'hold' on the legislation late Wednesday, neither side would give up the lawmaker's name. Holds are one of those mysterious parliamentary moves that senators keep in their arsenal. Any senator can delay a vote by placing a hold on legislation and remain anonymous...

"While it may be true that all the Republican senators were on board in the end, Sen. Sam Brownback, R-Kan. [pictured above left], delayed a vote for at least a day as he pushed for language that would have limited the ability of the legislation to set a precedent for future legislation, the royalty-setting process or judicial action. He also wanted to eliminate House language that called for a study to be included in the legislation of the impact of the webcast royalty payment...

"In the end, the Kansas lawmaker abandoned his push for the changes because it could have put Republicans in the position of opposing a small-business bill, according to congressional and music industry sources. Brownback was also dissuaded from pushing for the language by a visit from Rep. F. James Sensenbrenner Jr., R-Wis., who urged him to allow the measure to go forward, the sources said...

"Sources say he [Brownback] and Sen. Robert Smith, R-N.H. [pictured above right], were being pressured to block the bill by interest groups like the Digital Media Assn., the National Association of Broadcasters, Verizon Communications and religious broadcasters."

Read this entire article here.

Next Tuesday (10/22), RAIN publisher Kurt Hanson will be speaking at the NAB European Radio Conference in Prague on the topic "How Internet Radio Will Replace AM & FM (Eventually)." If you're planning to attend the conference and would like to make plans to meet there, please send an e-mail to kurt@kurthanson.com. Thanks!

10.16.02 8PM CT UPDATE

RAIN's sources among webcasters indicate that Sen. Brownback's office is now CLEARED on the vote for the "Small Webcasters Amendment Act of 2002" — and may have been so for the past few hours.

That means that the bill may come before the Senate this evening (Wed.). C-SPAN offers live video coverage on their website here.

From yesterday's late-afternoon edition (updated):


With only HOURS left in the current legislative session, the "Small Webcasters Amendment Act of 2002" is apparently, according to Rain's record industry sources, being blocked from a "unanimous consent" vote on the Senate floor by ONE AIDE in the office of Sen. Sam Brownback (R-KS) -- on behalf of a concern raised by, of all people, Verizon!

According to those RAIN sources, Verizon is apparently concerned that language in the bill about a study of "third-party participation revenues" affects them. Virtually all parties involved agree that, if the report is true, Verizon is MISINTERPRETING the purpose of that study, which is actually to investigate whether ad sales commissions (e.g., by Hiwire, Lightningcast, Interep, MSN, or Real) should be included in the base revenues from which performance royalties are calculated.

But that study has nothing to do with Verizon at all! Brownback's aide supposedly wants clarifying language ADDED to the bill -- but if so, it would have to go back to House, and it's too late for that, as they go into recess after tonight too.

There is an easy potential SOLUTION: A Senator could read language on the Senate floor that would clarify the intent of the bill, thus establishing a "LEGISLATIVE HISTORY." But Brownback's aide is supposedly rebuffing requests from both sides (webcasters and copyright holders) in favor of this solution!

If you're in favor of the bill's passage,
here's what you can do:
Particularly but not necessarily if you have a Kansas connection, contact Brownback's staff THIS EVENING. Their office phone number is 202-224-6521, and the fax number is 202-228-1265. They're working late tonight. They may take phone calls but should almost certainly see e-mails and faxes.