Our Town downtown
July 2, 2007
Internet radio stations across the country were quiet for 24 hours on June 26th. The small Webcasters who participated in the “Day of Silence,” to protest a federal ruling that increased royalties on the music they play, argue that the increase is unacceptably high and threatens to keep them offline forever. A coalition of Internet radio stations called SaveNetRadio organized the event.
“Small Webcasters” are defined by the Small Webcaster Settlement Act of 2002 as those with $1.25 million or less in revenues.
For SoundExchange, the performing rights organization that collects the royalties, and that proposed and negotiated the increase, the payment is long overdue and will compensate artists and copyright holders for providing products that are rightfully theirs.
In May 2007, SoundExchange made small Webcasters an offer, which would decrease the rates set by the Copyright Review Board (CRB) with the revenue-based ones they paid from 2003-2005, which set royalties for small Webcasters at 10 to 12 percent of revenue.
Tribeca Radio, East Village Radio and WNYC2, the public station’s 24-hour classical stream, all participated in the day-long hiatus.
As the composer of the “Nobody Beats the Wiz” jingle for the now-defunct electronics chain, which Biz Markie based his 1988 hit “Nobody Beats the Biz” on, and which was later featured in a popular “Seinfeld” episode, Tribeca Radio founder Leigh Crizoe is no stranger to royalties. But he says SoundExchange is asking for way too much. “Look, I’m a musician, I’m a writer too. So yes, I want to get paid when my music’s played… But make it a fair price. Let the big guys pay the most money.”
With his son, Shaune Velazquez, and his partner, Rhio, Crizoe runs the station out of his home on Hubert Street.
Crizoe created Tribeca Radio a year and a half ago in response to what he saw as a lack of choices and quality in the mainstream media.
As a music producer, Crizoe saw a “vacuum.” That is, he couldn’t get the records he produced played on mainstream stations.
Crizoe says there was a time when a producer could visit a DJ directly to promote his records. But eventually, the DJ lost the power to choose what was played, and it became the program director’s choice. That power was gradually given to consultants, who began to select programming for specific formats, with an individual consultant deciding what music anywhere from 40-100 stations could play. Today giant corporations like Clear Channel, which, according to its most recent annual report, owns 1,176 U.S. radio stations, control most of what DJs play. And Crizoe says the four major record companies – BMG, Sony, EMI and Universal – have drastically reduced the number of independent labels, which he says numbered in the hundreds ten to fifteen years ago.
Crizoe thinks the same thing is happening with Internet radio. “The same big guys who [ate] up all the … little record companies, and the same huge broadcasters, have gotten together, and they’ve decided to put Internet radio out of business by making the royalty rates that we pay to play music, literally, unconscionable.”
He finds it unfair that on-the-air stations don’t have to pay royalties for sound recordings, and says the way they pay the publishing rights organizations – ASCAP, BMI and SESAC – is the way Internet radio stations should be charged. “It’s negotiable. It’s not designed to put them out of business.”
Publishing rights is another area he knows about firsthand because he and Velazquez were once in the business of collecting publishing royalties for Latin artists, by acting as their liaison to ASCAP and BMI, in the days before the Latin divisions of the major record companies were significant portions of their business. (On the day we meet, Crizoe mentions that a BMI check earned from those days just arrived in the mail.)
Internet radio is full of possibilities, Crizoe says. And he wants to get advertisers, and provide a forum for beginning broadcasters, so that he can develop their shows until they’re good enough, he hopes, to be picked up for syndication, or to be recruited by big radio stations. And if any of them are, Crizoe will get to be their show’s agent for a specified period of time.
Velazquez is planning to set up an antiques and historical items-type business in another part of the space Tribeca Radio is housed in to raise money, so he can market the station more aggressively.
But Crizoe is nervous because Tribeca Radio is funded by his outside investments, and the station accepts donations, but is currently making no money. Last year he spent over $50,000 to run the station for streaming costs, errors and omissions insurance (for potential lawsuits related to show content), and equipment. Crizoe owns the building the station is in, and the studio is in a space that was once a source of rental income.
