Special issue coming soon: Most indicators seem to be pointing (finally!) toward a more-successful 2003 for both broadcasters and webcasters. To help you in your planning process for next year, RAIN's upcoming "Planning for 2003" issue will showcase products and services that will help you reduce your expenses and increase your revenues in 2003!

For YOUR firm to be included, call RAIN at 1-312-527-3869 or e-mail kurt@kurthanson.com

BY KURT HANSON
Last week's passage in Congress of the "Small Webcaster Settlement Act (SWSA)" has apparently raised as many questions as it has answered, based on phone calls and e-mail coming into the RAIN offices.

As such, in the next couple of days, we'll take a look at the details of the bill and the implications thereof.

What are the terms of the deal?
The SWSA bill (click here, type in "HR 5469," and click on the SWSA version to read the bill in HTML format, or the image below for Adobe Acrobat's .pdf format) seems primarily designed to permit the parties involved to implement terms of the agreement agreed to during several days of negotiations in Rep. Sensenbrenner's office in early October:

To quote from the bill: "Congress finds the following: (1) Some small webcasters who did not participate in the [CARP] proceeding...have expressed reservations about the fee structure set forth in such order, and have expressed their desire for a fee based on a percentage of revenue. (2) Congress has strongly encouraged representatives of copyright owners of sound recordings and representatives of the small webcasters to engage in negotiations to arrive at an agreement that would include a fee based on a percentage of revenue. (3) The representatives have arrived at an agreement that they can accept in the extraordinary and unique circumstances here presented, specifically as to the small webcasters... (7) It is, nevertheless, in the public interest for the parties to be able to enter into such an agreement without fear of liability for deviating from the fees and terms of the July 8 order..."

The "agreement" referred to in the bill is pretty clearly the agreement documented in the version of the H.R. 5469, then called the "Small Webcaster Amendment Act (SWAA)," that the House passed on October 7th.

RAIN's October 8th summary of the House-passed SWAA is here. Very briefly, it documents an offer from the RIAA and SoundExchange to allow small commercial webcasters with less than $1 million in revenues to date, if they so desire, to pay a retroactively royalty of 8% of revenues or 5% of expenses (whichever is higher) — and to continue to pay a royalty based on a percentage of revenues for the next two years if they continue to fall under certain revenue size caps (which change each year).

The version of the bill that was passed by both houses of Congress last week, the SWSA, permits SoundExchange to offer an agreement on those terms (by relieving them of any liability if non-SoundExchange members object) but does not require them to offer such an agreement. ("The receiving agent shall be under no obligation to negotiate any such agreement").

The bill does describe certain characteristics of the agreement(s) that SoundExchange may offer ("Any such agreement for small commercial webcasters shall include provisions for payment of royalties on the basis of a percentage of revenue or expenses, or both, and include a minimum fee. Any such agreement may include other terms and conditions, including requirements by which copyright owners may receive notice of the use of their sound recordings...").

However, the bill forces SoundExchange to move quickly if it wants to extend such an offer to small commercial webcasters: "(F) The authority to make settlements pursuant to subparagraph (A) shall expire December 15, 2002." (Note: SoundExchange's authority to make settlements with noncommercial webcasters continues until May 31, 2003.)


So, can SoundExchange renege on the deal?
As part of their lobbying efforts to get the SWSA passed, the record industry made a verbal commitment to top Congressional leaders last week that they would offer small webcasters a deal similar to the the one document in the SWAA, and according to RAIN's sources in Washington, it would be political suicide for them to renege on the deal totally — and extremely poor form take away deal points that were previously agreed to.

However, the parties now have almost a month to work together to clear up deal points that they just didn't have time to address during their marathon negotiation session in Sensenbrenner's office that long weekend.

And of course Congressional leaders would have no reason to feel betrayed if SoundExchange were to offer better terms to webcasters — or expand the deal to include more small webcasters.


Was Sen. Jesse Helms really a hero in this?!?
RAIN's best guess is that he blocked the bill as a favor for one or two of his constituents and that his legislative staff used their PR skills to characterize his move as trying to "help" small webcasters.

But it was a huge risk. If the U.N. vote on Iraq, for example, had gone the other way during the Congressional recess, the reconvened Congress would have never had time to spend on such a relatively-trivial issue as webcasting royalties. His blocking the bill would have destroyed small webcasters.

The good news is, we got lucky. Congress does have time to deal with relatively-trivial issues in this lame-duck session, and Helms' legislative staff, in their final weeks on the job (as Helms is retiring shortly), stepped up to the plate and did help a better-structured deal come together -- i.e., with stronger non-precedential language and better technique for dealing with noncomms.


Can SoundExchange negotiate deals
for other classes of webcasters?
For example, could SoundExchange offer a "broadcast simulcast" rate to, say, large terrestrial broadcasters? Apparently not. The bill seems to authorize settlements for two classes of webcasters only: "small commercial webcasters" and "noncommercial webcasters."

