Morally Bankrupt Regulators

Sunday, March 11, 2007

Following up on an earlier post about the danger posed to Internet radio by a semifascist partnership of businesses and government regulators, I am announcing the existence of a new blog on the subject.

At Radio Dismuke: Save Internet Radio, Internet broadcast hobbyist Dismuke plans to keep his listeners and other interested parties up to date on developments and advise them of opportunities for activism. This blog will be available from the sidebar at least for the duration of this crisis.

Crisis? My use of this word might sound borderline ridiculous until you go over there and do a little reading. For example, in one post, we learn that, thanks to the current moral bankruptcy of some in the recording industry and some in government, certain Internet broadcasters face retroactive financial bankruptcy.

This is no abstract, potential threat that may emerge down the road. It is ugly and it is imminent.

Imagine, for a moment, that you had an ongoing business relationship with an organization in 2006 and have already paid the $2,000 in charges that the organization had billed you for during that year. Now, imagine it is early March, 2007 and a governmental board announces that the rate should have, instead, been somewhere between $10,000 and $40,000 and that you have to pay the balance now retroactively. And, not only that, since January 1 you have been building up a bill with this organization at a rate which, by the end of the year, could result in you owing it up to $100,000.

...

What I have described above is exactly what the Copyright Royalty Board [link added] did on March 2 to Live 365's most successful independent broadcasters who had signed up for the Live 365 X5000 package. These broadcasters are private individuals such as myself who are passionate about the music that they play and broadcast as a hobby, often investing considerable time and expense and usually getting no other reward than the the pleasure they get from doing it and the emails they receive from happy and grateful listeners.

Many of these broadcasters are now facing the prospect of financial ruin and perhaps even bankruptcy. [Happily, Dismuke himself is not among them. --ed]

...

According to Mark Lam, the CEO of Live 365:

"The average X5000 station under these "per performance" rates will find their 2006 royalty obligation around $10,000, with some stations surpassing $40k. At current TLH, without any change in the new rates or streaming, some could find their 2007 SoundExchange bill approaching $100,000."
Again, keep in mind that the individuals he is talking about are not deep pocketed corporations who have lawyers who can fight this out in court. They are ordinary private citizens such as myself who run an Internet radio station as a hobby and are already probably spending more that they probably would like to on maintaining their stations.

Oh, and by the way, my understanding is that the royalty bill on these new rates is due very soon, with no regard for the appeals process which will hopefully overturn all of this.

...

The Copyright Board, SoundExchange and the RIAA, which is behind the actions of both, are not content to just force these stations to go off the air - they want blood and are perfectly willing to knowingly drive decent individuals into personal bankruptcy.

...

Please do not allow the Copyright Board, SoundExchange and the lawyers and lobbiests at the RIAA to get away with it. Do not allow them to bring innocent men and women whose only crime was to have a dream of sharing the music they enjoy with others in a legal and lawful manner to be financially ruined in the name of protecting a technologically obsolete and increasingly irrelevant recording industry from the emerging competition it dreads and knows it will have a difficult time standing up against.

Above all, do not allow them to take away your freedom of choice in the sort of music you are able to listen to.
This is appalling to say the least, and it should be to anyone who uses the Internet to do anything, even if he is completely deaf. Why? Because what we are seeing here is a particularly vicious example of how government regulations that have no obvious connection to freedom of speech are being used to curtail it.

This move is designed to ruin one group of people in such an ugly manner as to frighten away anyone else who wants to do the same thing. This is America, and yet ordinary citizens are facing financial ruin because government regulators can decide after the fact what rates they "should have" paid. How the hell can anyone function when the future whims of some petty functionary have to be be factored in to whatever business he conducts?

This is bad enough, but consider the further implications. Who knows what other bureaucratic apparatus is already in place out there, just waiting for someone else to commandeer it to snuff out something else on the Internet he doesn't like? After Internet radio, what next? And after a few Internet broadcasters are driven to financial ruin, who will be next? And for doing what other completely innocuous activity?

This issue is far bigger than whether, as too many people will put it too dismissively, listeners in a few niche markets suddenly lose their ability to listen to their music over the Internet. Government intrusion into legitimate business transactions may be taken for granted as "the way things work", but it is wrong, and can, besides, unleash all manner of unforeseen consequences later on.

