WASHINGTON — Updated music streaming fees, set by the federal Copyright Royalty Board, are having a dramatic impact on the smallest commercial webcasters.
This graphic accompanies a petition at change.org. “Nearly 100,000 small webcasters will go off the air without YOUR help,” it pleads. The three-judge panel set digital performance royalty rates and terms, effective Jan. 1, 2016. It cut the rate for commercial nonsubscription services paid by many radio stations for their online streams, as RW has reported. But the CRB also eliminated a rate model for small webcasters and microcasters, one that helped to make their ventures affordable, according to people familiar with the sector.
The rate structure derived from the Webcasting IV proceeding already has been cited as contributing to the demise of Internet hosting platform Live365, which ceased operations at the end of January. That left more than 5,000 independent webcasters looking for hosting options for their online radio stations, according to a person familiar with the situation. It’s not clear how many of those webcasters ceased operations.
Live365 called the new rates “prohibitively expensive for small to mid-sized Internet broadcasters.” The company also cited the loss of several key investors as a reason for shutting down.
There is no way to know for sure how many Internet radio stations have ceased operations this year, but experts contacted for this story said the number could be in the hundreds or even thousands. Some small webcasters have started blocking their streams in the United States, while others may have gone pirate, some said.
SoundExchange is the entity responsible for collecting music recording royalties and distributing them to copyright owners. It said that of the more than 2,500 services that leverage the statutory license and pay SoundExchange — including non-interactive Internet radio, satellite radio and cable radio services — fewer than 80 services paid under the small webcaster rate.
Of those 80, some represent multiple small webcasters. For example, StreamLicensing, which provides blanket royalty and performance fee coverage and reporting for small webcasters, had approximately 1,300 clients at the beginning of the year but counted as a single service.
A spokesperson for SoundExchange said small webcasters did not participate in the Webcasting IV rate proceeding, “and therefore the CRB was not asked to consider a small webcaster rate.”
SoundExchange said it is too early to know whether fewer small webcasters are paying the new CRB commercial rate of $0.0017 per-performance (which is often cited as 17 cents per 100 songs).
MICROCASTERS AND HOBBYISTS
Meanwhile, the “microcaster” category also was cut from the 2016–2020 CRB rates and terms. The category was intended for small webcasters at “hobbyist” level services, with low annual gross revenues, low annual expenses and online listenership fewer than 18,067 aggregate tuning hours annually, according to SoundExchange — or approximately 49 listeners, each listening for one hour per day.
The site of Live365 notes its closure and points visitors to 8tracks, AccuRadio, Digitally Imported, PurePlay Radio, Radionomy and RadioTunes. There were 150 services in the microcaster category last year that paid rates to SoundExchange, according to the company.
Sound Exchange said a microcaster fitting the criteria, including annual gross revenues below $5,000 and annual expenses below $10,000, will continue to pay the $500 minimum per year and nothing more.
However, supporters of small webcasters said the new rate structure puts an emphasis on limiting listenership of small Internet radio stations and severely curtails interest from hobbyists looking to develop webcasts.
The previous Small Webcasters Agreement allowed small webcasters to choose from several rate options based on revenue or expenses.
Attorney David Oxenford wrote on his Broadcast Law Blog that “under prior webcaster settlement agreements, small commercial webcasters were able to pay based on a percentage of their revenue, and there were special provisions for small broadcasters to avoid some of the regulatory burden.”
The CRB’s decision left most commercial radio broadcasters satisfied with the new rates, experts said. The rate for commercial nonsubscription services of 17 cents per hundred songs applies to many radio stations and is down from 25 cents prior.
The rates for noncommercial webcasters are $500 annually for each station or channel for all webcast transmissions totaling not more than 159,140 Aggregate Tuning Hours in a
Small commercial webcasters had to file an annual fee statement form and pay $500 per channel on Feb. 1, earlier this year, and pay $0.0017 per-performance, according to attorney Kevin Goldberg with Fletcher, Heald & Hildreth, and then submit this year’s first monthly statement of account and pay January’s bill.
Goldberg, who specializes in First Amendment and intellectual property issues, said no matter how you calculate the rate increase for small music streamers, it is massive.
The fee requirement under the old rate agreement would have meant a $2,000 annual fee for a small webcaster with expected gross revenues under $50,000, he said.
“Even a webcaster with only 10 simultaneous listeners will now pay upwards of $2,000 for the year. Then each new simultaneous listener costs another $223.38 per year. That will quickly add up for a small webcaster who doesn’t have any revenue to offset those increases,” he said.
A small webcaster — as defined by the Webcaster Settlement Act of 2009 — was one with less than $1.25 million in gross revenue.
“Under the new arrangement there is no difference between large or small webcasters. Everyone pays the same $0.0017 per-performance rate,” Goldberg said.
There is always a chance of royalty rate relief for small webcasters, he said, but it would be a two-step process.
“First, a deal would have to be struck with SoundExchange. Second, Congress must pass a bill which authorizes the agreement or settlement become effective.”
Congressional action would be necessary because the Copyright Act says that only the CRB can set rates and terms applicable to webcasters and sound recordings, Goldberg said.
Dennis Fallon is a partner in SHOUTcast Streaming, a stream hosting company that provides streaming services to webcasters. He said the music streaming rate hike has cost his company up to 45 percent of its customers.
“Thousands of small to medium-sized Internet radio stations are going ‘dark’ because they cannot afford the new royalty structure,” Fallon said.
For example, one of his company’s clients, FM5280.com, had hundreds of listeners and saw its royalty payments go from $125 per month to over $1,500 per month, Fallon said.
“The rates did not just double, they increased by over 10 times the prior rate. Most stations could have absorbed a doubling of rates, but not many stations could afford the rates increasing over ten-fold,” Fallon said.
FM5280.com is no long streaming due to increased royalty rates for 2016–20, according to its website.
Meanwhile, StreamLicensing LLC is promoting a grass roots effort to sway Congress to reconsider reestablishing the small webcaster agreements.
“No one can afford to succeed with a lot of listeners right now. The higher-ATH webcasters are gone. Though some have geo-locked the U.S. out and continued broadcasting I suspect,” said Marvin Glass, owner of StreamLicensing.
Glass is asking clients and other webcasters to sign up at www.radiodiversity.org to join what will likely be a legislative process to regain affordable music performance fees for small music webcasters.
The CRB rate setting ruling also could be appealed to Washington, D.C., Circuit Court of Appeals, which adjusted some of the rates in the Webcasting III proceeding, observers said.
StreamLicensing had some 1,300 clients at the beginning of the year, according to Glass. He declined to say how many of his group’s webcasters have shut down due to the more onerous royalty fees.
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