Web spinners and royalty collectors

Today, Hanson and Rosenthal debate how and whether webcasting should be open to hobbyists, or only to those who can generate revenue for performers and labels. Later this week they’ll discuss the promotional value, economic challenges and shifting categories of airplay.

How you learn to love music
By Kurt Hanson

Jay,

For the past 70 years, broadcast radio has been the primary means by which American consumers have discovered new music. For example, in my case, radio airplay is how I first discovered the Royal Guardsmen, Blood Sweat & Tears, the Fifth Dimension, and, later, Steely Dan, the Eagles, and Jackson Browne—artists I’ve subsequently purchased hundreds of dollars’ worth of releases from. (Full disclosure: I actually only spent about $1.90 on the Royal Guardsmen; they lost me at “Snoopy’s Christmas.”) You could probably tell the same story about how you discovered music, too.

Even today, it’s radio airplay that’s the primary driver behind hit artists like Britney Spears, Maroon 5, and Akon. Radio airplay is the lifeblood of the U.S. record business—and the primary driver behind its most profitable releases.

But one limitation of broadcast radio has always been its “bandwidth.” There’s only enough spectrum allocated to the FM band to squeeze in about 20 radio stations in a typical U.S. city, which means that there’s only enough room for about the 20 most popular music formats—country, top 40, R&B hits, ‘60s oldies, smooth jazz, alternative rock, classic rock, adult contemporary, Christian contemporary, and so forth.

Musical genres that aren’t one of the 20 or so most popular don’t make the cut. Thus, in virutally all U.S. cities there isn’t a full-time blues radio station, or mainstream jazz, or Broadway, or ‘50s oldies, or indie rock, or Celtic, or cabaret music, or electronica. And in fact, in most U.S. cities there’s no room for classical music, or pop standards, or singer-songwriters, or in some cases (e.g., New York City) even ‘60s oldies!

Satellite and Internet radio, fortunately, have come along to provide a solution to this problem of limited bandwidth for both the fans of these styles of music and the musicians and record labels who specialize in these genres.

In the cases of XM or Sirius, there’s enough “bandwidth” on the satellites for about 60 music channels. Thus, pop standards, Broadway, and mainstream jazz make the cut... but Celtic, cabaret, and opera don’t. The rules are the same as for FM; it’s just that “20” has become “60.”

In the special case of Internet radio, however, it’s a whole new world, because “bandwidth” is essentially unlimited.

Thus, there’s room on my company’s service, AccuRadio.com, not just for a Broadway channel, but for an all-’60s Broadway channel, a “Now Playing” Broadway channel, and even an all-Sondheim Broadway channel. Internet-based delivery also gives us the freedom to offer a Guitar Jazz channel, a Native American music channel, a Pop Standards channel featuring only rock artists (e.g., Brian Ferry covering a Cole Porter song), and, surprisingly (in that it actually has some audience), an all-oboe Classical channel!

In all of these cases, we are helping make fans of those styles of music aware of artists and CDs that they didn’t know existed. Plus, we offer convenient links on our media player to Amazon, so as to make the purchase of the CD that’s playing a simple two-click process. Our listeners tell us that they’re buying more CDs than ever before, because they’re discovering things they never could have discovered before.

This, in a nutshell, is how Internet radio operates. If you’d like to read the comments of over 63,000 Internet radio listeners explaining the relationship between Internet radio listening and CD purchase behavior, click here.

And what I’ve described in terms of AccuRadio is not the “long tail” of Internet radio formats by any means. On services like Live365 and Shoutcast, you’ll find webcasters offering such obscure formats as Christian bluegrass, barbershop quartets, videogame soundtracks, dancehall reggae, Japanese pop, French chansons, and much, much, much more.

So, Jay, the question posed for today’s Dust-Up is this: If you’re a commercial operation streaming an all-oboe Classical channel, there’s no question that it’s appropriate under current copyright law to pay certain rights fees to copyright owners as one of your business expenses. But if you’re a hobbyist who wants to stream, say, a barbershop quartet radio station, with no desire to turn it into an income-generating business, is it necessary and appropriate to pay such fees?

On a philosophical level, I believe I would argue: Yes, it is; you should. After all, a record label went to the time and expense to produce the CD you’re playing. It’s copyrighted material. And, rightly or wrongly, the Digital Millennium Copyright Act says that a royalty should be paid on top of whatever promotional value the label and musician get when you expose that CD to new listeners. And the minimum royalty payment of $500 per year works out to only $9.61 per week, which is not a wildly-unreasonable expense for a hobby.