And he’s afraid that if the new rates are allowed to stand, he’ll be forced to make some serious programming compromises to avoid going completely under. He says that he’d have to stop playing mainstream music completely, and hire a full-time employee to make agreements with independent artists and copyright holders that would waive their SoundExchange rights. And if SoundExchange overruled him, he’d have to switch his programming to all talk.
“In other words, they want to be my partner.” And since he hasn’t made any money yet, “they want 10-12 percent of my losses,” he says, referring to the 10-12 percent that SoundExchange will expect from him if he becomes a “commercial” Webcaster, under their new offer. “If I lost $100,000, that means they want $10,000 to $12,000 … the government doesn’t even do that.”
According to SaveNetRadio, the list of 103 Webcasters who participated in the “Day of Silence” on its site is only partial – that “tens of thousands of U.S. Webcasters” participated.
The new rates, which apply through 2010, were contested by Webcasters. But in March 2007, the CRB, which has jurisdiction in the matter, upheld the rates in a closed-door proceeding. It set July 15, 2007 as the date that Webcasters will have to be paid up by.
The rates were originally set in January 2006, and the judge’s ruling is retroactive. That means all Webcasters who paid the previous royalty rate for sound recordings will have to pay the difference for the past 18 months, a major contention among them that is being used to justify the claim that they’ll be out of business if these new rates are not nullified.
They are advocating legislation, the Internet Radio Equality Act, filed in the House of Representatives, this spring, by Jay Inslee (D-Wash.) and Don Manzullo (R-Ill.), that would vacate the CRB’s ruling and set standardized royalty rates for commercial Internet radio and other alternative platforms (satellite and cable radio, and jukeboxes).
In their ruling, the CRB rejected the Webcasters’ request that the rates be replaced with a revenue-based royalty structure, on the basis that it would be too difficult to ensure payment.
“You’d have to go in and audit them, and different people define revenue in different ways,” one reporter who is very familiar with the case explains in a telephone interview. “And what the judges said was that while they’re not necessarily against a revenue-sharing model … none of the parties who were in that proceeding proposed any solution that would overcome some of their concerns.” The source chose to remain anonymous because speaking to Our Town downtown without clearance is a violation of policy at the company the source works for, and there was no time for that.
Small, noncommercial Webcasters still pay the revenue-based 10-12 percent rate, the reporter explains, but are upset because under the new rate system, if they have beyond a certain number of listeners during an average number of listening hours, they will become “commercial broadcasters,” which will subject them to a fee structure that is calculated per performance, or the amount of times a song is played, and that number is multiplied by the amount of people listening to it. And that can really add up.
And even if they haven’t crossed over into “commercial” territory, under the new royalty system they will now have to pay a $500 per channel minimum, which many Webcasters are complaining they can’t afford. But the source points out that many of the small noncommercial Webcasters are members of Live 365, the largest Web radio network, and pay well over $500 for that privilege.
Currently satellite and Internet radio stations have to pay royalty fees for sound recordings, and publishing rights. Traditional, on-the-air stations only pay for publishing rights, but musicFIRST, a coalition SoundExchange belongs to, is lobbying Congress to require on-the-air stations to pay royalties for performance rights (the right to play sound recordings).
Richard Ades, a spokesperson for SoundExchange, claims that “more than half” of the Webcasters on the SaveNetRadio list are “noncompliant in general” with regard to paying royalties for the sound recordings they play. But, he says in a telephone interview, the large Webcasters are “pretty much compliant.”
Ades thinks the opposition has it all wrong and is spreading misinformation so they can keep playing artists’ and copyright holders’ (i.e. labels’) music for free, and making money off it in many cases. “We want the Internet radio to thrive. It’s important for all kinds of artists, a broad range of artists, the small artists … And frankly, there are a lot of new music platforms out there, and we support them all. We’re just saying the artists need to get their fair share of the pie.”