-- CAV

PS: After examining the Live365 site, I must add a major reservation to this post. From the table at the top of the page, it appears that no rates had been set for 2006. Leaving aside whether the government should be involved at all in setting royalty rates, it seems foolhardy on everyone's part to have entered any kind of contract to broadcast anything without a preexisting, agreed-upon rate. If I am drawing the right conclusion from this table, then in this sense, the rate increases are not really ex post facto. (But then, if the government is "supposed to" set the rates, why hadn't it at least set a temporary one?) [Update: Dismuke elaborates further on this in the comments. Based on what he says, I have no problem with asking Congress to intervene on an ad hoc basis. Needless to say, Congress ultimately should not be setting rates.]

Also, for the record, I cannot fully support the aims of Live365, which are stopgap measures at best. Ultimately, the government must get out of broadcasting altogether, including auctioning off the airwaves, and act only to enforce mutually agreed-upon contracts between buyers and sellers of copyrighted works. I would be very interested in hearing more on the various subjects this episode is bringing up from others more knowledgeable than myself.

Updates

Today
: (1) Added a link and a clarification. (2) Added a postscript.
3-12-07: Updated the postscript.

12 comments:

Darren said...

I think it's horrible that the government has nullified a previous established agreement between internet broadcasters and the RIAA, if such an agreement existed (I only say "if" because I haven't read the Small Webcaster Settlement Act and I don't know the details of this fight, your posts on this have been the first I've heard of it). Just imagine the government did this, say, in the automobile industry: Car dealers could go after last year's customers for some arbitrary-determined "fair" value of the cars they sold. Businesses that think they can increase their profits by using the government in this way are mistaken. The ability to make agreements without coercion is a requirement to run a business successfully, let alone to survive as an individual.

But putting aside the issue of retroactive fees, I can't get behind the "Save Internet Radio" campaign. I believe the RIAA has the charge whatever fee they wish for broadcasting rights to all music they own. Nobody's rights have been violated if the RIAA raises their rates. The only choice the internet broadcasters have is to accept the RIAA's terms or not play their music.

I don't understand why the government is involved at all in this issue at all, but if they are I certainly hope they fall on the RIAA's side instead of trying to "balance" the rights of the RIAA and the wants of internet broadcasters.

Gus Van Horn said...

Your position is reasonable and you make a worthwhile point that it might be easy to forget: Government protection of intellectual property (e.g., in the form of protecting the ability to collect fees on the part of copyright owners) is a legitimate function of the government.

I, too, am fairly new to this dispute, but it is plain to me that the method being used here to arbitrate fees is broken, and probably also inconsistently applied.

One complicating factor in this debate is the fact that intellectual property law has changed in recent years to extend the amount of time a copyright is valid by default. (Amy Peikoff makes a good argument in favor of such changes, but Dismuke does point out some pitfalls to the new law.)

Anyone more familiar with the issues Darren brings up should feel free to comment here on them.

Dismuke said...

Darren wrote:

I can't get behind the "Save Internet Radio" campaign. I believe the RIAA has the charge whatever fee they wish for broadcasting rights to all music they own. Nobody's rights have been violated if the RIAA raises their rates. The only choice the internet broadcasters have is to accept the RIAA's terms or not play their music.


I would agree with you here if your premise about it being the RIAA's music were correct.

But that is not the case and is not what is at issue.

What is at issue is the statutory rates that broadcasters must pay for playing ANY copyrighted music - regardless as to whether or not that music was issued by an RIAA member label or by an independent label or by an individual artist who produced it himself.

Basically, the way it is set up is you can do one of two things if you wish to play copyrighted music on the Internet. You can secure the permission from the individual copyright holders of every recording that you play for whatever terms you can work out (free or otherwise) or you can pay the statutory royalty rate established by the Library of Congress. SoundExchange was set up to administer the collection of those royalties.

Personally, I don't think that there SHOULD be a statutory royalty. I think the free market is more than capable of coming up with a royalty rights administration agency - or perhaps multiple agencies. And, I think that competition between such agencies would be the best thing in the world for both artist and listeners.

But the reality of the situation we face is we DO have statutory royalties. And those royalties do NOT merely apply to the major labels which control the RIAA - they apply to recordings self-produced by individual artists and independent labels alike.

For independent artists, this is a very bad thing. Sure, webcasters do have the option of contacting artists individually to bypass SoundExchange - and some do. Many independent artists BEG Internet stations to play their stuff. The problem is tracking down permission is a LOT of work and very difficult to do. As a result, a lot of people will not even go through the bother - despite the fact that most independent, non RIAA artists would DESPERATELY love the airplay and exposure such a would-be broadcaster would have been able to provide.

