The fate of indie music as we know it

The CRB ruling determines the rates that Internet broadcasters must use to reimburse copyright owners and performing artists for the right to play their music over the Internet. To the disappointment of webcasters big and small, the new schedule set an aggressive schedule of per song royalty hikes, with proceeds paid to SoundExchange, an artists' group set up to manage and distribute digital performance royalties.

From $.0007 (.07 cents) per performance in 2005, royalties would rise to $.0008 per performance, retroactive to Jan. 1, 2006, and keep rising yearly until 2010, when the per performance royalty would cap out at $.0019 per performance. No provisions were made for small commercial webcasters who lobbied for an alternative royalty system based on a percentage of their streaming-related revenue.

The situation isn't much better for noncommercial webcasters like National Public Radio and religious broadcasters. They'll pay a fee of $500 per channel for the first 160,000 hours of aggregate streaming per month. That may satisfy small college stations and other noncommercial outfits. However, it doesn't come close to covering traffic to the Web sites of popular public stations like KCRW in Santa Monica, Calif., or other well trafficked webcasters who offer multiple streams to many thousands of listeners each day. After exceeding their threshold, those webcasters would have to pay the commercial rate.

In response, NPR petitioned CRB to reconsider its decision last week. Major public radio stations also signalled their support for a revisiting of the royalty schedule. "The CRB decision is truly egregious in that it treats successful non-commercial online music webcasters as if they were commercial stations," said general manager Ruth Seymour of KCRW, which has long promoted independent artists.

Changes wrought by the 1998 Digital Millennium Copyright Act were at the heart of the dispute over webcasting royalties. According to that act, digital performance royalties for webcasters must "clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller." That standard is far different from those applied to the calculation of royalty payments for digital cable providers and satellite radio networks, which consider the public benefit of such services as well as the relative contribution of the broadcaster, according to David Oxenford, a partner at Davis Wright Tremaine, which represented small webcasters in the recent negotiations with the CRB.

The CRB decision landed with a dull thud on the desk of Tim Westergren, CEO of the Music Genome Project and Pandora, a fledgling Internet radio station that lets users create stations based on particular artists or songs, then automatically populates them with like-minded music based on the Music Genome Project's analysis of the characteristics and attributions of those songs.

Even at the new rate of $.0008 per performance, applied retroactively to 2006, Pandora is on the hook for "millions and millions" of dollars in royalty payments to SoundExchange, Westergren told Salon -- far more than the company took in as revenue.

Kurt Hanson, president of Web broadcaster AccuRadio, found himself and his webcasting service in a similar boat. AccuRadio streams 320 channels of niche music formats like Celtic, jazz and Broadway tunes. It tracked about 1 million unique visits in February 2007. Hanson's firm paid royalties as a percentage of that revenue: 6 percent to composers' organizations like ASCAP and BMI and 12 percent to SoundExchange for the digital performance royalties. In all, AccuRadio took in around $400,000 in 2006 after promotions that include rotating banner advertisements, audio advertisements in-stream, and video commercials before the launch of each radio stream. However, under the new CRB rates for 2006, AccuRadio is facing a bill to SoundExchange in the neighborhood of $600,000, or $200,000 more than AccuRadio's revenues for all of 2006, Hanson said.

Hanson, who had been party to the talks with CRB, testified in favor of any formula for royalty payments that would allow small webcasters, many of whom see little or no profit from their operations, to continue to do business. But those arguments fell on deaf ears at the CRB. "Apparently the judges interpreted their assignment as figuring out the rate in a hypothetical world, so they looked to economic theorists rather than real-world examples from the 2006 advertising market," he said.

John Simson, executive director of SoundExchange, said that his organization is sympathetic to the challenges faced by "small guys" like Hanson and Westergren, who face big increases in the per-song costs of streaming. However, he stood by the CRB's ruling and the "willing buyer/willing seller" formula, which he characterized as an attempt to reproduce the market conditions webcasters would encounter were they to strike individual licensing deals with record labels or artists for streaming, rather than getting a blanket license from SoundExchange.

But others argue that the tortuous legal process that led to the CRB ruling was costly enough to force out all but the largest and most well-heeled parties. The effort to set digital performance royalties for webcasters included 48 days of testimony, 13,288 pages of transcripts, 192 exhibits and 475 entries of pleadings, motions and orders, on top of written direct statements and rebuttals from the parties involved, according to the CRB. "It's impossible for smaller parties to participate in these proceedings in any economic fashion," Oxenford said.

In the meantime, independent artists who have found a new platform for their music in services like Pandora admit to mixed feelings about the ruling. "To shutter services like Pandora seems strange. Won't another pop up in its place?" wrote Stephanie Casey, a Portland, Ore., guitarist who performs under the name Fall of Snow, in an e-mail interview. On the other hand, Casey, whose music is streamed on Pandora and available for sale on iTunes, said that independent musicians face tough times with or without Internet radio.

"Unless you are Fall Out Boy or Björk or Sheryl Crow, that .04 cents per play or whatever on Internet radio isn't gonna add up to much more than buying you a latte once a week," she wrote. "I know so many people who LOVE music and still don't think twice about trading entire iTunes libraries with their friends. There is no consciousness that you are hurting the artist by not contributing to them financially."

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