So the big news in the US at the moment is the announcement by the Copyright Royalty Board of the prices for internet radio royalty rates. A summary can be found here on Radio and Internet Newsletter site. As that same site points out, the prices being talked about, based on a “per play” basis (ie you pay per listener, per song), will price most players out of the market since these royalties alone probably eat up 100% of advertising revenues earned at the same time. And there are still composers’ royalties to go.
This puts question marks over services like pandora.com – can they ever be run as a profit-making business?
Let’s just step back a second and consider how this compares with the UK. I think I have all these facts correct, so please do point out any errors I’ve made, and I’ll correct as soon as I can.
In the UK a broadcast radio station must pay two elements for most music. The royalties for the composers, songwriters and publishers, and the airplay royalties which are payable to the performers and record companies.
The MCPS-PRS Alliance collects and distributes royalties for composers, songwriters and publishers. Stations provide lists of the music they play to the PRS who then distribute revenues generated by the station accordingly.
The payment for a large station is 5.25% of Net Broadcasting Revenue (where revenues are over £1,061,498).
PPL collects and distributes airplay royalites on behalf of the record companies and performers. Again, stations provide lists of the music they play to PPL who then distribute revenues generated by the station accordingly.
The payment for large stations is also 5.25% of Net Broadcasting Revenue (if revenues over £1,027,808)
So approx 10.5% of broadcast revenues are passed on to these two bodies. There are a few other payments here and there, but simplistically this is broadly correct for a commercial radio station. These include the right to simulcast in the UK on other platforms including the internet, DAB, satellite and cable.
Note that PPL insists that this licence “does not permit the broadcast of a Station via the Internet outside of the UK. Any station intending to broadcast via the Internet outside of the UK will require a separate multi-territory licence for which there will be additional fees. Please refer to our website for further information or contact the Rights Negotiation Department directly.”
PPL has a set of licences here and you’ll notice that it’s very complicated and works in different ways for different countries. As a radio station, for each play of a song, you should identify which country the user resides in, and what the payment for that user should be. Adding these revenues all up could come to a sum greater than the whole. And most of the world isn’t even included. As a result of this, many UK stations force listeners to enter their postcode to prove that they’re a UK resident. Obviously nobody from overseas could ever do this.
Note that internet only radio stations in the UK are separately charged on a “per play” basis.
There’s also the small issue that it’s not really any of a UK royalty agency’s business what I do overseas. That’s for those countries to look into.
In the US it’s very different. Radio stations have historically been required to pay per-song royalties to songwriters but not to performers, recording companies or anyone else who owns the rights to the “sound recording” of a song. The reason for this is that in the past radio stations argued that they were promoting artists by playing their music. This money is collected by BMI, ASCAP or SESAC.
Because each of these three organisations represents different songwriters, composers, publishers and copyright holders, most US music stations would get licences from all three of these bodies.
How much they pay is one messy business that’s hard to untangle. The Radio Music License Committee acts to represent most US radio stations with regard to what they have to pay. But it’s not simple, and a long running battle has tried to move stations away from the funding model adopted in the UK where it’s simply a proportion of revenues that’s handed over. There’s a synopsis here but it’s not straightforward.
Broadly speaking the different Performing Rights Organisations (PROs) charge different amounts based on different criteria. They might be based on flat rate costs, the size of the station or a proportion of the station’s revenue. What that overall proportion of revenues is, I don’t know. Is it as much as 10.5%? Who knows…
But one thing is clear, unlike the UK where online simulcasting is allowed, US stations have to pay a per play per user amount and that’s where we came in. Set this figure too high and it’s very quickly uneconomical to offer a streaming service. And that’s why you’re only likely to be getting fewer streaming radio services from the US, replacement advertising copy for streams (there are advertising copy rights issues too), and generally big problems for US radio as we try to become ever more digital.
It also means that services like pandora.com and the UK based last.fm might find themselves in very “grey” areas legally unless they’re very careful. Some might argue that they already are in such an area.
So UK services pay for all elements of every song they play, whereas US services only pay part of it, yet a station can’t simulcast online in the US as they can in the UK. Swings and roundabouts? Well that really depends on the proportion of revenues overall that each type of station is paying – you do need to consider the whole on not look at streaming separately. The cost of streaming is another broadcast cost, just like the cost of maintaining your transmitter(s).
It’s in everybody’s interests that fair and equitable solutions are found. Radio drives music sales, and listening is moving digital, and a lot of that is going to be online. Making the business of streaming radio uneconomical is not going to help anybody in the record industry – an industry that’s already struggling.
Streaming Radio – US v UK
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2 responses to “Streaming Radio – US v UK”
Inhibiting the growth of webcasting was the goal from the outset, with passage of the anti-webcasting provisions of the DMCA. The impossibly burdensome music use reporting requirements and now these grossly unreasonable compulsory license fees are part and parcel of the over all effort to put an end to webcasting.