The RIAA does NOT speak for all artists and does NOT speak for all record labels. Many artists and labels DESPISE the RIAA because they recognize that the RIAA uses lawyers and lobbyists to protect the major labels which control it from the competitive threats that independent artists and labels present.

If our mixed economy is going to have an institution such as statutory royalties, then the rules that go along with them need to be applied evenly and across the board.

AM/FM stations in the USA have been, for decades, totally EXEMPT from paying royalties for playing copyrighted music. This is NOT the case in most countries. In most of the world, broadcasters do have to pay such royalties.

The premise for exempting AM/FM broadcasters is that airplay represents "free publicity" for the record companies.

I have personally always been suspicious about such an argument. But if that argument is valid, or if it isn't but we are going to have such a law regardless and if the GOVERNMENT is going to be involved with it, then the standard needs to be the same to ALL broadcasters REGARDLESS of what technology they use to reach their listeners.

If airplay to an AM/FM radio constitutes government sanctioned "free publicity" then why does it not constitute such publicity when the listener happens to be listening through his computer speakers?

On the other hand, if the exemption from having to pay royalties granted to AM/FM constitutes unjust mooching off the property of copyright owners - well, then that exemption needs to be ABOLISHED. And if it is abolished, the statutory royalty rate structure that is devised for AM/FM stations needs to be consistent with that devised for Internet broadcasters.

It is NOT justifiable for the government - even in the context of a mixed economy type rules - to give certain preferences and favors for one industry that are denied to another. That is EXACTLY what is happening in this situation.

If this is an issue about any industry's "wants" it is about the RIAA's desire to preserve the audience concentrations that exist on FM radio which are crucial to the major record labels' decades old formula for generating "hit" recordings.

30 years ago, the economic and technological barriers of entry for newcomers into the record industry were very high. Only the record labels had the capital necessary to produce records, manufacture them, distribute them and promote them.

Today, thanks to a number of WONDERFUL technological advances, most of that is no longer the case. People these days have recording studios in their garages and professional quality studios can be rented by the hour in any major city. There are countless outsourcers who will press CDs for you for less than $1 each - and it cost VERY little money to commercially duplicate mp3 files(in the form of royalties to the mp3 patent holder). Distribution? That's gone too. Most major music store chains have gone out of business and the primary buyers for CDs these days are people over age 30. Distribution is increasingly Internet based - and it costs next to nothing to distribute music over the Internet.

The ONLY way in which the major recording labels are still economically relevant is in their ability to promote artists through airplay on FM radio stations in major metropolitan areas. Such airplay results in sales and positions on popularity charts which, in turn, leads to more sales. Independent artists simply do not have the resources and connections to get in the door and promote themselves to the program managers at such stations - very few major stations will give them the time of day. That is the formula by which music sales have been promoted for about 50 years.

Internet radio is on the verge of blasting that formula into history.

In a year or two, technology will be able to put Internet radio in people's automobiles and people will have THOUSANDS of stations to choose from. The very day that happens and the audience which is currently concentrated on FM is scattered to the wind the ability of a handful of major market FM stations to promote hit recordings will be over. When that happens, and trends in popular music are suddenly determined by a larger number of much smaller operators and by websites such as myspace.com - well, the edge the major labels will have over the independents and artists who self-promote will go away very quickly.

If Internet radio manages to survive this, in not very many years, there will be no valid need for an artist to sign up with a record label. Artists will most likely produce their own material and, if they lack the desire and skill to promote themselves, there will be plenty of PR type firms that they can contract with to provide such services.

The reason the RIAA is trying to kill Internet radio is it realizes that the major record labels whose interests it represents are economic and technological dinosaurs. They are using their entrenched position to lobby for mixed economy rules designed to eliminate an emerging technology that threatens the last bastion of relevance that they have. THAT is what this battle is about - and THAT is why the Copyright Royalty Board is trying to shut down Internet radio.

I will try to address any concerns people have on this issue. But please realize that, right now, I am in a battle for the survival of one of my top values. As such, I am very busy and might not have time to respond.

Gus Van Horn said...

Thank you for taking the time to respond. I think you are right on the money that the government needn't set rates as you describe.

This is an unenviable battle because so many legitimate and illegitimate functions of government are confounded, and its immediate outcome is guaranteed to have some objectionable elements at best.

The closest parallel I can draw for myself is the fact that I have zero opportunity to conduct the kind of science I am interested in without government funding, and thus government interference. I am loathe to weigh in on the type of policy issues that arise at work for that reason, and will only do so on an ad hoc basis and basically only when I cannot avoid it in good conscience. (And yes, that happened recently.)

