How much you pay to stream over the Internet will be determined over the next year. As you’ve been reading this week, filings with the Copyright Royalty Board have begun. The NAB is fighting on your behalf, which includes a special consideration request for those of you in the smaller markets. The questions that remain are: What happens now? How closely do you need to watch this? What should you do, if anything, to express your opinion? For answers to those questions and to sort out the entire royalty issue moving forward, we turned to broadcast attorney John Garziglia.
by John Garziglia
Streaming is too expensive. Streaming costs are impossible to predict. Streaming is not a profitable enterprise for radio stations. Why should radio stations pay record companies for the privilege of having music played when record label promoters actively seek spins on radio stations? These are all legitimate concerns voiced by broadcasters who stream or who wish to stream.
The Copyright Royalty Board (“CRB”) proceeding to set the rates for broadcast station streaming in the 2016-2020 time period, informally known as “Web IV”, is now in the phase in which initial positions are being presented. The CRB, and the parties before it, are engaging in “discovery” including the submission of direct cases. The discovery/direct case phase goes through December. Then there is a rebuttal phase. In April and May 2015, there will be a trial in which testimony is offered and questions are asked. Under the law, a CRB decision must be issued no later than December 2015.
The National Association of Broadcasters (“NAB”) recently weighed in with its filing on streaming rates. The NAB advocates that the CRB should “start from scratch” and set the rates to what would be “agreed upon by a willing buyer and a willing seller in an ‘effectively competitive’ market, as required by the Copyright Act.”
In support of the broadcasters’ position, NAB notes that the last agreement reached by broadcasters on streaming rates was a “take-it-or-leave-it result between a monopoly seller and a buyer that had no viable alternatives”. The NAB argues that to the extent a broadcaster provides valuable promotional benefits to record companies from the streaming of recordings, a recording company would be “willing to accept a lower – and in some cases, even [a] negative – price” in recognition of the promotional benefits of playing recorded music on established and popular radio stations. The NAB’s filing is available HERE
For all but the smallest commercial broadcasters engaging in streaming, radio stations now pay per-song/per-listener for streaming recorded music. It is impossible now to forecast what will be the result of this Web IV rate setting proceeding. If you wish to enmesh yourself into the kind of decisions that are rendered by the CRB, its 83 page decision in the “Web III” proceedings is available HERE
The current rate paid by commercial broadcasters for streaming is $0.0023 per performance, with a minimum of $500/year. Per-performance refers to each listener listening to a single recording. An average of 100 listeners per year results in a cost to a streaming broadcaster in the $25,000 range. One of the broadcasters who will testify as a witness on behalf of the NAB suggests that if the per-performance rate was lowered to $0.0005, which for 100 average listeners would result in an annual charge in the range of $5,200, that might be a rate at which broadcasters could pursue streaming on a profitable and sustainable basis.
NAB’s argument, stripped to its essence, is that with lower streaming rates, more broadcast stations would choose to stream, streaming would then be a sustainable business enterprise, and recording companies would profit both with additional streaming revenues and with the promotional value of spins on radio which is the proven route to a hit record.
It is possible that the CRB could move away from a per-performance rate entirely and base streaming rates on a percentage of revenue such as is now the case with songwriter fees. If the CRB sticks with per-performance fees, the rates could go substantially higher, be reduced or stay the same.
Whether the CRB sticks with the per-performance metric or moves to a different measure, the CRB is required by law to set the rate based upon what a willing seller and willing buyer would pay. Unfortunately, it is difficult to imagine a real-life test scenario for establishing what a willing seller and willing buyer would pay for streaming recorded music. Possibly if every new recording released in an upcoming single month had to be individually negotiated between recording company and streaming broadcaster, it might become apparent just what a willing broadcaster would pay, and a willing recording company would accept, for a recording to be played on a broadcaster’s stream.
This Web IV CRB proceeding illustrates the importance of broadcasters having a unified voice as radio moves forward with new technologies. One way or another, streaming is going to continue to cost broadcasters money. The only question is “how much”.