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... where they impact on web radio

Last updated 10 February 2003

Chapter 8

(section)

Music copyright in the digital environment

p166

The Performing Rights Society have set a minimum rate of £1,080 per year plus VAT at 17.5% for non-commercial, web radio stations streaming on the Internet. See www.prs.co.uk/ and then links to 'radio' and 'Internet' for details. Phonographic Performance Limited still set their fees for non-commerical operations on a case by case basis. See www.ppluk.com/ for details.

pp 165-7

Impact of recent rulings on music copyright in the US

The year 2002 will go down as a historic turning point in the long partnership between the USA's radio stations and their main suppliers, the recording industry. As noted in the book (p158) US radio stations have been alone in the western world in paying no royalties to the owners of recording copyright (the record companies and their signed performers) on the basis that radio airtime gave their products free promotion and therefore the benefits were mutual. Over the past 20 years, though, the once highly localised US radio industry has consolidated into the hands of 4 dominant, highly profitable national owners and the equally consolidated major record labels have seen their US record sales plateau and then go into decline. Therefore tensions have grown in the relationship and questions have been asked about how mutual the benefits now are. In their other international markets the record companies had long received radio royalties for the airing of their recordings: as national radio industries have come to look more alike the world over, what makes the US industry so different? And as ad revenues have funnelled into the accounts of fewer corporations, are fortunes not being made without due recompense to the producers of their raw materials?

The arrival of digital transmission platforms has provided the recording industry with the opportunity to demand a renegotiation of terms with the broadcasters and in 1998 the passing of the DMCA (pp161-6) gave them the means. US radio stations will now be subject to recording royalties for any music they transmit via a digital route; the only question to be resolved, platform by platform, is how much. Sadly for the many small, independent US radio enthusiasts who have driven much of the development of an alternative to mainstream radio on the Internet, the nascent web radio industry has become the first major battleground between these two giants. There are many casualties among pioneering US webcasters and the effects will be felt around the rest of the web radio world.

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As of December 2002 the position for US web radio stations is as follows ...

The long awaited ruling on the cost of the statutory licence, which arises from the DMCA, for non-subscription webcasts. On June 20, 2002 the US Copyright Office published the Librarian of Congress's final determination on the rates payable by webcasters for the digital transmission of sound recordings. The summary is at http://www.copyright.gov/carp/webcasting_rates_final.html. For US commercial webcasters this does not cover interactive, on demand services, which have to be negotiated directly and are looked on extremely unfavourably by the RIAA.

This is the ruling US webcasters have been holding their collective breath for because the rate it sets is retroactive to 28 October 1998 when the DMCA was passed and holds to the end of 2002. Thereafter the rate is to be reviewed annually. The Librarian accepted many of the original findings of the Copyright Arbitration Royalty Panel (CARP), published in February, and most importantly that the royalties should be calculated on a per performance basis and not as a percentage of a station's income - which is the model used both for the statutory royalty paid to the songwriters through ASCAP and BMI in the States and for calculating royalties payable to the record companies in most other comparable jurisdictions. The Librarian rejected the CARP's finding that Internet-only webcasters should pay more per performance than terrestrial broadcasters when they simulcast their AM or FM output. The headline royalty rate he set for all commercially operated stations is 0.07 cents per performance of any recording that's in copyright. A 'performance' is one play of a record or part of a record to one listener (i.e. per unicast stream). For stations run on a non-commercial basis, but outside of the Corporation of Public Broadcasters (CPB) - whose stations have their own previously negotiated, collective deal - the rate is 0.02 cents per performance. This non-commercial rate extends to "archived programming subsequently transmitted over the Internet" and "up to 2 side channels".

Thus a commercially operated station based on automated playout of an average of 15 songs per hour will pay 15 x 0.07 = 1.05 cents per hour for every listener. Once that total has been calculated there is an additional surcharge for the making of 'ephemeral copies', which are copies held on the hard drive of a station's playout system. The ephemeral licence fee is 8.8% of the performance fee, so in the case of a fully automated station this adds 8.8% to the total, or proportionately less if some tracks are played direct form CD.

The ruling is effective from 1 September 2002, which means that the retrospective fees owing on streams which have run between 28 October 1998 and 1 September 2002 become payable on 20 October coming. Listener figures prior to 1 September 2002 are to be calculated on estimated averages (see below). For a small operator who has been running their own single stream from an automated computer playout system (and not through a host) continuously over 4 years and reaching an hourly average of 100 listeners the total royalty owing will be around $33,757 + 8.8% = $36,738. For most established webcasters this kind of calculation reveals that they owe well in excess of 100% of the revenues they have earned from their most popular stream, whether through advertising in the case of commercial operators or through fund raising in the case of community or third sector stations.

Unsurprisingly the reaction from US webcasters of all descriptions has been one of utter dismay. Many closed their streams, while they considered their positions and awaited the outcome of appeals. After a frenetic period of lobbying, and very much at the last minute in terms of the enforcement deadlines for the CARP ruling, a new law was hastily passed to protect smaller webcasters from certain bankrupcy. A host of archived campaigning links provide a valuable record of the progress that struggle in autumn/fall of 2002, for example the Voice of Webcasters site and links from the past issues pages of RAIN's daily newsletter, post 20 June,2002.

