The Other Side Of The Webcasting Royalties

The news media industry covering the Webcasting royalty debate recently came under fire for their generally one-sided coverage of the issue, with virtually every report siding with the Webcasters whose business, and possibly the future of Internet radio, are threatened by the fees.

On the other side is the recording industry, which seeks the fees for artists and record labels. Webcasters now play recorded music without paying performance fees to the artists or labels. Of course, terrestrial radio works that way, too, with ASCAP/BMI fees due to composers of songs but none to the actual performers or recording companies.

Are the Webcasting royalty fees justified? MDN spoke with Steve Marks, senior vice president of business and legal affairs for the Recording Industry Association of America, which has led the drive to collect the fees.

MDN: What is the history of performance fees for recorded music?

Marks: Record companies got rights for performance fees seven years ago. Traditionally, when music was publicly performed they didn't have to pay for it. When radio uses music, they don't pay for sound recordings, which is an anomaly when you look at other countries where they do pay. Congress passed laws granting rights limited to digital performances. They grandfathered the old world and provided rights going forward in the new world. The 1995 Digital Performance Right in Sound Recordings Act was the first attempt, but it didn't cover sound recordings over the Internet. The Digital Millennium Copyright Act in 1998 added a few things to the '95 act and gave a statutory license to Webcasters.

MDN: What happened since '98, when the DMCA was passed?

Marks: Our goal was to negotiate an industry wide deal and we set out within months of the law to do it. We initially had talks with the Digital Media Association, but they were not in a position to negotiate on behalf of their members, so we talked with individual Webcasters. We signed 26 deals with Yahoo! and others, but it was very difficult for us to negotiate with them, because the law allows Webcasters to use music without an industry-wide rate set, so there was little incentive for them to do deals and they had a lot of leverage in the negotiations. They had our music knowing they might not have to pay for a couple of years, but we signed 26 deals. We couldn't reach agreement with everybody, so there was an arbitration. We presented the deals to CARP (Copyright Arbitration Royalty Panel) with indications about what the rate should be.

MDN: Why did CARP use the Yahoo! deal to establish the rates, if you signed 26 deals?

Marks: The arbitrators focused on Yahoo! because it was a very successful Internet company that had significant market power. The problem was, they didn't understand the market and the fact there are large, small and medium players and some of them were disregarded. It's a very competitive marketplace where access to capital is key. Some had an easier time getting it than others. In the end, they came up with a rate based on the interpretation of the Yahoo! deal. We disagree very strongly with the arbitrators and Librarian of Congress decisions because we think the rates are too low. The Librarian's decision was more egregious. They were duped by Yahoo!, which characterized the deal and the business in a way that led the Librarian to interpret the deal in a very misguided way. A couple days after the Librarian's decision, Yahoo! dropped radio transmission and focused on Internet only. We argue they planned to do that all along and the Librarian's decision saved them from paying the higher rate for Internet only. The Librarian was duped by them.

MDN: What do you think of the proposed Congressional legislation that will exempt small Webcasters from paying the fees?

Marks: We're talking with small Webcasters and trying to reach a deal with them. We think that Congress should give the market a chance to work after this long process. We have the opportunity to sit down and talk but they're introducing legislation instead of allowing us to negotiate. It's not the right way to go. Plus, there are a number of problems with the legislation. It gives complete exemption to anyone with less than $6 million in revenue, but that's the entire industry now since it's in its infant stages. Maybe one or two companies make more than that.

MDN: Who will the fees actually be paid to?

Marks: The fees will come into SoundExchange (the trade association for the recording industry), which will distribute them to artists and copyright owners, which are the labels. They each get 50 percent. It will be the first time they've ever been paid for performance here. Almost every other developed nation in the world has it already.

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