New SoundExchange Settlement Saves Internet Streaming

The July 7th 2009 settlement between commercial webcasters and SoundExchange creates an exciting and innovative royalty scheme for commercial internet radio streaming sites. The agreement, authorized under the Webcaster Settlement Act of 2009, determines royalty rates based on the volume of streaming by the internet radio stations, the size of their audiences and the company’s business model. This is a significant alternative to the 2007 Copyright Royalty Board regulations, in which each song streamed, per listener, is destined for an increase to $.19 in 2010, regardless of significant business and economic factors.

The 2007 ruling continued to flame the existing battle between record labels and internet radio sites. Since 2002, webcasters have been protesting the Copyright Royalty Board’s royalty rates claiming that the mandated high fees would shut down internet radio stations overnight – the royalty fees would exceed the stations’ revenue. The record labels and recording industry have argued that denying royalty payments to artists only serves to subsidize webcaster businesses and have fought to maintain their copyright mandated revenue stream.

But the new July 7, 2009 settlement is hailed as a “groundbreaking approach” by SoundExchange Executive Director John Simson, and “the agreement that we’ve been waiting for” by Pandora CEO Tim Westgarten. Pureplay webcasters can now choose between the existing 2007 royalty regulations or the new 2009 SoundExchange alternative rates and terms in which copyright owners (labels or music artists) can share in webcasting revenue and growth. SoundExchange is the government designated non-profit company that collects and distributes digital performance royalties.

The new royalty structure provides that large webcasters, including Pandora and Slacker, pay royalties to SoundExchange of either the greater of 25% of their total revenue or an
escalating rate per performance, initially set at $.08 which will increase to $.14 per by 2015. Smaller pureplay webcasters with $1.25 million in revenues or less, such as AccuRadio, Digitally Imported and RadioIO, have the option of paying 12 to 14% of their revenues or expenses. All webcasters are required to pay an annual minimum fee of $25,000, which is then applied to royalties owed.

The 2009 webcasters/SoundExchange settlement recognizes the growing importance of streaming music for the music artist, as listeners are increasingly discovering new talent via online streaming. In turn, the record labels substantially benefit by internet stations’ broader purchasing audience than those typical broadcast venues can provide. And the new agreement creates a more flexible economical approach for webcasters in keeping with their financial health and viability. Ultimately, this can only be a win-win situation for online listeners.