SoundExchange: Let’s see the math
p2pnet.net news:- Beleaguered Net webcasters have gained a small amount of breathing space.
The Copyright Royalty Board’s March decision on royalty fees paid by Net radio stations for streaming music for 2006-2010 means they’ll sky-rocket, said America’s National Public Radio (NPR).
The new fees will adversely affect Net radio owners, large and small alike, is and was the general consensus. However, ex-RIAA (Recording Industry Association of America) body SoundExchange differs, using executive director John Simson to spread The Word. “Just because you don’t like the outcome of a fairly played game doesn’t mean you should ask the referee to order the game replayed,” he declared
The first payments of the ‘new and improved’ fees were due on May 15, but, “On the same day that many webcasters were on Capitol Hill lobbying for the Internet Radio Equality Act, the Copyright Royalty Board issued its Final Determination of Rates and Terms today, and it was published in the Federal Register,” says the Broadcast Law Blog’s David Oxenford, observing, “That action starts the clock ticking on appeals which must now be filed in 30 days.
He goes on:
The statute governing the Copyright Royalty Board allowed the Library of Congress to review the CRB decision to determine if the Librarian (through the Copyright Office) saw any obvious errors of law. Apparently, the Librarian found none (though that does not mean that there are not issues that can be raised on appeal), leading to the publication of the decision in the Federal Register. Appeals are due 30 days after that publication. On that date, parties file a Notice of Appeal, which provides notice to the Court of Appeals that parties believe that the decision was in error. After those notices are filed, the Court will set briefing schedules and oral arguments. The appeal process that can take a year or more before a decision is rendered
Meanwhile, it appears SoundExchange is giving Simson a well-earned rest, says entertainment law expert Fred Wilhelms, continuing: >>>>>>>>>>>>>>>>
He’d obviously suffered a major meltdown with raving about artists having to refund money to big webcasters if IREA passes. But John’s a trouper, and I am sure he’s not finished making up numbers for SoundExchange and the RIAA, he just needs some downtime to cool off after careening off into pure silliness.
They do let Simson get in one parting shot, however. The press release quotes him as saying:
“Not only is Internet radio not going to die, it’s going to continue to flourish. The statistics show it is a vigorous business dominated by large businesses that can easily pay fair market rates while also having room for small webcasters and niche services. In fact, these same large services stream in the United Kingdom and Europe where current rates are nearly identical to the rate set by the CRB for 2007.”
Thanks to those UK royalty rates, there’s a handful of big broadcasters over there, mostly simulcasting terrestrial broadcasts, and nothing to speak of in terms of “small webcasters and niche services.” If anyone actually needed real proof of what desolation the CRB rates would create here, the UK is the right place to look. Simson obviously didn’t look any farther than the UK rate schedule before jumping to another erroneous conclusion, or he did look, and he likes what he sees.
Neither option is terribly comforting to webcasters closer to home.
It’s good to know, however, that SoundExchange has walked away from Simson’s claim of a $50 million “windfall” for large webcasters, even if they have replaced it with an equally dubious $10 million. They don’t provide anything to support either assertion, so who really knows where these numbers come from?
That “windfall” stuff creates another situation where SoundExchange is saying one thing and maybe doing another.
Remember just last week when Simson said the organization was “reaching out” to webcasters, large and small, to find a resolution to the problems caused by the CRB rates? If SoundExchange is now saying that giving the big webcasters a discount is doom for artists, you have to wonder exactly what it is they are supposedly negotiating with those webcasters, if they aren’t going to be giving a break on the rates. (Those critics who have suggested that the “reaching out” announcement was just a sham may actually have a point here.)
I do wish they would come right out and say that there’ll be no discounts, but it seems their objection to that “windfall” from IREA is really only that they are not going to be the ones responsible for giving it to the large webcasters in return for direct payments to labels and the gutting of the artist share of the revenue. When you come down to it, the difference to SoundExchange between “windfall” and “market rate” is who is doing what to whom.