You have my sympathy.

Good luck! In a battle of this kind, you'll need it.

Dismuke said...

One complicating factor in this debate is the fact that intellectual property law has changed in recent years to extend the amount of time a copyright is valid by default. (Amy Peikoff makes a good argument in favor of such changes, but Dismuke does point out some pitfalls to the new law.)

There is one aspect of the copyright law changes in recent decades which hit me hard in a very personal way.

Prior to 1973, there was no copyright protection AT ALL for sound recordings in the USA. U.S. Copyright law simply did not recognize such a right. To protect their property, therefore, record companies had to turn to anti-piracy laws enacted by the 50 individual states.

In the 1970s that bizarre oversight was corrected and full copyright protection was granted to sound recordings.

Unfortunately, this left the property status of pre-1973 recordings up in sort of a gray area. Exactly how long are the anti-piracy laws valid before a recording goes into the public domain? What about recordings issued prior to the anti-piracy laws? In the very early days of recording, records carried a notice granting the user a license to use a patented product and expressly forbid unauthorized duplication. Presumably such a license expired when the patents expired - which was many, many decades ago.

Basically, Congress got involved and passed the Sunny Bono act which, in effect, blocks ALL sound recordings DATING BACK TO THE VERY FIRS COMMERCIAL CYLINDERS ISSUED IN 1889 out of the public domain until the year 2067.

Unfortunately, most of the people responsible for this legislation probably had no idea that this was what they were doing - and many probably did not even realize that there WERE sound recordings prior to Elvis Presley.

Keep in mind that most pre-1935 recordings have little, if any, commercial value in today's marketplace.

Under the current laws, an owner of a recording is considered to be the person who has the master copy.

The problem for people such as myself who tend to despise modern music and ONLY listen to recordings from from the pre 1935 decades is that, in many cases, NOBODY KNOWS IF A MASTER COPY EVEN EXISTS. Maybe they exist in the vaults and archives of the corporate successors to the "Golden Era" record labels. Maybe they don't. During the dark days of the 1960s and 1970s when there was widespread cultural contempt for anything associated with the past, many metal masters were destroyed because of the storage expense.

If one wises to reissue a vintage 78 rpm record from the 1920s and do so in a fully legal manner - well, good luck at trying to get the labels to ever get back with you when you ask for permission. Maybe the record label still has the master copy - and maybe they don't. And if they know for sure they don't, they will probably not disclose this information to you. What happens, in practice, is they usually turn their heads the other way when people reissue them as part of small time "labor of love" type projects. It is not worth their while to spend money and lawyers on someone who is issuing old forgotten records on a CD that will probably sell less than 1,000 copies. Nevertheless, this legal situation makes it very unattractive for many people to get in the business of reissueing such recordings. And the major labels who could reissue them without any worrys regard such projects as too small and marginal to be worth their while.

For this reason, most reissue CDs of the music that I love are produced in Europe because, there, sound recordings have always enjoyed copyright permission - and, after 50 years, it falls into the public domain. Therefore, it is, at least for now, legal to reissue such recordings over there. That may change, however, as the American entertainment industry is lobbying very hard to get the EU and other countries to abolish that 50 year policy - and perhaps to put recordings that are now under public domain in such countries back under copyright.

A more detailed look at the issue facing vintage recordings can be found here http://www.projectgramophone.org/TeleRead-Article-01Nov2003.html

softwareNerd said...

From the above, it seems that the SoundExchange option is simply one option. From the above, it appears that there is no law preventing a parallel private agency acting as some type of market / exchange / broker between artists and internet radio broadcasters.

If this type of free-market agency is not prohibitied by law, then why don't the internet radio folk create one?

If this type of agency is not disallowed, then why shouldn't the RIAA be allowed to seek any terms it wishes, via its own agency? The only term that it cannot seek in such a case would be retroactive payment. However, there too, it may legitimately seek retroactive payments as part of a deal for contract renewal. i.e. it can legitimately say, that anyone who wants to deal in the future must also pay something for their 2006 music.

Also, if such an alternative is allowed by law, why is it not legitimate for the RIAA owners to seek the destruction of internet radio. Only if the government is disallowing such alternatives can one make the claim that force (rather then economic clout) is being used. how it it different from Microsoft doing things (like hiding APIs) to ensure that its applications are more suited to its Operating System?

In truth, I do not know enough of the facts about what is allowd and what is not allowed. So, I find it impossible to make a judgement about whether this scheme should be legal.

Gus Van Horn said...

