Sunday, April 29, 2007

Congress Moves to Save Internet Radio!

Broadclip's General Counsel, Matthew Drake, gives us an update about Congress and the future of Internet radio....

Good news! Rep. Jay Inslee (D. Wa) has introduced the Internet Radio Equality Act to allow internet radio stations the opportunity to be successful.

First, the bill expressly nullifies the CRB’s March 2 ruling. This alone is a good start.

Next, the bill pegs the royalty rates paid by internet radio stations at 7.5% of their revenue. This number would apply to all commercial stations large and small. (Different rules would apply for noncommercial stations, such as NPR.) The Copyright Royalty Judges would have the authority to impose a minimum annual fee, which could by no more than $500 per year per “provider of services”. This is an extremely significant improvement over the CRB’s ruling, which would have imposed a $500 fee per stream.

The bill would apply from January 1, 2006 to January 1, 2011.

This bill is a step in the right direction. If it passes Congress, Internet radio will be protected and will be allowed to flourish.

Interestingly, the proposed royalty rate, 7.5% of revenue, is the same as paid by satellite radio stations. This also makes sense. Internet radio and satellite radio are competing in the same market of listeners. It’s logical that they should pay the same license fees to the music companies. Internet radio and satellite radio should be on the same level playing field, so the public will be able to decide what kind of service is best.

You should continue to send emails and telephone members of Congress. This Act has been introduced, but that is just the start of the process. Let your Representative and Senators know just how important this issue is to you!

Friday, April 27, 2007

America Last – pushing the best parts of our culture and innovation overseas!

Jesse Helms and Me

Jesse Helms and I often find ourselves on the opposite side of an issue, so, when we find ourselves in agreement I have great confidence that anyone who disagrees is wrong. Many of these issues are ones that reasonable people can disagree on. For example, when people argue about stem cell research the argument pretty much boils down to ethics vs. economic loss. We all know that other countries are willing and eager to conduct the research and we’ll end up losing business, jobs, and technological advantage to those countries – however, whether you believe America should allow stem cell research or not, there’s at least a plausible argument that those are acceptable losses in order to better society. The arguments for disallowing gambling (either on-line, or in a state) are similar – once again we as a society may think that losing business to other areas of the world is acceptable because of the negative societal costs of gambling.

The United States is now faced with losing the creative and economic benefits of a nascent Internet Radio industry – but in this case there’s no plausible argument that this is for the good of society. Even Jesse and I agree on this one! The last time it came up Jesse Helms spearheaded the legislation that put an end to the foolishness and saved Internet radio.

The Background

By our count, the US currently accounts for about 8000 internet radio stations--around 40% of all stations. The vast majority of those are the equivalent of ham radio operators – i.e. do it yourself’ers who make no money but are passionate about music. This decision will effectively silence their creative voice or (more likely) force those stations to switch to foreign servers and ISPs.

Why should this be the case? While the details and history of the regulatory scheme were outlined on Monday, I think this is a simple example of a regulatory board getting confused about what their role is. Copyright law, in general, is intended to promote the betterment of society by allowing creative works to thrive. The CRB, however, has lost sight of this and believes their sole purpose in life is to line the pockets of copyright owners.

Copyright owners (in this case music labels) are monopolies – their goal is to make as much money as possible. Good for them, I say - but they shouldn’t believe that the copyright law gives them blanket license to do so. Once again, the law is there for the benefit of the public. I can’t see any way in which the public is helped by silencing the creative voices of stations (and losing jobs, services, and technological innovation) or forcing them to find safe havens in foreign lands. The CRB’s mandate is that it can only look at “economic” factors in making it’s decisions – unfortunately, they didn’t look at any of the economic impact (either short or long term) on America. Moreover, in their motions for rehearing, many of the radio stations pointed out the mistakes the CRB made in its own economic analysis. No regulatory agency of this country should ever forget where they are and whose best interests they serve – the American public’s. With a little prodding chances are that Congress will step in, and we should let our representatives know that it’s a mistake to put America last.

As we mentioned on Monday, the best thing you can do to keep Internet radio alive is to tell members of Congress how you feel. This is your chance to let them know how important Internet radio is to real Americans. Email and call them! For more details on how you can help, go to

Monday, April 23, 2007

Copyright Royalty Board Decision

Today we have another post by Matthew Drake, our General Counsel at Broadclip. Thanks Matt!

You may have heard about the March 2, 2007 decision by the Copyright Royalty Board, known as the CRB, a previously obscure government panel, to almost triple the royalty rates for US based Internet radio stations. What’s going on here?

The Copyright Royalty and Distribution Reform Act of 2004 gave the CRB the responsibility of revising the license fees paid by Internet radio stations. As with terrestrial radio, individual stations do not negotiate their own licenses, rather the federal government sets mandatory license fees.