So, SoundExchange brings in Barrie Kessler to give John Simson a well needed breather. And Kessler sounds almost rational compared to Simson, which might have been the strategy all along; have Simson make angry and inaccurate statements, and then have Kessler step in and make quieter, but still inaccurate, statements. It’s a variation on the old “good cop, bad cop” gambit. But in this case, it’s more like “crazy misleading cop, calmer misleading cop.”
When you look closely at Kessler’s statements and that purely Orwellian “Fact Sheet” appended to her press release, it is clear that this particular
SoundExchange apple hasn’t fallen far from the RIAA tree, either. She “consulted” for them before joining SoundExchange, where she’s supposedly responsible for designing and implementing the Royalty Distribution System software that requires SoundExchange to reduce the amount of royalties paid out to artists by 40% off the top as a reserve. I’m surprised they haven’t nominated her for a Nobel Prize based on that gambit.
The clearest example of what Kessler is capable of saying with a straight faces comes directly from the press release.
At one point, talking about the number of Internet broadcasters, she says: “The review of 2006 webcasting royalties paid SoundExchange shows that 82 percent of royalties were paid by the 10 largest webcasters, which make up 4 percent of all paying services.”
Let’s do the math, and show the work:
If 10 webcasters equal 4% of “all paying services,” how many paying services are there?
10/.04 = 250.
So, by her figures, there were 250 paying Internet services in 2006.
But wait. A couple paragraphs later, Kessler says:
“Since 2004 there has been a major jump in paying services – growing from 430 distinct webcasting services registered and paying royalties in 2004 to 989 in 2006, demonstrating a huge jump in listeners and exposure for these businesses.”*
SoundExchange’s COO can’t even keep straight how many webcasters she says are paying them royalties. No wonder they want to reduce the number of webcasters, the organization clearly just can’t even count the current crowd, let alone deal with them. I’m not sure which is more disconcerting; the discrepancy in their own numbers or the fact that their COO apparently didn’t think anyone would notice.
So, why should we think that any other number in the press release is more accurate?
Even stranger is the reference to Microsoft as a major webcaster. Perhaps Kessler will tell us how much in royalties Microsoft paid as a webcaster for 2006.
So, why should we think that any other assertion of “fact” in the press release is more accurate that that?
Just for more fun, let’s look at those “Facts” Kessler does present. Check your disbelief at the door.
1. Webcaster royalty rates have essentially remained flat since 1998. That’s a fact. Kessler should get credit for actually stating a fact. Unfortunately, she fails to explain why a higher rate should be imposed just because time has passed.
The mere passage of time is hardly an argument in favor of raising a rate, or we might be all paying Federal income taxes of 90% or more by now. It should be noted that the interest rate on US Savings Bonds have fallen from about 5% in 1998 to about 3.7% today. Based on that 26% decline, the steady webcaster royalty rate over the same period looks positively robust.
We should keep in mind, as SoundExchange so proudly announced periodically over the past few years, how royalty receipts climbed strongly every year, even though that royalty rate itself didn’t change. The number of paying services got larger (unless Kessler’s “250″ was her right guess), and the number of listeners went up, so the revenue went up, even with a static royalty rate.
There’s a certain charm to Kessler’s use of this fact as an argument in favor of raising the royalty rate. The next time I have to discuss royalty payments from an RIAA label that’s still paying a client at the same rate in 2007 as they did in 1967, I’ll point out the “fact” that there’s been no increase in 40 years, so there should be one now. Thanks to Kessler, I’m sure that logic will impress the label.
2. For 2006, the increase is only a 5 percent increase over the earlier rate.*
Just incorrect. Here’s the math:
1998- 2005 Per Performance Royalty rate: $.0007
2006 CRB Per Performance Royalty rate: $.0008
That’s a 14.3% increase.
But you have to dig further into Kessler’s misstatement. Most webcasters, and, as far as I know, all small and non-commercial webcasters, didn’t even pay the 2005 Per Performance rate. Instead, they paid a percentage of their revenue. Since every webcaster probably had different revenue, every one of them paid different royalties.
Now, given her expertise in setting up royalty programs, maybe she’s worked up an “apples-to-oranges conversion application” that’ll support her assertion that the actual increase between 2005 and 2006 is only 5%, but she really gives no hint where she came up with this number.