I, too, am less-than-knowledgeable about this subject (and am beginning to wish I hadn't posted on it).

Your argument is good except for the fact that, as far as I can tell, the rates are being set by the CRB, which is a government agency.

Interestingly, the RIAA does seem, as I thought, to be a private organization, although this source makes me wonder (depending on how a "collective agent" is defined) whether it has some sort of state-granted monopoply, which would be wrong, too.

dismuke said...

software nerd wrote:

From the above, it seems that the SoundExchange option is simply one option. From the above, it appears that there is no law preventing a parallel private agency acting as some type of market / exchange / broker between artists and internet radio broadcasters.


Based on my understanding, there is nothing that would prevent such a rival agency from coming about. SoundExchange states that it will (quite properly) refuse to administer royalties for those who choose to sign up for any rival agency - which, to me, implies that there is absolutely nothing that would stop such an agency from eventually being established.

If this type of free-market agency is not prohibitied by law, then why don't the internet radio folk create one?

I think in the long term that something along these lines is going to HAVE to be what happens.


Also, if such an alternative is allowed by law, why is it not legitimate for the RIAA owners to seek the destruction of internet radio. Only if the government is disallowing such alternatives can one make the claim that force (rather then economic clout) is being used.

That would be fine if SoundExchange were simply the RIAA's agency. But it is not. It was appointed by Congress to be the means by securing permission to webcast ANY copyright sound recordings - regardless as to whether the owners agree with the RIAA's objectives or not. So long as this is the case, and so long as it is the GOVERNMENT that is setting the price terms, it has an obligation to be fair to ALL copyright owners.

These rates do not just screw webcasters. They also have the effect of screwing a great many independent and lesser known artists and copyright holders.

When the CRB sets an extremely high rate of .XX cents per play per listner, it is basically making it UNECONOMICAL FOR ANY COMMERCIAL WEBCASTER TO PLAY ANY RECORDING WHOSE MARKET VALUE IS WORTH LESS THAN .XX CENTES PER PERFORMANCE.

If, for example a Brittany Spears recording IS worth .XX cents per per performance - well, does it follow that a recording by some unknown group or some group that appeals only to a nitch audience is also worth .XX per performance? Of course it does not. Some recordings have a higher market value than do other recordings.

The CRB does not take this fact into consideration when seting its arbitrary rates.

By raising the rates so high and having them on a per song per listener basis, the CRB has basically MADE IT UNECONOMICAL FOR A GREAT MANY ARTISTS TO EVER HAVE THEIR WORKS HEARD BY THEIR AUDIENCES. Currently this is the case with such artists on AM/FM because technological limitations limit the number of available stations in any given market. What the CRB seeks to do is create a similar situation on the Internet by making it similarly uneconomical to perform such acts by ARTIFICAL means of very high royalty rates.

Perhaps a large enough webcaster MIGHT be able to sell enough advertising to pay the .XX cents per minute if he, for example, had 10,000 simutaneous listeners. However, a station such as mine could never never sell advertising at the same rate because it might have only 100 simutaneous listeners. There are certain fixed costs that must be met before one can make money selling advertising - and a station with only 100 listeners is nowhere near that point. It is not worth most advertisers time to mess with me and my audience even if I were to GIVE the time away.

The result is that the ONLY internet radio that will be financailly viable is the widest and lowest common denominator stuff that only appeals to a mass audience. The artists who appeal to smaller audiences will have been priced out of Internet radio BY THE VERY SAME AGENCY THAT IS SUPPOSED TO LOOK OUT FOR THEIR INTERESTS.

And those smaller acts DO depend on Internet radio. My email box is full of acts sending me stuff BEGGING for me to include them on my station. They do so, not because they will ever see a dime of SoundExchange royalties (you have to have a LOT of plays before you qualify for a royalty payment), but because exposure on such stations helps them build them an audience and generates sales of their self-published CDs, tee shirts and such. (I always delete such emails because I only play vintage acts. But if I were into modern stuff, I could get lots of free music and other freebies from a wide variety of artists.)

These are the artists who will be totally SCREWED if these rates stand because they will lose a major outlet that they increasingly depend on for publicity. Suddenly the Internet will become like FM where only the mass market acts put out by the major labels will be heard.

It is no different than if the government, in the name of "fairness" to chair manufacturers prohibited chairs from being sold for less than $50 each. If that happened who would benefit and who would lose? Obviously those who would lose would be those who manufacture chairs that currently are not worth $50 at market prices. Those who would benefit would be those whose chairs are already worth at least $50 and would be suddenly facing less competition from below.