However, since the bill does not define "small," except for alluding to the agreement reached in Sensenbrenner's office, it would seem that SoundExchange has some latitude in how they define the term. Again, as noted above, it would seem to be a violation of their pledge to Congressional leaders if they were to narrow the definition from that defined in October 7th's SWAA, although it would seem as if there's room to clean up and, at SoundExchange's option, expand the definition somewhat.

Clearly, Congress intended the agreement to cleaned up: The SWSA authorizes a delay in webcasters' obligations "for a period determined by [SoundExchange] to allow negotiations" as permitted by the bill.

Tomorrow in RAIN, we'll take a look at the elements of the deal that SoundExchange may wish to clear up in the final draft of the proposed voluntary license, now that they and webcasters have a couple of weeks to work on it.

(Q&A TO BE CONTINUED TOMORROW IN RAIN)

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BY PAUL MALONEY
Players from all facets of the industry are weighing in publicly with their reactions to the Congressional passage of H.R. 5469, and in some cases offering site visitors their own analysis of the measure.

Beethoven.com's Kevin Shively contributed an essay to this issue (please see below). We've compiled some of the reaction from elsewhere in the industry below.

Noted industry author and columnist Brad Hill has an excellent analysis and commentary on the new law on his Digital Songstream site (here). He says the bill offers, "small Webcasters some kind of escape hatch from the dire CARP agreement, which requires a per-song, per-listener royalty scheme -- one which would certainly drive hundreds or thousands of small stations right out of business." But he warns, "Whether small Webcasters will be able to negotiate acceptable agreements with SoundExchange (on behalf of the labels) remains to be seen."

On his SomaFM.com site, webcaster Rusty Hodge is optimistic, but just as cautious as Hill. He does in fact mention that the measure will be good for broadcasters, religious broadcasters, and almost all categories of webcasters.

However, he admits that he's "still not sure if this new form will be good for us," and adds "I don't think this deal does ANYTHING to help hobby webcasters -- one group that was vocally opposing the previous incarnation of HR5469." He suggests the costs of filing for 501(c)(3) status (to be a true noncommercial entity) ("I've heard estimates that the costs for all the fees and required accounting reviews can easily exceed $2000 a year") might make this route prohibitive for the smallest of hobbyist webcasters.

The agency appointed to collect the sound recording royalties, SoundExchange, called the development "a positive step," and executive director John Simson called upon broadcasters and webcasters to conduct the upcoming negotiations in a cooperative spirit. "Looking to the future, we hope that the costly and uncertain roads of litigation and legislation will not be necessary. We urge webcasters, broadcasters and others to meet us in good faith to find marketplace solutions, rather than fighting in court and other forums. It's now time for us all to work together to realize a vigorous digital media marketplace that recognizes the value and contributions of artists and record companies. "We are pleased that Congress found a way to implement the rates and terms for small webcasters that the House proposed last month. We will work expeditiously toward putting those rates and terms into effect as Congress has requested." Remember, the new law contains no actual rates or percentages (so that those rates could not be seen as precedential), but does allow for the settlement reached between the RIAA and small commercial webcasters. Simson's complete comments are here.

Interestingly, while the Recording Industry Association of America (RIAA), in their statement (here), chose to distance themselves from the element of the law that enables SoundExchange to negotiate terms even for non-RIAA/non-SoundExchange artists and labels, they too expressed support.

"The recording industry did not seek nor propose this authorization. Although the intent of the House bill was to preclude the use of the rates and terms in the bill as precedent in future negotiations and rate proceedings, certain broadcasters were concerned that it did not adequately achieve that objective and proposed the approach in the Senate compromise as a means of addressing that concern. In an effort to support the goal of the bill passed by the House, we support the Senate language."

Thomas F. Lee, president of American Federation of Musicians (AFM), the members of which are among the beneficiaries of collected fees, was among the most supportive of the measure. He expressed his pleasure not only for the stipulated "direct payment" of artists, but the afforded relief of smaller and noncommercial webcasters.

The group of smaller webcasters that had been adamantly opposed to the SWAA-version of H.R. 5469 is represented by a group called the Webcaster Alliance. In fact, just last Monday the organization published the first installments of a multi-part "exposé" on the small webcaster version of the law called "American Injustice: H.R. 5469."

However, the group has now expressed optimism that the new law has indeed eliminated the dangers they saw in its earlier incarnation. Webcaster Alliance president Ann Gabriel, in a statement (here), said, "We are hopeful that webcasters and the RIAA will work together and negotiate in good faith for fair and equitable rates that will allow the streaming media community to grow into a healthy, profitable and viable industry. The webcasting community applauds and appreciates the effort and the support we have received from Senator Helms. We look forward to an equitable resolution!"