The industry fears that webcasting will allow consumers to make unauthorized digital copies of recordings if they know — or are reasonably able to anticipate — when particular recordings will be streamed. Accordingly, in the U.S. by statute, and in Europe by contract, webcasters may not offer interactive programming by which consumers can request that particular recordings be transmitted; may not offer programming dedicated to particular artists, or even containing more than a few songs by the same artist or from the same recording; may not make prior announcements of the recordings they will stream; and may not offer archived programs shorter than five hours duration. This interference in the programming decisions of webcasters has no counterpart in the music industry’s relationship with non-digital program services. It diminishes webcasting unnecessarily, rendering it less compelling in many ways than ordinary broadcast radio.
The music industry’s treatment of webcasters exemplifies its approach to the licensing of digital audio services generally. By and large, rights holders are unwilling to offer licenses for digital uses of music that do not have an identifiable counterpart and associated business model in the analog world with which they are comfortably familiar. Audio service providers who wish to offer music in ways that do not comply with the stringent music use restrictions and business model limitations imposed on webcasters find it nearly impossible to obtain licenses for their services. When rights holders refuse to make licenses available, compliance is only possible by service providers who either forego the use of copyrighted music or cease doing business altogether. This choice among equally unappealing alternatives has fostered a culture in which many service providers consider it the better business practice to ask forgiveness from music rights holders for infringement rather than to seek permission from them in advance of launching a new service.
The problems lies with the music industry’s addiction to its traditional sales-based revenue model and the negative policy implications that has for consumers, technology firms, consumer electronics makers, and digital audio service providers of all types (not just webcasters). There can be no doubt but that public policy should support the opportunity of music industry rights holders to derive substantial revenue from their contributions to culture and to commerce. By the same token, however, the industry has no right to demand that public policy support its desire to do business in a particular way.
What’s really needed is an alternative to the music industry’s sales based revenue model.
I recently published a White Paper (available at bennettlincoff.com/fixing_what_is_badly_broken.pdf) in which I propose such an alternative. Mine is a comprehensive approach to rights licensing and rights management that does not depend on the efficacy of digital rights management (DRM) technology for its success. Specifically, I suggest that the rights of songwriters, music publishers, recording artists and record labels in their respective musical works and sound recordings should be aggregated so as to create a single right for digital transmissions of recorded music. The digital transmission right would be a new right, not an additional right. It would replace the parties’ existing reproduction, public performance and distribution rights (and, in those territories where it applies, the communication right).
Ownership of the digital transmission right in individual recordings would be held jointly by the songwriters, music publishers, recording artists and record labels who contribute to the recording. Each rights holder would have authority to grant non-exclusive licenses for digital transmissions of those recordings on any terms they and their licensees find to be mutually acceptable. The only limitation on this authority would be the obligation to account to co-owners pursuant to whatever arrangements they make among themselves for the division of royalties earned from this newly-established right.
The digital transmission right would be enforceable only against those directly involved in providing digital transmissions of recorded music. Accordingly, consumers would not incur any liability merely for surfing the web, accessing streaming media, or downloading music files. Neither would copying for personal use require authorization. Similarly, software developers, technology firms, consumer electronics makers, and telecommunications and Internet access providers, as such, would have no liability under the digital transmission right. On the other hand, service providers would need licenses if they operate web sites, social networking services, P2P file-sharing networks or the like that provide digital transmissions of recorded music.
Consumers would only need licenses if they act as service providers in their own right; that is, whenever they are responsible for the digital transmissions at issue. By way of example, consumers would need authorization if they operate music-enabled personal or hobby web sites; or if they upload music files to a web site or service that does not have its own license under the digital transmission right authorizing this activity by users of its service (known as a “through-to-the-user license”); or, if they offer recordings to others through participation in a P2P file-sharing network, or similar service, that does not have such a through-to-the-user license.
The right would be implemented through a combination of free market transactions between individual right holders and service providers and voluntary collective rights administration. The best results for all would flow from a marketplace in which collective licensing is the norm and direct licensing the exception. The division of ownership of rights that I suggest will tend to encourage rights owners to work together through collective licensing organizations. I also suggest solutions to the complementary issues of how to license transborder transmissions and on what basis to distribute royalties each from those transmissions. In my view, overall success for the music industry will depend on the presence in each territory of at least one collective organization whose catalogue encompasses all or nearly all recordings and which is authorized to grant worldwide rights at its local rates for all digital transmissions of recorded music that originate from its territory.
Through the digital transmission right implemented as I suggest in the White Paper, digital transmissions of recorded music could be made available from the largest number and widest array of licensed sources, anytime, anywhere, to anyone with network access. Consumers would be free to enjoy music when, where and how they themselves decide. Technology firms and consumer electronics makers would be free to offer greater interoperability between the many recording, playback and communications devices that are available, and to meet consumer demand for new products with next generation capabilities. And, in the aggregate, music industry rights holders would do at least as well financially under my proposal as they do now under the system that my proposal would replace.
Thanks for that. Interesting if a little tangential to what I was talking about, possibly because your piece was originally published here?