Sure, there is a difference here in the examples. Broadcasters DO have the option of contacting copyright holders individually - and some actually do that. But that is HUGE hassle in time and expense - and most would-be broadcastes would simply not bother getting in as a result. Now, one might suggest that such a situation is perfectly acceptable. Ok - but, if so, THEN WHY EVEN HAVE A STATUTORY RATE IN THE FIRST PLACE? The ONLY semi-plausible defense a person could offer for one is that a statutory rate eliminates the need for people to go through such a hassle. But, in reality, what we are potentially facing here is where the statutory rate exists ONLY for the convenience of those who wish to pay for artists who are worth MORE than .XX cents per performance.

My response is that, so long as the government is involved, the rate needs to be set according to the same percentage of revenue model that the other PROs, ASCAP/BMI and SESAC have been using for DECADES. This percentage of revenue IS market based and non-arbitrary because a stations revenue is determined EXCLUSIVELY by market forces - unlike the totally arbitrary rate that the CRB throws out with double diget price increases year after year. Name me a player in a free market that is GUARANTEED year over year double digit price increases. I wish I were GUARANTEED such a raise each year.

I say that if the RIAA wants to charge very high royalty rates for its material and to try and put Internet radio out of business, then IT needs to be the one who forms its OWN agency and withdraws from SoundExchange which is tasked with looking out for the bests interst of ALL copyright holders The RIAA has just as much legal right to withdraw that as anyone else does. Why shouldn't they be the ones to do so?

But the RIAA won't go for that - because what this is about is nothing more than the RIAA trying to protect itself from emerging forms of competition.

I plan to elaborate on the above points in some detail on my blog within the next few days.

dismuke said...

Clarification

In my last comment I wrote near the very end:

The RIAA has
just as much legal right to withdraw that as anyone
else does. Why shouldn't they be the ones to do so?


Actually, it occurs to me that I am not sure if it would have such a legal right. The regulators might forbid it - possibly. If so, then that would be an injustice to the RIAA.

But even if it had such a legal right, the RIAA would not go for it because this isn't about getting more money from royalties. Indeed, if this goes through, royalty collections will go down as there will be fewer stations paying them. What this is about is the RIAA trying to eliminate emerging competition by means of artifical barriers set by the government so as to preserve its relevence for as long as possible in a world where it is becoming increasingly outmoded both technologically and economically.

softwareNerd said...

Okay, I think I now have a better understanding of how the whole thing works.

The RIAA (via SoundExchange) represents the major music companies, some of the larger "independent" music companies and some others.

So, as regards music to which the RIAA's (basically "SoundExchange") members have rights, it is fine that they ask the price they wish, and even fine that they discriminate.

The issue seems to be with regard to music to which the RIAA's members do not have a right. The law currently does not allow the individual artist to make a deal with the individual internet radio provider. The artist can only make a radio deal via a collective agency approved by the U.S. government. Obviously, this is bad law, something along the lines of union-law.

Currently, other than SoundExchange, only one other group is recognized by the US copyright office. It's called "Royalty Logic".

So, the problematic area is the law with respect to recordings by artists who have not joined SoundExchange or "Royalty Logic". These performers will not be paid for their recordings.

However, radio-stations are not banned from playing these copyrighted works. In absence of the artist being a member of an "exchange", the law still allows radio-stations to play their recordings. The stations also have to pay, and the government has designated "SoundExchange" as the organization (it is a "non-profit", something like a union), to collect the payments, at the same rates as they are charging for their members.

It appears (though this is extremely fuzzy), that SoundExchange will actually deduct expenses (including money for things like fighting legal battles) and hold the rest of the money in some type of trust-fund on behalf of the artists.

That's what the law appears to be. I've probably not got it all correct. So, if anyone knows of a significant mistake, I'd appreciate a correction.

dismuke said...

softwarenerd wrote:

The law currently does not allow the individual artist to make a deal with the individual internet radio provider.

No - I am afraid that is incorrect.

An individual copyright holder IS allowed to make a deal with an individual Internet radio provider. And, moreover, doing so does NOT jeopardize the copyright holder's standing with SoundExchange or give other Internet a similar right to such as deal. An individual copyright holder has the right to let ANYONE he wishes use his material. The only thing that SoundExchange forbids the copyright holder from doing is having the work go through both SoundExchange AND some other agency - which is normal and appropriate with regard to such things.

