Agreement Reached on Webcasting Royalty Rates

Ladies and Gentlemen, we have an agreement.

News broke today that "pure play" webcasting services (i.e., the bigger online broadcasters who earn the bulk of their revenue through their services) have reached an agreement with SoundExchange — the nonprofit organization that collects and distributes the digital public performance royalty on behalf of performing artists and sound copyright owners (usually the labels).

Back in 2007, the Copyright Royalty Board — a smallish group of judges tasked with rate setting for online broadcasts — ruled that all webcasters were required to pay a single fee. This per-song royalty would increase to 0.19 cents per song in 2010. Webcasters responded vigorously, claiming that the fees would, in many cases, exceed their entire revenue. FMC also weighed in in the form of Congressional testimony, saying that a one-size-fits all approach to webcasting rates would have a negative impact on a crucial emerging marketplace for independent and niche music.

Since then, rate accommodations have been reached for noncommercial broadcasters' online streams — in January, the Corporation for Public Broadcasting paid $1.85 million for the right to digitally broadcast through 2010. Meanwhile, commercial terrestrial radio agreed to pay 0.15 cent per song for online "simulcasts" of their over-the-air programming, with rates set to increase each year up to 0.25 cent in 2015.

Yet, despite Congressional Acts meant to clear room for negotiation and the implementation of an agreement, there was no consensus between SoundExchange and the bigger webcasters. That is, until now.

This new agreement settles a long-held dispute between the bigger webcasters like Pandora and AOL Radio about how much they should pay. Today's agreement will see those webcasters paying the greater of 25 percent of revenue or a per-song fee which, starts at .08 cent (retroactive to 2006) and eventually scales up to to .14 cent in 2015.

Also of note: companies that offer services beyond streaming radio, such as on-demand subscription and download sites like Rhapsody (who also do streaming), will be eligible for the same rates accepted earlier this year by the National Association of Broadcasters for their simulcasts.

The reaction from all parties involved in negotiations has been generally enthusiastic. “This is definitely the agreement that we’ve been waiting for,” Pandora founder Tim Westergren told the New York Times.

In official statement, John Simson of SoundExchange said the agreement would give webcasters "the opportunity to flesh out various business models and the creators of music the opportunity to share in the success their recordings generate.”

Yet it remains to be seen whether the smaller webcasters will sign on. Billboard has more:

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.

We at FMC take it as a positive sign that the parties involved have an upbeat view of the settlement. Plus we're pretty psyched that we can still listen to Pandora at work and know that artists are being compensated!