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Stalemate

A month after the CRB's shattering announcement, Congress responded by introducing the Internet Radio Equality Act (HR 2060). The Act would toss out the board's decision entirely and return the webcasting industry to a percentage-of-revenue model.

In this case, the percentage would be set at the same rate paid by satellite radio, which is 7.5 per cent. Webcasters could also choose to pay 0.33 cents per hour of sound recordings transmitted to a single listener.

In the meantime, Congress has urged Sound Exchange to negotiate directly with such organisations as the Digital Media Association (DiMA), which represents both small and large webcasters alike. To date, the parties have not announced any significant progress. In fact, promising discussions have given way to combative written exchanges.

The two parties have not even gotten to the issue of rates as they are still stuck on the issue of minimum per channel fees and whether those fees should be capped. As discussed, the CRB's overhaul included removing the cap associated with minimum per-channel fees.

Without a cap services like Pandora, which generates an almost unlimited number of stations, would have to pay hundreds of thousands of dollars in fees.

Sound Exchange claims these fees are necessary administrative royalties without which it will be unable to distribute monies to artists and songwriters. But DiMA rightfully claims that these fees are outlandish, since they would total $1bn annually and Sound Exchange only distributes a mere $20m to artists and labels.

Sound Exchange is also making the cap on minimum per-channel fees contingent on webcasters' guarantee that they will a) offer more detailed reporting regarding the music they play, and b) implement technology to prevent streamripping.

Jonathan Potter of DiMA denounced these demands as "unreasonable, unworkable and way off-topic". Although Sound Exchange's attempt to protect the artists and record labels by making such demands may in fact be justified, the question is whether it's the appropriate context in which to make such demands?

Sound Exchange argues that it is the appropriate context since there is no point in discussing updating royalty rates if webcasters won't agree to update royalty report procedures. Currently, webcasters are only obliged to give Sound Exchange sample reporting, that is to say, one day each month. They provide a list of songs played and how many listeners tuned in to hear each one. It is Sound Exchange's opinion that: "Part of being accurate and fair is distributing on a per performance or pay-per-play basis instead of sampling".

Compulsory DRM?

Perhaps the more volatile issue though is the second of the two demands regarding technology to prevent streamripping. After DiMA agreed to "research, identify, review and evaluate the prevalence of stream-ripping", Sound Exchange retorted that it had "mischaracterised" the group's offer and must absolutely agree to implement the technology or else negotiations regarding minimum per channel fees are off.

DiMA claims Sound Exchange is leveraging the fee to impose mandates it's been unable to secure elsewhere. And the battle wages on.

What's next? It seems unlikely that Sound Exchange and DiMA will be able to agree on minimum per channel fees and caps, let alone bargain the actual rates, until they are able to resume a peaceful negotiation that is divorced from such complex issues as reporting procedure and DRM on streaming.

What's more likely is that the current deadline for negotiation will pass and Congress will have to step in in an effort to move the Internet Radio Equality Act to the floor.

US Senators Ron Wyden and Sam Brownback support the Act in recognition of the significance of internet radio which, as they explain in a press release, "is crucial to many segments of business and culture - to small and large webcasters building sustainable businesses; to independent artists trying to make it in a crowded industry; and to million of music fans searching for new diverse music that corporate radio generally does not offer. Innovation and creativity are the winners if internation radio flourishes, and are the losers if internet radio stagnates." ®

Steve Gordon is an entertainment attorney and consultant in New York, and the author of The Future Of The Music Business. He was Director of Business Affairs, TV and Video at Sony Music for ten years. His website is at www.stevegordonlaw.com.

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