Here is what the ESSENTIAL issue is as far as I see it: We have a STATUTORY license that all webcasters are required to pay in order to broadcast copyrighted recordings - and that rate is set by the government.

I am very suspicious of a statutory rate to begin with - I don't think that there exists a RIGHT for a person to play copyrighted music. The premise of the statutory rate is that such a right does exist but that the copyright holder has to be "fairly" compensated.

The problem is if the government sets the rate too low, copyright holders who do NOT want their material broadcast or who want to charge an arm and a leg for it are denied their rights to do so.

If the government sets the rate to high and the automatic default in place at the moment until something else is either devised or is allowed to evolve is more or less a monopoly, then those copyright holders whose works appeal to a smaller market are priced out of broadcast exposure.

MOST artists and copyright holders WANT broadcast exposure - which is why they pay more money in promotional costs to get such airplay than they would ever see in royalties.

Airplay is crucial in the music industry.

The gap here is between the major record labels whose formula for success depends airplay before large AM/FM audience concentrations which brings about a lowest common denominator mass market and the smaller acts and niche genres who suddenly have this brand new medium where they can get airplay and exposure that was previously impossible to them on stations that had to cater to mass market audiences.

As for webcasters - the primary way that they have been injured is by the fact that they have had to live in a bizarre and nightmarish A is non-A world where the rules of the game are frequently undefined and, when they are defined, they are applied retroactively.

Keep in mind who the webcasters who pay royalties and who are impacted by these decisions are: they are businessmen and hobbiests who choose to play music legally and who seek to play by the rules and keep their broadcasts lawful. If you go to the Shoutcast directory, you will see hundreds and hundreds of stations there - a great many of them operated by pirates who pay no royalties and will not be impacted by this except for the fact that they might see a jump in their audience sizes in a few weeks once legal broadcasters are forced into bankruptcy.

Keep in mind also that licensed webcasters are PIONEERS who have created a WONDERFUL brand new medium which has brought to music the same sort of diversity and creativity that blogging has brought to the realm of opinion. Remember the bad old days when the only serious political commentary you could get was whatever syndicated columnists your local newspaper decided to run on a given day? Well, I remember the bad old days when, because of the limitation of how many AM/FM stations could exist, the only music I could listen to on any station was CRAP that I considered disgusting and an offense to good taste. Internet radio changed that.

Bottom line is - aside from all of the legal issues, the licensed, royalty paying webcasters are innovators and pioneers who have invested thousands and even millions of dollars in capital, let alone years of blood, sweat, effort and tears to bring about a wonderful medium which offers more programming choices and genres of music than a given person will ever be able to check out in a lifetime.

Regardless of what royalty rates should be, when the government deals with such people, a certain amount of RESPECT is due.

Instead, here is very brief summary of what webcasters have had to put up with from our mixed economy regulators:

When webcasting began in the 1990s, our copyright laws did not even HAVE specific provisions for playing copyrighted material online. The last time the laws regarding sound recordings had been updated, buying music meant buying vinyl 45 and 33 rpm records and more people still listened to music on AM than on FM.

In the late 1990s, it was still up in the air as to whether webcasters would even be required to pay ANY royalties for sound recordings. It was still not yet certain whether or not the exemption that AM/FM had for not paying them would be extended to webcasters on the basis of the same logic. When it was determined that webcasters would, in fact, have to pay royalties, nobody knew what those royalties were or how they would be calculated.

This is the environment that webcasters had to operate in prior to 2002 when rates were FINALLY announced. And when they were announced - well, they were VERY expensive and were charged RETROACTIVELY back to 1998 with no provisions for paying back royalties over the course of a long period of time.

Imagine operating a business in a sort of anarchy where there was no provision for you to legally pay for the supplies you used and upon which your business depends. Instead, the supplies were just out there in sort of a property rights no man's land where anybody and everybody could just come along and take what they wanted - a property rights no man's land that had been in existence for your primary and entrenched competitor for DECADES. Then you were told that MAYBE you would have to pay for what you used and MAYBE you wouldn't - and then when the answer was you would have to pay, you were told that the monopoly that would collect the money would eventually get around to figuring out what the price was going to be and charge you at some unspecified period in the future by a method yet to be determined.

How would you, as a businessman, even know how much money to set aside to cover such an eventuality? There is no way of knowing - unless someone has some magical and mystical means that I am unaware of.

And, then, once the rate is announced, it is RETROACTIVE and you have to fork over SOON for FOUR YEARS worth.

