Webcasters Offered Lower Royalties If They Promise to Remain Small

The performance rights organization that collects royalties from streaming music providers on behalf of recording artists and copyright holders, has offered small streamers a reduced rate that caps royalties collected at 10% to 12% of their annual revenue. But for selected streamers to qualify, they would need to sign an agreement with the SoundExchange organization that would include a cap on growth, and a possible penalty for growing too fast.

In a statement late yesterday, SoundExchange described the restriction as "a usage cap to ensure that this subsidy is used only by webcasters of a certain size who are forming or strengthening their businesses." Webcasters would have until September 14 to sign on the dotted line, which is not long after Congress reconvenes after summer recess.

Current royalties rates that took effect last month have been recently described as 30% of revenue, though many webcasters have presented data that suggests that a zero was left off that percentage.

Yesterday's announcement by SoundExchange clearly has a "carrot" and a "stick" side to it, the latter of which reads like an ultimatum. "Small webcasters who do not sign the agreement, but continue streaming, will be responsible for paying the new rates first announced by the Copyright Royalty Judges (CRJs) in March, the first payment of which was due July 15, 2007."

But SoundExchange's reference to the discount rate as a "subsidy" might also suggest a certain bluntness to the "carrot" end of the offer as well: If indeed the discount rate is described in the agreement SoundExchange would have its prospective smaller members sign as a subsidy or rebate, it may actually be treating the amount of the discount as a kind of deferral. That suggests that if webcasters stray out of bounds, or perhaps grow too big, they could find themselves owing the deferred amount back.

Broadcasting attorney David Oxenford wrote for his firm's blog today that SoundExchange's offer appears to be little more than a restatement of a similar informal offer already made to small streamers.

"It does not address the criticisms leveled against the offer when first made in May," Oxenford wrote, "that the monetary limits on a small webcaster do not permit small webcasters to grow their businesses - artificially condemning them to be forever small, at best minimally profitable operations, in essence little more than hobbies."

But the SoundExchange offer could present a solution to a problem posed by the original royalty rates now due to it since last month. At the time the Copyright Review Board presented its final decision on rates, webcasters both large and small said the per-performance formula could result in royalties that could put them out of business, or that could force large media interests to suspend or cease streaming operations.

As the amended offer now appears to be phrased, the organization could perhaps be assured of a kind of "royalties farm," made up of streamers whose growth rate would be self-pruning. They could not grow large enough to pose a serious threat in court or in Congress, and depending upon how their agreement is worded, they may not afford to back out of the deal or go out of business during the guarantee period between now and 2010.

Web broadcaster and RAIN newsletter publisher Kurt Hanson obtained a copy of the SoundExchange offer. On his Web site today, Hanson reported that SoundExchange's growth cap limits streamers to 5,000,000 aggregate tuning hours (ATH) per month, after which the regular royalty rates agreed upon by the CRB take effect. A single ATH would be recorded by a single listener, so at that rate, a small webcaster would be limited to a total audience at any one time of about 6,944.

Hanson also located a reference to the term "non-precedential" to refer to the offered discount rate, which may indicate that new members would have to agree that just because they're being offered the rate now, doesn't mean they'll be guaranteed that rate after 2010.

By Scott M. Fulton, III, BetaNews

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