SoundEx touts digital royalty deal

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WASHINGTON -- The performance-rights organization set up to collect digital performance royalties for artists and the record label trumpeted a deal it made with a handful of small webcasters on Tuesday.

While the deal with SoundExchange and two-dozen webcasters indicates progress on the politically sensitive issue, it also shows as much resistance as acceptance.

Under the deal, qualified small commercial webcasters -- those that earn less than $1.25 million a year -- would pay a royalty fee between 10% and 12% of revenue. Once webcasters passed the threshold and a usage cap of 5 million aggregate tuning hours a month -- a measure of music usage -- they would pay the full commercial rate. The deal will expire in 2010. SoundExchange claims that webcasters who qualify pay the same rate they did in 1998.

SoundExchange executive director John Simson said the deal gives small webcasters breathing space but still gives the artists and the labels something to take home.

"Giving small webcasters more time to build their businesses with below-market rates is something members of Congress wanted us to get done, and we have," Simson said. "We hope that these small webcasters will continue to provide innovative kinds of programming and a rich diversity of music."

The webcast royalty has been controversial since it was enacted by Congress, and the topic became a hot-button item after a panel of copyright royalty judges substantially increased the payment. It is split 50-50 between copyright owner, typically a label but sometimes the artist or other entity, and the performer.

SoundExchange reached a separate deal in August with the industry's big players in the hope that it would ease government scrutiny.

"Ultimately, we seek to address these issues as quickly and reasonably as possible and move on with the business of Internet radio so that it can continue to grow and flourish as an exciting medium for the delivery of music," SoundExchange general counsel Michael Huppe wrote to lawmakers when that deal was struck.

Making a deal with small webcasters is politically expedient. It's much easier for lawmakers to defend mom-and-pop operations and start-ups than it is to defend large, well-funded corporations.

While Tuesday's announcement could help SoundExchange in its battle on Capitol Hill, it isn't being universally embraced by the webcasting community.

David Oxenford, an attorney representing small webcasters, said his clients have yet to make a deal.

"My clients, the ones who are party to the CRB proceeding, have not reached a deal," he wrote in an e-mail. "My clients, who want to grow real businesses that are not artificially constrained by SoundExchange's arbitrarily chosen limits, are still hoping to reach an agreement with SoundExchange on something that will work for them."

Some stations are taking matters into their own hands.

Smoothjazz.com, a station in Monterey, Calif., is asking artists to waive their rights to the royalty in exchange for airplay.

Sandy Shore, the station's founder, says that she can't afford to pay the royalty even at the reduced rate.

"What we've done is offer them a deal so that we can exist," she told The Hollywood Reporter.

Shore contends that stations the size of Smoothjazz that allow artists to sell CDs right off the site help the artist as much as the webcaster.

"Not one artist has said: 'You're trying to rip us off,' " she said.

It's up to the artist to decide whether the promotional value of her station is worth forgoing the payment they'd receive through SoundExchange, she explained.

"If they want to waive so we can play them, then they do; if they don't, they don't," she said. "It's totally up to the artist."

It was unclear how many webcasters were asking artists to waive their right to the royalty. Simson said he knew of a few others.

"Unfortunately, they can legally do this," he said. "Clearly, though, you want to counsel artists to get good legal advice before they do something like this."

Wallace Collins, an entertainment industry lawyer, said he didn't think signing the waiver is a good idea.

"Not just for the coin's sake. I'd advise against it because you're undermining the system," he said. "We're trying to get a system in place where artists get paid, and having all the artists opt out would undermine the system."
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