In other words, she hasn’t shown her work.
The rate for 2010 reflects only an 8 percent annualized increase in rates since 1998.*
No.
1998-2005 Per Performance Royalty rate: $.0007
2010 CRB Per Performance Royalty rate: $.0019
1998-2005 rate in 2010 at an annual 8% rate from 1998: $.00176
Kessler is off by a full 8%, even by her own parameters. If, instead, you look at the real rates of increase, you see:
| 2005 to 2006 | Increase | Aggregate Increase |
| .0007 .0008 | 14.3% | 14.3% |
| 2006 to 2007 | . | |
| 0008 .0011 | 37.5% | 57.1% |
| 2007 to 2008 | ||
| .0011 .0014 | 27.2% | 100.0% |
| 2008 to 2009 | ||
| .0014 .0018 | 28.6% | 157.1% |
| 2009 2010 | ||
| .0018 .0019 | 5.5% | 171.4% |
This actually works out to an annualized increase of 22.6%.
Beyond that, Kessler engages in fantasy math by wanting everyone to ignore that there was no increase contemplated or even asked for between 1998 and 2005.
It isn’t as if the ultimate royalty rate decisions that covered the early years were made with any suggestion that subsequent decisions would be retroactive. She might as well have picked some other equally arbitrary date. If she went back far enough, say to 1492 or 1066, she could say the annualized increase was infinitesimal and that the CRB rates are really nearly the same as the current rates, and she wouldn’t have had to underrepresent the actual increase..
3. The CRB set a “per stream” rate for 2007 at $0.0011. Thus, a consumer who listens 40 hours a month to one channel playing 15 songs an hour will cost the webcasters 66 cents a month in royalties – a sum far less than what some webcasters charge listeners for subscriptions or can recoup through other means such as advertising or merchandising.
If every station had a single “40 hour” listener, and only had to pay SoundExchange, Kessler’s analysis might have some merit. Needless to say, a station with 1000 “40 hour” listeners will be paying 1000 times that 66 cents, plus paying the other PROs, the ISP, the station staffing and programming costs, etc. All those pennies mount up.
It’s not the pennies per individual listener that cause the problem for the webcasters, it’s the pennies from ALL the listeners.
4. In an analysis published in Royalty Week, Ben Newhouse, working from a recent Bridge Ratings report showing Internet radio users average 473.2 hours of music per year, and that based on 2006 rates, the “royalty bill for a webcaster is $6.49 per listener per year.”
Kessler misstates the findings of the Bridge Rating report. The number of hours is an estimate based on a survey. She has the temerity to recast the numbers as facts, apparently in the vain hope that no one would check her sources.
Newhouse has his own problems. He believes that because he finds sufficient music choice from the major webcasters, everybody should. He doesn’t explain how he became the standard by which everyone should gauge their Internet radio habits. He does, however, fully embrace Simson’s old claim that Internet radio had $500 million in advertising revenue in 2006, despite clear evidence that number was grossly inflated by Simson misinterpreting the source report. Newhouse does not appear to be someone who will let the facts get in the way of a strongly held opinion. In that sense, he’s a worthy ally for SoundExchange here.
5. Two-thirds of total royalties collected by SoundExchange go to artists and independent labels.
And
The average each artist earned from webcasting royalties in 2006 was $360.
Unless you’ve got the data to back these statements up, they aren’t facts just because someone says they are. They’re just assertions.
Based on the math errors and inconsistencies in the numbers presented in the press release, SoundExchange cannot be considered a credible source without some verifiable backup.
In other words, they need to show their work.
Fred Wilhelms - p2pnet
[Fred Wilhelms is an entertainment attorney based in Nashville, Tennessee. You can contact him at fred.wilhelms @ gmail.com.]
Also See:
sky-rocket – Rehearing on Net royalty rates?, March 22, 2007
The Word – SoundExchange angry at webcasters, April 3, 2007
Broadcast Law Blog – Final Decision of the CRB Issued – and Royalty Due Date is Postponed, May 1, 2007
show their work – SoundExchange: Show us your work, May 1, 2007
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