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March 24, 2007
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SX Offer to Internet Radio Means Nothing

This is good stuff! According to Friday Morning Quarterback, "SoundExchange Offers Extension To Small Webcasters." Radio Ink is reporting "Small Internet Radio Sites Offered A Rate Break." And the bastion of radio industry news, Radio & Records, has the headline "Small Webcasters Get A Break In Royalties."

"The entire broadcast industry is going to be subjected to these online rates for its internet streams, too." Told you. This is good stuff. The webcasters are going to be able to survive now that SoundExchange has granted them an opportunity to pay a rate that SE (in its own press release) acknowledges as needed to survive, to grow. Only, that online radio station better not grow too big, because then it will have to pay royalty rates that will bankrupt it.

Good offer. Thanks SoundExchange. You've just succeeded at suckering three major radio industry publications into presenting your story in a way that makes it sound like anything than what it is, a ploy to pander to "the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property to 'initiate good faith private negotiations with small commercial and noncommercial webcasters with the shared goal of ensuring their continued operations and viability.'"

That part in italics above comes straight off of the SoundExchange press release announcing this farce which, if read from the internet radio station's view, is an offer to keep them small. Live 365 and Pandora, along with a number of other successful online stations, will still have to pony up those unreasonably high royalty rates, in effect, putting them out of business. Here is the response to SoundEchange [no longer available]. It's titled "Proposal Would Decimate Internet Radio Industry."

The problem is that we have major radio publications announcing this "offer" as if it's a bona fide, well thought-out plan to appease the internet radio community. It is a PR stunt, not a good faith offer, yet every publication bit.

How do you think the webcasting community learned about it? No station owner I know received this "offer" direct from SoundExchange. It came to them through the press. (It's fair to say that I hold an insider's seat in this entire episode called CRB royalty rates.)

This "extension" or "rate break," as it is being billed, will be rejected by any webcaster who's serious enough to envision growing their station. Plus, as it exists, the SoundExchange "gift" of extending "to small webcasters through 2010 the terms of prior legislation known as the Small Webcaster Settlement Act (SWSA) with some minor modifications" (my italics) leaves some hurdles - such as the part reading: "The proposal includes both a revenue cap and a usage cap to ensure that this subsidy is used only by webcasters of a certain size who are forming or strengthening their business."

What happens after they reach this "usage cap"? The station becomes subjected to the same rates endorsed by the Copyright Royalty Board in March. Voila! Royalties shoot right back to where it costs more to operate a station than what that station can possibly make in revenue. Another shooting star will bite the dust, and the record industry increases control over distribution of music. Worse, you void any motivation for online station owners to improve their programming past a certain level, to "grow" their audience.

Here's where I'm having a rough time reading about all this SE goodwill being featured in radio industry trade magazines: Now that the NAB has endorsed SaveNetRadio's position of opposition to the CRB's rate increase (which NPR did long ago), why are the industry publications not investigating further the actions of SoundExchange - digging for the reasons behind the actions? Instead they're printing articles that run SE press release sentences, even paragraphs, verbatim (in some cases without quotes, making it appear as if this is an acceptable position by the article's author).

The entire broadcast industry is going to be subjected to these online rates for its internet streams, too. And SoundExchange already announced its intentions of pursuing broadcast radio for the same performance fees. If the radio industry perceives what's within this extension as being anything other than a method for SoundExhange to avoid further criticism, it places itself in danger.

I'm still waiting for someone in the record industry to explain how every song is worth an equal amount in royalties. If you agree that songs - based on popularity - are not worth the same, this whole rate equation is thrown upside down. Which gets us back to the central question: How much online promotional value is being given freely to the recording artists who are allowing the record industry (through SoundExchange) to crush internet radio?

How many artists are being misled because they caught a headline in a major radio industry news publication? How many will not be heard if independent internet radio goes silent?

Like I said. This is good stuff. Until you dig deeper.

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