On a practical level, though, I think it might be appropriate to have some sort of de minimis cutoff. Many of the stations you’ll find on Live365, for example, rack up less than 700 hours of listening per month, meaning that they have, at the average moment, only one listener (or less). Is such a hobbyist—who is expressing his love of a certain genre of music—harming the label, or the musician, or other webcasters, or the principles of copyright law by his efforts? I can’t imagine so. Is it really necessary to make him hire a lawyer to review legal documents and send filings and reports to SoundExchange, while also taking $500 from him? I would think not.

In any event, if the recent Copyright Royalty Board decision were repealed or revised to the point that would allow the continued existence of companies like Live365 and LoudCity—aggregating firms that can serve the hobbyist market—this may be a moot point, as the aggregators could add some monetization to the webcast and thus cover reasonable fees.

But my key point, Jay, is that a fan of barbershop quartets—i.e., the individual who wants to introduce others to his love of the genre through a hobbyist webcast—is a friend of the copyright owners, not the enemy, and should be treated as such. (Doing otherwise would be just another example of the record industry cutting off its nose to spite its face.)

Kurt Hanson is Publisher of RAIN: Radio And Internet Newsletter, the leading trade publication for the field of Internet radio, and CEO of AccuRadio.com, a popular multichannel Internet radio property that reaches almost half a million unique listeners per month. He previously worked at WLS/Chicago and WLUP/Chicago.

Discover the music, then pay for it
By Jay Rosenthal

Kurt,

While I agree with your philosophical conclusion that “all” webcasters should pay royalties, even “hobbyists,” I totally disagree with your conclusion that as a “practical” matter, “hobbyists” should be granted a legislative waiver or discount. The only real practical solution is an agreement reached via a private market-based negotiation between the webcasters and SoundExchange -- perhaps incorporating some provisions of the Small Webcaster law, or direct licensing.

Reaching a legislative solution is very problematic. Consider these hurdles: How would the law define a “hobbyist?” What happens when a hobbyist’s webcasting station turns into a commercial enterprise? What if the hobbyist starts streaming major label releases? What if the hobbyist moves from barbershop quartet music to indie blues? Satellite radio services XM and Sirius don’t have a barbershop quartet station, but they do have a blues station, and on and on. It is a moving target, almost impossible to define with enough precision to have any real meaning.

But putting aside the definitional problem, there is an even bigger philosophical question -- why does a hobbyist “deserve” a break in the first place? The most common argument is that big media do not play indie music, and indie artists and labels would receive free promotion they otherwise would not receive. While I wish this were true, I am just not as convinced as others that this type of promotional webcasting greatly benefits artists or labels.

There may be some anecdotal evidence that some listeners “find” new artists and then “buy” the music. But I think the point is way overblown. I am more inclined to believe -- based on the experience of my artist and indie label clients -- that some listeners “find” new music and then, more often than not, illegally download the music.

This is very similar to the fallacious argument made by those supporting free peer-to-peer (P2P) file sharing services. They don’t see the activity as substituting for a sale; they see it as “turning on” new fans who eventually buy the music. To the contrary, I have never seen any convincing evidence to support that conclusion, even when applied to hobbyist webcasting. If it were true, we would be in a golden age of music sales. Instead, we are faced with possibly the worst depression this industry has ever faced -- not because the music is bad, but because P2P has devalued music. I know that you are not proposing that hobbyists pay nothing, but you are proposing that if they pay much less, somehow everyone wins. I don’t see it that way; I see it as yet another example of the devaluation of music, and I don’t know how much more of that artists can take.

I also do not buy into the idea that hobbyists deserve a break simply because they are hobbyists. The cost of a computer, electricity, rent, chairs, et cetera must be borne by the webcaster. Why should the music be the main focus of cost cutting? If you really want to cut costs, you should petition the electric company, Apple or your landlord for a break. Indeed, this sounds silly -- but why doesn’t it sound silly when applied to music? We are conditioned to think that music “should” be cheaper or even free. That thinking must stop.

There is nothing wrong with the suggestion that a hobbyist should find a new hobby if he or she cannot afford the rates set by the Copyright Royalty Board. That doesn’t appreciably hurt artists, indie or established, but puts everything into perspective and promotes a very simple idea -- webcasters must build business modals incorporating the rates set by the Copyright Royalty Board. Those rates will ensure that artists receive proper incentives to create new music. And if a hobbyist is still determined to engage in webcasting, then he or she must pay the piper or engage in direct licensing with artists and labels.

If the hobbyists really loved what they are doing, then they should pay the going rate. One would think they would find great enjoyment in sharing an artist’s music with the world and sharing some of their hard-earned money with the artist at the same time. Now that to me sounds like a satisfying hobby.

Jay Rosenthal is a partner with the Washington law firm Berliner, Corcoran & Rowe, LLP, co-legal counsel to the Recording Artists’ Coalition and a SoundExchange Board Member. He is an adjunct professor of entertainment law at the George Washington University School of Law and the Washington College of Law of the American University.