royalties

Greg Sandoval at The Verge and Paul Sloan at CNet both report that negotiation snags are delaying Apple's roll-out of its much-anticipated "iRadio" streaming service (Apple reportedly wants to debut this summer at the latest, and possibly by next month's Worldwide Developers Conference).

Part of the problem is apparently that Apple's service will be more like Pandora, and less like Spotify. Sandoval writes, "The record companies and music publishers don't want another web radio service that satisfies a lot of music consumption but doesn't pay them much... The widely held belief by industry leaders is that to stop the slide in music sales, consumers have to be offered unlimited access to deep pools of songs that are supported by either small, monthly subscription fees, or advertising sales."

According to The Verge, it's Sony/ATV -- that's a music publisher, not a label group (and administers copyright song compositions, not recordings) -- that's holding up the negotiations. BMG Rights Management, the fourth largest music publisher, is another hold-out.

But CNet says it's Sony Music (the label group) holding things up for Apple, "over how much Apple would pay for songs that people listen to a fraction of and then skip." Sloan writes, "That skipping has become an issue is frustrating executives at the other labels because they see Apple's free radio service as a potential boon for the music industry overall and are eager to help the company get it launched... While it's unclear what Sony is asking for... if Apple bends for Sony on this issue, it would cause problems with its deals with Warner and Universal."

Read The Verge's coverage here and CNet's coverage here.

Billboard cites "a source" and reports:

"Major labels have made a commitment with SoundExchange to pay half of royalties from a statutory service in the event they have negotiated a direct deal. In other words, a major label with a direct deal with Pandora would still pay to SoundExchange the 50% of royalties afforded to artists under the statutory license. The label would not keep 100% of royalties and pay artists a royalty -- after recoupment -- as it does with royalties from purchases and non-statutory services."

Earlier this week (here) we discussed the fact that sound recording copyright owners are only legally required to split U.S. Internet radio royalties 50/50 with performers when the webcaster operates under the "statutory" webcast licenses (those are the deals which cover all recorded copyright music, with royalties payable to SoundExchange). In other words, copyright owners striking "marketplace" deals directly with webcasters (which is perfectly legal to do) are not under the 50/50 split requirement, and only need compensate performers under the terms of the individual artist/label contract.

This fact led some to speculate that direct license deals could benefit webcasters and copyright owners (labels) alike, to the detriment of artists. For example, a label and operator could negotiate a deal which pays the label just 67% of what it would have under the statutory. The webcaster gets a one-third discount, and the label earns more than the 50% of the statutory royalty.

Industry expert David Touve most recently examined this situation in light of Apple's direct label negotiations for its updcoming streaming radio service. He wrote, "it didn’t take a rocket scientist to anticipate that direct licenses for an iRadio service could get negotiated at rates below the webcaster rates formally established through the Copyright Royalty Board (CRB) or published Settlement agreement." Read more here.

Satellite radio operator SiriusXM and broadcasters like Clear Channel and Entercom have forged direct webcast royalty deals with several independent labels over the past months. Billboard says its source "does not know if independent labels have made a similar commitment with SoundExchange."

Read Billboard's story here.

Webcaster and on-demand subscription service Slacker last week revealed it's reaping the fruits of its February relaunch in the form of surging audience growth. The company also claims it's attracting Pandora users shut out by that company's recent 40-hour/month listening cap on free mobile streams.

What's more, CEO Jim Cady says his company is "gross margin profitable" on every listener in part because "direct" royalty deals have made it less expensive for Slacker to license music than for its competitors.

In a press release, Slacker says since its February relaunch (including a redesign of its web site and mobile apps), more than six million new listeners have registered, including over 100-thousand paid subscribers. And the amount of time the average user listens has jumped 25%. Among new listeners, 3.5 million listen via mobile devices. Its user penetration on Apple devices has more than tripled.

Slacker partners for content with ABC Radio. Its general manager Steve Jones told USA Today, "Our audience has grown 3% to 4% every week since February. We're thrilled."

And they're ready to bring on even more users. According to paidContent, Slacker is close to sealing a deal with "a major telco provider" -- a move Cady predicts could be worth "millions of paid subscribers" to his service. Last week we covered news (here) that Slacker had entered a partnership with Vodaphone which would enable them to enter the UK market, but it's not clear if this is the deal of which paidContent wrote.

Early in March, leading webcaster Pandora announced, as an effort to reduce music royalties, it would limit mobile listeners to 40 hours per month of free, ad-supported listening (paid listening by subscribers is not limited, nor is listening on Pandora.com). While services make significantly less on advertising to mobile listeners, music licensing costs remain the same -- meaning heavy users of free ad-supported mobile streams are hardest to monetize for webcasters.