Furthermore, when the rate does come out, there is a HUGE double standard as to how it is applied. AM/FM operators who stream simulcasts of their conventional broadcasts were given a rate of .0007 cents per song per listener - while someone who had an Internet only broadcast was given a rate that was exactly DOUBLE or .0014 cents per song per listener.

When those rates came out, that is when I knew exactly what this was all about. It was nothing more than an attempt to make sure that the ONLY streams that would be economically viable were the simulcasts of existing AM/FM broadcasters. By what warped logic does it matter to what the per song per listener cost should be whether a given song that is being streamed is part of a simulcast stream or part of a stream put out by someone such as myself? THAT was when I first realized that the whole name of the game with the royalty rates was to kill off an emerging medium in order to protected the entrenched and threatened players.

Fortunately, that double standard in rates was overturned and provisions were made for small webcasters to pay on a percentage of revenue based enabling niche genres to survive and flourish.

So now we are in 2003 - and those veteran webcasters who still remained standing and were not forced to close down were those who somehow managed to, out of the blue, come up on very short notice in an economy still recovering from the after effects of a dot com crash and 9/11 with the lump sum cash for FOUR YEARS worth of RETROACTIVE royalties that they had no idea in advance of what they would be and, in some years, whether or not they would be owned at all. Nevertheless, they FINALLY had some objective and clearly defined rules that they could operate under. The rules were VERY burdensome both in terms of outrageously high rates and the record keeping and paperwork requirements that smaller broadcasters were harassed with. But, at long last, with rules they could count on and operate under, the industry started to grow and new capital was put into it.

The problem was those rules were set to expire at the end of 2005. And when 2006 got here, the people who were responsible for coming up with new ones had not done so.

So, once again, webcasters were told that they had to operate in a total vacuum with no idea what the rules were and no idea about what they would have to pay for what is the SINGLE BIGGEST EXPENSE of almost any webcaster who plays music.

And when the new rates which SHOULD have been announced in 2005 AT THE LATEST came out in 2007 not only were the new rates VASTLY higher than anyone had reason to guess they would be, the STRUCTURE of the rates was SIGNIFICANTLY changed for a great many webcasters and all of it was applied RETROACTIVELY.

How is one supposed to operate a business under such conditions? How is one supposed to attract investment capital and enter into long term advertising contracts when one does not even know what prices one will be having to pay for the services one is using AT THAT VERY MOMENT and whether or not some three judge panel that finally decides to get around to it will come up with some new and highly arbitrary rates which will be upwards of 125% of one's revenue and force one into immediate bankruptcy?

Again, we are talking about people who are ATTEMPTING TO PLAY BY THE RULES AND BROADCAST LEGALLY.

I don't care what royalty rates may or may not need to be. That is not the way one ethically treats people who are trying to run a legitimate (and, indeed, an innovative and highly VIRTUOUS) business in such a way that plays by the rules and complies with the law.

Yet THAT is EXACTLY how the RIAA lobbyists have pressured their bought and paid for judges and politicians into doing in order to prevent new technologies and emerging competitors from doing to them what similar technologies and competitors are doing to the newspaper industry.

Such is life in a mixed economy - and, quite frankly, it makes me SICK

Dismuke said...

I have one more - this time brief - comment to make regarding this.

I VERY much appreciate the exposure that Gus has given this issue and for going to bat for a cause which means a great deal to me.

The fact that Gus has expressed concerns about putting up his initial posting prior to thinking through all of the various particulars and nuances of the issue that had not occurred to him at the time very much motivated me to want to defend the validity of his initial posting both to him and to those who might question him on it.

I LOVE debating issues such as this. And people are bringing up intelligent objections and observations.

Unfortunately, because I am VERY stretched thing right now for time, I am going to have to back out of further discussion on the issue for the time being. At some point in the future, I will try to come back and address any concerns.

To those who have questions or concerns, please understand that I am presently very actively involved in fighting to preserve something that is a VERY high value to me and which may very well be soon destroyed.

In my mind, there is no debate - I see the issue very clearly. Since time is very short, it is necessary for my focus my energies on motivating those who are more or less already agree with me and resist the temptation of getting involved in theoretical debates about the issue in a context that is vastly broader than the rather narrow one in which I have to fight. I have already had to back out of one broadcasting commitment I had made due to the time I have spent on fighting this issue - and I am dangerously falling behind on some other matters as well. It is absolutely necessary for me right to be much more ruthless in prioritizing.

Thank you again Gus, for calling people's attention to the issue. And, even if you end up reconsidering your position on the matter, you and your readers certainly got an opportunity to explore issues and applications of principles you probably haven't thought much about before.