He says the “Day of Silence” was actually a good thing for the artists and labels that want the rate increase to stick, because it underscored their point in a way. “That is, without music, there would be nothing to build these radio stations and build these businesses.”
One thing he thinks people don’t realize is that SaveNetRadio is funded by The Digital Media Association (DiMA), whose board of directors consists of American Online, Apple, Live 365, RealNetworks and Yahoo! Not exactly a ragtag band of start-ups. “SaveNetRadio has testimonials from over 400 artists on their Web site,” Ades says. “Ninety percent of those artists have never received any royalties. And there’s two reasons. One, these people haven’t been played. Or two, they’ve been played, and these Webcasters have not reported and not paid them,” he claims.
To Ades, the Webcaster who installs software into his computer, plugs in a cheap microphone and starts playing music off his iTunes is a hobbyist. “Look, a lot of these operations … they would have to pay $500 a year to stream up to a [limited amount] of music. And that’s a reasonable amount to pay for a hobby. I mean, I don’t know what fishing costs. I think hunting costs like $1,800 a year, you know? It’s a hobby. But the artists are working very hard. They’re paying for music lessons, they’re buying instruments. They’re doing all kinds of things to perfect their craft, to perfect their art. Why shouldn’t they be paid?”
Ades thinks people have a sense of entitlement to music that doesn’t exist for any other product, and he thinks that all kinds of musicians and record companies are suffering because of it. “What’s being lost is the respect for the people who create the music.”
One common assumption is that on-the-air stations are exempt from paying royalties for sound recordings because to record companies, airplay is free promotion. And Webcasters argue that this freebie should be extended to the Internet since Webcasting has the same promotional effect.
Ades says the statistics don’t support the idea that traditional on-the-air radio stations are a promotional tool, and he says that on-air DJs don’t even mention artists and labels, for the most part. “Sales of music are way-way down.” On the net and other platforms, people consume music, but don’t purchase it, he says.
When asked about SoundExchange and DiMA/SaveNetRadio, the source familiar with the CRB proceeding says it’s important to take the facts and figures the organizations give “with a grain of salt [since] they’re all lobbyists” … “When SaveNetRadio says that they have X number of artists who are supporting them, you have to ask, are they professionals, people who are making a living by music? Or are they people who are sitting by their computer making music just because they like to, but they don’t depend on royalties to make a living? And are the large commercial Webcasters using the plight of small Webcasters in order to get rid of this decision so they don’t have to pay it either?”
One musician who can credit the Web with a lot of his recent success is Jonathan Coulton, a singer-songwriter (and happily-retired software designer) who lives in Brooklyn, and who’s developed a significant following through a combination of blogging, corresponding with fans, and allowing them to download, and also buy his music right off his Web site.
He’s also been able to promote his geeky brand of novelty folk-rock through Internet radio.
Coulton disagrees with the idea that SoundExchange’s rate-hike will help artists. “As an independent musician who doesn’t really get a lot of airplay, I’ve no doubt benefited greatly from Internet radio, and I depend on exactly these kinds of small-scale grass roots broadcasters to get my music out there,” he writes in an e-mail. “If they can’t afford to stay in business, I don’t see how the royalty hike is going to help artists like me at all.” (In fact, this reporter discovered Coulton’s music while listening to Pandora, one of the larger free Web radio services, when Coulton’s “First of May,” a song about having intercourse outdoors, came on.)
Coulton says that although he doesn’t “like to bash labels just for the sake of bashing them … it’s hard not to see this as another case of a frightened industry trying to muscle back some control.”
He notes that although Web radio services like Pandora play his music, he is not in the SoundExchange database, so he won’t benefit from a rate hike; Coulton would expect to find his name in the database, which is compiled from electronic play logs submitted to SoundExchange by cable and satellite subscription services, Webcasters and Satellite radio services, but when he checked it wasn’t there, and he had no idea why. “I suspect it’s an imperfect system … ;)”
-- Matt Elzweig
melzweig@manhattanmedia.com
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