Largely, small commercial webcasters themselves expressed thanks. Jim and Wanda Atkinson, webcasters who operate 3WK.com, are viewing the new law in a more positive light, and expressed their appreciation for listeners' support. "This version of the bill is much better than the original (thanks to Jesse Helms of all people)...Just think -- every one of you who phoned/faxed/emailed your Representatives helped get a bill passed in Congress. You changed webcasting forever!"

Onion River Radio's Frank Schliemann (right), in a statement to RAIN, expressed his gratitude to his state's senator.

"Onion River Radio and our loyal listeners thank Vermont's Senator Patrick Leahy, whose leadership on behalf of Internet radio catalyzed Congress's attention to our cause...Today's Congressional approval of the Small Webcaster Settlement Act of 2002 ensures that our audience will continue to enjoy Onion River Radio's 'freeform' style of programming."

Some in the industry had expressed the belief that Senator Jesse Helms, who had placed the "hold" on the SWAA-version of the law before Congress recessed, had acted merely to kill the bill in the interests of noncommercial and religious broadcasters. Many were surprised to learn that indeed, Helms's staff was instrumental in getting the bill passed. One person not surprised was Deborah Proctor (left), general manager of non-comm broadcaster WCPE, a Helms constituent. She wrote to RAIN before the bill was passed, "I have read many things that people who have never met Mr. Helms have said about him. I know many people have strong feelings about him -- but I have never heard anyone who worked with him say that he didn't keep his word -- and from personal experience, when he called me up and told me that he would help WCPE, he kept his word."

Webcasting lobby organization Digital Media Association

BY KEVIN SHIVELY
for RAIN: Radio And Internet Newsletter
How should webcasters react to the passage of the amended bill passed by the Congress giving SoundExchange the legal authority to negotiate binding deals for retroactive royalties?

Do we dance? Do we dig into the trenches?

The answer is: neither. We roll up our sleeves and find a way to get something accomplished that will set the stage for our industry to succeed going forward. In order to do this, however, we are going to have to suspend some of our preconceived notions and come together -- among ourselves and with the copyright holders.

That's right! I said we must come together with the copyright holders. We are a part of the music business, don't let anyone tell you we aren't. We need to work with copyright holders to ensure that our budding relationship is something that is good for the music industry as a whole. We should be partners with them instead of adversaries. More on that in a moment.

What the deal means
First, I applaud the actions of Sen. Helms in making sure a deal would not be ensconced in law that could be bad for all or a large section of our industry. He stood by his word and we have a much improved situation as a result. It is a major advantage for webcasters to have SoundExchange with the legal authority to negotiate binding deals on the retroactive royalties for our industry. It should be noted that this was an option that small commercial webcasters, in their negotiations with the RIAA, tried several times to offer as a compromise. I think many of us are grateful for Sen. Helms's assistance in making this a reality.

Second, we now have a situation where the issue may actually get a significant level of resolution. If the copyright holders view this as a way to develop a more inclusive deal with small webcasters -- which must, in my opinion, include small broadcast stations that simulcast their stations online -- and take the previous "deal" as a starting point, then we could have a resolution that ensures that the legal headaches for both sides are, at least for a significant time going forward, healed.

If, however, they insist that the deal in its previous form is a take it or leave it offer, then a small subset of our industry will probably feel compelled to sign it, but it will not resolve the issue and the fight will continue for both sides.

Hope for the hobbyist?
What about hobbyists and non-profit webcasters? In some ways, they come out best of all with this deal with six more months to work out a solution.

In other ways, however, some of them have a very serious decision in front of them. Will they become officially noncommercial (as defined in the bill), or do they eventually want to run this as a money-making business? If it's the former, it seems obvious that they need to align themselves with the groups speaking for this cause (CBI, IBS, etc.) and make sure their concerns are heard. If it's the latter, it may be more difficult. Unless there is a way to inject exceptions for the very small audience, there will likely be a cost-of-doing-business in this marketplace that may, in fact, exclude some. But, then again, that is true for any industry.

Time to cooperate
So, how do we become true partners with copyright holders in the business of music? For one thing, we have to address any concerns as to our promotional ability for the record industry. Rightly or wrongly, those concerns have been raised and we must be willing to look objectively at them and find ways to address them.

We also need to make it clear that we have more to offer copyright holders than simple cash payments (if we even have that to offer!). We have a direct link to consumers and can offer ways for them to get their concerns and messages out to the public with our support and backing. In short, we can be a bully pulpit.

So, what's next? Open dialogue and engagement seem an obvious first step. We cannot crawl into a hole and hide from it. Webcasters must work together, broadcast simulcasters included, to ensure that the proper concerns are front and center. It will only make it more difficult for all of us if another solution comes along that does not cover enough of those who need and deserve relief from the current liabilities. If we've learned anything, it should be this.

Kevin Shively is head of Business and Web Development at Classical webcaster Beethoven.com. He is a founding member of Voice of Webcasters and has been active in promoting the interests of the Internet radio industry in Washington, DC.

Here's a collection of some of the comments we've received from RAIN readers regarding this morning's news: