SoundExchange Blows Smoke; Webcasters Yawn

This week SoundExchange, the organization created to disperse royalty payments from internet radio to artist, unveiled a new settlement offer to small webcasters. This "offer" is a joke. For a small webcaster looking to strike a fair deal it is completely useless.

The offer is a smokescreen intended to make it appear to Congress, the media, and the public that the RIAA is negotiating in good faith with webcasters. Perhaps the pre-recess threat by Senators Ron Wyden (D-OR) and Sam Brownback (R-KS) to bring the Internet Radio Equality Act to the Senate floor inspired this latest non-starter of an offer.

Such an offer is also part of a divide and conquer strategy -- webcasters big and small, interactive and non-interactivem have remained largely united in this fight. Now that the RIAA (through it's front group SoundExchange, through it's front group musicFIRST) is trying to extend this performance royalty fee to terrestrial radio, the coalition will grow in both size and power. I look forward to having the National Association of Broadcasters on our side in this battle.

Back to the "offer" at hand:

*SoundExchange insists on an annual revenue cap of $1.25 million to define "small webcaster." The revenue cap for over-the-air broadcasters to be considered a small business is $6.5 million -- why such a disparity? Why any disparity?

What this revenue cap effectively does is punish successful internet radio stations for being ...successful! If Webcaster A has revenues of $1,249,999.99 million, Webcaster A pays a percentage of that revenue to SoundExchange and stays in business. If Webcaster B earns $1 more than Webcaster A, the royalty rates increase to those set in the fatally flawed March 2, 2007 Copyright Royalty Board rate hike. Webcaster B would owe more in this one fee than was earned all year, which puts Webcaster B in debt and out of business. Damn that extra dollar earned.

This is SoundExchange insisting that webcasters accept a disincentive to grow as part of the deal.

*The SoundExchange offer only covers the music of its 20,000 members, not the hundreds of thousands of recording artists getting played on internet radio, so if webcasters play anything by anyone not on their member list, the bankruptcy-level Copyright Royalty Board rates come back into play.

*This settlement offer sunsets in 2010, at which time webcasters will have to go through all of this again and not be allowed to mention this deal as precedent when the RIAA once again attempts to gouge and ultimately control what gets played on internet radio.

Please, Congress: re-write the Digital Millennium Copyright Act, or section 114 of copyright law, to update the misguided provisions written into law over a decade ago (which is forever in computer chronology -- most people didn't even have at-home access to the internet in 1998!).

Update (8/23): an interesting take on the motives for the recent SoundExchange smokescreen.

SoundExchange In Possible Legal Trouble

SoundExchange is a non-profit organization created to collect royalties for artists whose music is played on internet and satellite radio. SoundExchange is not allowed to engage in lobbying.

In an open letter to SoundExchange, entertainment lawyer Fred Wilhelms takes SoundExchange to task for attempting to extend its reach while not even being able to handle is current workload:

To be blunt, SoundExchange already has a job it promised to do. It isn't doing it well.

"Reserving" tens of millions of dollars a year, then absorbing that money when you "can't find" the proper recipients is not doing a good job.

Setting a schedule for forfeitures of millions of dollars, and then not making any effort to publicize the forfeitures, is not doing a good job.

Being unable to explain how and why you rely on sampling to allocate royalties, and not even formally admitting you do, is not doing a good job.

Claiming that the amount of money you spend on something clearly outside the limited function you have been granted by law is "proprietary" information, is not only not doing a good job, it is a slap in the fact of the people you are supposed to work for.

Attacking the people who point out that you might be violating the law is not doing a good job.

Deducting the cost of violating the law from the money of your registered members, in open and direct contradiction to the law, is not doing a good job, no matter how many of your Directors approved.

This p2pnet piece, which includes the full text of Wilhelms' letter, is a must-read for those unsure of why SoundExchange is not to be trusted. Wilhelms asks SX where it got the authority to spend royalties collected on a lobbying front group called musicFIRST. musicFIRST, you'll recall, is the guise that SoundExchange Executive Director John Simson and others from SX wore at the terrestrial radio performance royalty hearing I attended last week.

Also, interesting reading from Eliot von Buskirk in WIRED and more coverage of the Senate co-sponsors' threat to bring The Internet Radio Equality Act to the floor if great strides are not made in negotiations this month.