Webcasters strike song royalty deal

Reduces per-stream payment to copyright holders

DENVER -- SoundExchange has reached an agreement on the long-simmering Webcaster royalty dispute with several Internet radio services that dramatically reduces the per-stream payments from those set by the Copyright Royalty Board in March of 2007.

The new agreement is aimed at "pure-play" services, defined as webcasters who make most of their money from Internet radio operations. Under the deal, these services would pay either the new per-stream rates or 25% of their gross U.S. revenues, whichever is greater, if they make $1.25 million or more a year, with a $25,000 per-year minimum payment. Webcasters making less than $1.25 million a year can pay either the new per-stream rates or 12% of their first $250,000 in gross U.S. revenues and 14% of any revenues above that, but includes a cap on the amount of music these services can stream.

The new deal is retroactive through 2006 and expires in 2015, 2014 for smaller webcasters. While it is too early to tell how many services will sign on, already larger services like Pandora and Accuradio have signaled their intent to accept the offer.

"It's a great example of a collective effort," says Pandora founder Tim Westergren. "Nobody got exactly what they wanted, but I hope it's precedent setting."

The deal lowers the per-stream rates to $.0008 for 2006, $.00084 for 2007, $.00088 for 2008, $.00093 for 2009 and $.00097 for 2010. That's significantly lower than the original CRB rates of $.0011 for 2007, $.0014 for 2008, $.0018 for 2009 and $.0019 for 2010. Rates for 2011 through 2015 go from $.00102 to $.0014.

But companies can skip paying the per-song streams and instead pay a flat 25% of revenue instead if they start to make enough money, something Pandora's Westergren says is a major element of the deal.

"Per-song rates have always been and will continue to be the single greatest cost center," he says. "We'd all be dancing in the streets if we eventually paid the% of revenue, but it's going to take a long time to get there. We'd have make more than 8-cents an hour in revenue, which is more than broadcast radio has done for a long time, and that's been a monopoly. So that's a tall order."

The offer also eliminates many of the obstacles keeping webcasters from signing onto previous offers. For instance, companies offering more than just Internet streaming services were asked to pay royalties on their gross revenues, including revenues derived from services other than Internet radio. This includes subscription services like Rhapsody, and other bundled and syndicated services. To placate this group, SoundExchange is offering the same rates the National Association of Broadcasters agreed to earlier this year.

This essentially puts both camps on the same terms, thereby earned the rare endorsement of the Digital Media Association.

"For many years one of DiMA's top priorities has been to level the competitive playing field for Internet radio companies as compared to competing radio services, and today's agreement is a step in that direction," said DiMA executive director Jon Potter in a prepared statement. "DiMA anticipates that some of our members will take advantage of this new license."

Whether smaller webcasters will sign up for the deal remains to be seen. First there's the cap on songs streamed, which for 2009 is based on aggregate tuning hours of 8 million. That's up from the 5 million listed in an earlier offer that small webcasters largely rejected, and increases to 9 million in 2011, and to 10 million for the 2012-2014 timeframe. Retroactively, the cap is 7 million for the 2006 - 2008 timeframe.

Also scuttling the earlier small webcaster settlement offer was a provision for payments should a small webcaster be acquired by a larger company. In the current offer, the acquiring company would have to pay the difference in royalties for up to four years retroactively if after the acquisition the new company makes more than $1.25 million a year, or 30% of the transaction value.

Even with the new deal, Pandora's Westergren says to expect some change in service as a result.

"We'll have to put some constraints on heavy listening," he says. "It will only affect a small% of our listeners. But it will still be free."

Making the deal possible was the passage June 18 of the Webcaster Settlement Act of 2009. Under the law, any webcaster agreeing to the new deal will have its terms apply industry wide, and not just with SoundExchange.