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The agency set up to collect and distribute these statutory fees on behalf of the sound recording copyright owners is SoundExchange. The 'licensing - background' page on their website gives a useful summary of the terms of this statutory licence and also reminds webcasters that they have the alternative of seeking a voluntary licence, provided they can negotiate terms directly with the copyright holders of all the music they transmit. This is obviously time consuming, but it does leave the way open for the kind of scenario I outline on p167 of the book where small webcasters negotiate separate arrangements with like minded independent labels or groups of musicians, who see the promotional benefits of web stations that serve non-mainstream, niche audiences. On the other hand, webcasters who have tried to negotiate with larger record companies ahead of this ruling, tend to report that they have been unsuccessful.

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The statutory licensing system, of course, relies entirely on the power of computers to collect data. Hence the second important ruling from the US Copyright Office - although to date the full detail of this one has yet to be confirmed.

The initial ruling on the "Notice and Recordkeeping for Use of Sound Recordings Under Statutory Licence" , released on February 7th 2002, created its own outcry of opposition from webcasters and there has been a pause in finalising the amount of detail it will require per record played; some take this to indicate the list may be edited. For now though the position is that the February ruling would oblige all web radio stations to compile detailed reports about every music track they play and about every request for a stream of each of those music tracks - 18 separate entries for each song streamed - for submission to the separate performance copyright holders. The required details would include artist, track title, year of recording, ISRC and URC codes, retail album title, catalogue number, position in the programme where the track is played, 'unique user identifier' for each stream requested, dates and times each user logged in and out of the stream and country in which the user received the transmission. This is information which can theoretically be generated via automated databases, if we assume a) that the station plays all its music from a computer hard disk and not direct from CD or vinyl, b) that their or their host's server is capable of collecting such listener data and c) that they have the capital to invest in the necessary advanced database software packages and the personnel to modify existing entries for each track they hold. In any case this demand would involve an independent web station in a very substantial investment of time and money. Compare this with the current arrangements for US analogue broadcasters who only need report a sample log of one week's output once a year in order for ASCAP, BMI and SESAC to confirm the split in royalties due to each of their clients.

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The Small Webcaster Settlement Act (SWSA) passed into US law in December 2002. It recognised that the retrospective charges (since 1998) under the CARP ruling alone would bankrupt many small webcaster overnight. The Act makes essentially two provisions: one with respect the retrospective charges and one for the period 2003 - 2004. Both employ a percentage of revenue charging model, as opposed to the 'per performance' model CARP applies to larger webcasters.

Those who sign up for the small webcasters rate forfeit the right to switch to any renegotiated CARP rate for 2003 - 4, if that should turn out to be renegotiated at a more favourable level. However they can still decide to enter into voluntarily agreed rates with individual labels if they wish to.

Further details from the SoundExchange website.

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* * * * * * *

Some preliminary analysis of the 2002 rulings

I think it's fairly clear that this is far from the end of the story for web radio in the US: it's the first round in what's bound to be an ongoing struggle between two intricately connected and extremely powerful industries as they try to renegotiate their marriage. It's a ruthless embrace. The fact that it's taking place at exactly the same time as just about everything else in the dot.com house is being demolished and rebuilt and as the American advertising boiler has gone out makes it a whole lot more dangerous for the web radio pioneers, many of whom are deciding to quit in the wake of the June 20 announcement. (See RAIN for the up to date list.) Despite polite protestations to the contrary it's hard to imagine that either the big five record labels or the big 4 US radio corporations will shed a tear for the independent Internet-only stations: the big players would self-evidently much prefer to share web radio between them - the record labels want it for the their new direct distribution arm (as in MusicNet or Pressplay, box 2.1 in the book) and the radio corporations want it to concentrate advertising synergies between their terrestrial and their web presence. Obviously they will take any opportunity that presents itself to try to nip the potential upstart opposition in the bud. (Further confirmation of this game plan can be found in the announcement on August 1, 2002 that Pressplay would now switch from offering only restricted numbers of downloads in return for their subscription fee to a far more competitive unrestricted subscription service.)

The 2002 Small Webcaster Settlement Act has certainly softened the blow of the June CARP ruling. By the end of 2003, though, expect to find the situation has changed again. More intense lobbying will certainly continue through the year from both sides.

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A copyright checklist

pp171-2

Ripping music streams:

Part of the record industry's complaint about music radio on the web is that the existance of 'stream ripping' software suggests there is no effective difference between streaming and downloading (see p163 in the book). There's evidence of this view in an article in RAIN dated 18/07/02 on the RIAA's wish to see all audio streams mandatorily tagged to block ripping for file sharing. The extent to which web radio stations are unwittingly supplying Internet file sharers via this particular is yet to be established.

'Streamripper' appears to be the most widely used software designed to selectively capture audio tracks onto the user's hard drive. It is an open source Unix programme. But it can only process MP3 streams to save them as MP3 files to a hard drive. There are adapted versions for Windows and Mac OSX StreamripperX). However the originator of the MP3 stream can easily set their own encoding software select to block the action of Streamripper-like software.

(section)

further ... Further Reading

p 177

Alderman, J (2001) Sonic Boom. Napster, P2P and the battle for the future of music. Fourth Estate

RAIN - Radio and Internet Newsletter (2003) CARP, Congress & Compromise: Radio and the Internet in 2002.
A 4 part series with selected links to archived stories, published
6, 7, 8 & 13 January 2003.

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© Chris Priestman, December 2001
Email: c.j.priestman@web-radio-book.com
Book extracts are reproduced by permission of the copyright holder, Focal Press, which is an imprint of 
Taylor & Francis Group LLC.