Cady says his service has gained listening partly due to Pandora's move. Adding to that, he tells numerous sources (like VentureBeat), Slacker's "proven business model" enables Slacker (unlike Pandora) "to monetize users with free accounts" -- even mobile users.

First, Slacker simply runs more ads than Pandora. Wedbush Securities analyst Michael Pachter explained this to USA Today: "Slacker is one-sixth the size of Pandora, and both run ads. Slacker does three minutes per hour, Pandora one per hour. It's that simple."

But perhaps even more interesting is that Cady (pictured) says his "direct deals" with record labels and publishers save the company big money. Slacker told Evolver.fm it doesn't pay SoundExchange -- the music industry body that collects and distributes royalties for those services that operate under statutory licenses. Slacker claims their direct deals enable them to pay a lower royalty than do SoundExchange customers (like Pandora).

Slacker, which launched its digital music service in 2010, has raised $50 million in investment. The company also recently expanded its operations, opening offices in Palo Alto, CA and New York.

Read more in coverage from paidContent here, USA Today here, VentureBeat here, and Evolver.fm here.

The Financial Times reports that Apple's development of its "iRadio" streaming service are caught up by rights negotiations yet again, this time with Sony Music.

Apple reportedly has reached and agreement with Universal Music, and is close to a deal with Warner Music, leaving only Sony among the "big three" label groups.

Though Apple won't verify any details, or that they're even developing such a product, the Financial Times reports:

"These people said that Apple had first offered a royalty of about 6 cents for every 100 tracks it streams, but had raised this to about 12.5 cents, in line with the rate paid by internet-radio service Pandora. But it was unclear whether Universal had accepted the 12.5 cent rate, and other labels are thought to be pushing for better terms."

The paper's sources also suggest Apple has offered to pay for music rights on a per-track royalty, an ad revenue share, and a guaranteed minimum. Read the Financial Times' coverage here.

The U.S. Librarian of Congress James H. Billington has appointed two new judges for the Copyright Royalty Board.

David R. Strickler, one of the new judges, will serve as CRB economics expert. He'll complete the term vacated by Stanley C. Wisniewski, which ends in January 2016. He's an experienced lawyer and trained in theoretical economics and the application of economics to legal issues.

The other new judge, Jesse Feder, will be the copyright specialist, and will complete William Roberts' term, ending this coming January. He was recently director of International Trade and Intellectual Property for the Business Software Alliance, and also served as acting associate register in the U.S. Copyright Office and as legal adviser in the Office of the General Counsel for the Library of Congress.

CRB judges are those who determine the statutory royalty rates webcasters pay for the use of copyright sound recordings (actually, they "recommend" a rate to the Librarian, who pretty much "rubber-stamps" it). Copyright royalty judges are appointed by the Librarian of Congress in consultation with Register of Copyrights Maria A. Pallante (The Copyright Office being part of the Library of Congress).

You may remember the Intercollegiate Broadcasting System (IBS) challenged the constitutionality of the CRB, saying its appointments violated the Appointments Clause of the U.S. Constitution. A U.S. Appeals Court sided with IBS, and determined that the CRB appointments were in fact principal officers, and should have been appointed by the President. But to fix it, the Court simply struck those portions of the law that limit the power of the Librarian of Congress to remove the Copyright Royalty Judges without cause (read more from legal expert David Oxenford here).

Read this week's full statement from the Librarian of Congress on the new appointments here.

Pandora says its just-revealed audience decline is "in-line with company expectations" following a March move to restrict mobile listeners on free, ad-supported streams to 40 hours a month. Pandora made the move to reduce royalty costs (ads on mobile streams don't pay as well as those to desktop listeners, and so it's harder to recoup the cost of performing music on phones and tablets).

Today Pandora released its April 2013 audience numbers, showing total listener hours (TLH) were 1.31 billion last month. While that's up 24% from April 2012 (1.06 billion), it's a significant reduction from March (nearly 1.5 billion hours, a 12% slide) and February (just under 1.4 billion) of this year. The company says its share of "total U.S. radio listening" in April was 7.33% -- again, an increase from the same time last year (5.95%), but down from March's 8.05%.

CFO Michael Herring, during a webcast of a Morgan Stanley "Internet Bus Trip" covered in Billboard, said the cap on mobile listening had "almost the same impact" as a similar restriction put on web listening in 2009.

Pandora's total number of unique "active listeners" -- a number one wouldn't expect to be affected by a 40-hour cap on mobile listening, was indeed up. Pandora reported 70.1 million active users by April's end, which is up both over March (69.5 million) and April of 2012 (51.9 million, a 35% increase).

See our coverage of Pandora's March 2013 numbers here. Pandora's press release with its April 2013 numbers is here, and the Billboard coverage is here.