The old royalty structure was scheduled to expire January 1, 2006, and the CRB was given the task of setting the new rates. The CRB started gathering evidence in early 2005, heard testimony from dozens of witnesses and experts, and issued its decision in March of 2007. (The final rules will probably be applied retroactively.)

Like terrestrial radio stations, Internet radio companies already pay the music industry for the right to play music. Small stations pay a percentage of their revenue, while larger stations pay by the song. The CRB had to decide whether the rates should change, and if so, by how much. The CRB imposed a fee structure that will drastically increase the license fees that Internet radio stations must pay. The fees are on a “per play” basis, meaning that the station must pay for every listener, for every song. The “per play” rates adopted by the CRB increase rapidly over the next several years:

2005 $0.000762 (the present rate for large stations)
2006 $0.0008
2007 $0.0011
2008 $0.0014
2009 $0.0018
2010 $0.0019

While almost tripling the rates is bad, it’s not even the most damaging part of the decision. Under the old rate structure, small broadcasters paid a royalty fee of about 12% of their revenues. The CRB’s ruling would end that practice and force them to pay the same rates as the larger stations, driving small broadcasters out of business. Additionally, the decision imposes a new $500 “per channel” minimum fee. The exact definition of a channel is somewhat vague, but, for instance, if a station creates a new stream every time a user logs on, every stream might be counted as a separate channel.

The decision could be a disaster for Internet radio, if it stands. But first, the ruling will surely be appealed. The first step was a formal request for rehearing. Several motions were filed, but on April 16, 2007, the DRB denied them. (In its April 16 decision, the CRB did offer a “clarification” to its earlier ruling, deciding that for 2006 and 2007 only, payment may be based on Aggregate Tuning Hours (ATH), measuring cumulative hours of reception by all listeners, to ensure a “smooth transition” to the new regime.)

Since the CRB refused to rehear its decision, the next step is an appeal to the United States Court of Appeals for the District of Columbia, which often hears appeals related to the federal government. How long will it take? Probably around one year, give or take. What will the outcome be? Your guess is as good as anyone else’s.

What should happen? Congress should step in and do what it did last time government bureaucrats threatened Internet radio. In 2002, the Librarian of Congress (who had the power to set Internet radio royalty rates at the time) decided that Internet radio stations should pay 0.07 cents per song per listener. However Congress stepped in and passed the Small Webcaster Settlement Act of 2002, which said that small stations could instead pay a percentage of their revenue.

Rep. Edward Markey (D. Mass) has already voiced his concern with the CRB’s decision, saying, “This represents a body blow to many nascent Internet radio broadcasters and further exacerbates the marketplace imbalance between what different industries pay.” Congress should pass a similar law today to ensure the continued growth of Internet radio.

You should tell your Congressional representative that Internet radio is too important to be shipped overseas. You can email them directly or you can visit here to find your Representative's contact information.

Monday, April 2, 2007

EMI removes DRM - finally acts pro-consumer .. Sort of ..

Today's post was penned by Roy Smith - co-founder of Turtle Beach Systems, an early trail blazing company in the sound card industry. Thanks Roy!

Yesterday on April 1, the web was full of rumors about a big press event today in London from EMI Records. Supposedly Steve Jobs was going to participate – what would it mean? The Beatles on iTunes? No more DRM? Or was it all an April Fools joke?

Well, it turns out that EMI is the first of the “Big 5” record labels to crack on the DRM issue, allowing downloads of individual songs without DRM. As an added bonus, they are releasing these DRM-free tracks in a higher quality AAC format.

A great victory for all who decry DRM and its many inconveniences.

But as always with mega corporations, the real story is in the fine print.

A few paragraphs down in the press release, EMI announced that it will be charging more for the DRM-free versions. $1.29 per song. Let’s not cancel the celebration, this is a big step toward the end of DRM but let’s step back a bit and examine the situation we are now faced with.

If I buy a 12 track Coldplay CD at, I get 12 tracks with no DRM, and at maximum audio quality (better than AAC) for $11.97. Add a few bucks for shipping (or tax if I bought it locally) and we’ll call it $16. When I get the CD, I pop it in a player and I instantly have top quality music. The record company’s cost to produce the CD (including artist royalties) was probably about $2.50. They sold it to Amazon for about $6, so figure $3.50 profit on the CD.

Now, If I download the same Coldplay album (sans DRM) from iTunes, it will cost me $15.48, about the same. But I have a lot less to show for my money. I don’t have any physical back up if my computer’s hard disk crashes. I don’t have any artwork or credits if I want to know who played on it or produced it. It will take me 15-20 minutes to download it.

The record company’s cost for the download was whatever royalty they had to pay the artist. Did you know that most standard recording artist contracts call for less royalty to be paid to an artist for music that is delivered using “New Media/Technology”? Typically record labels pay 10-20% less royalty to an artist for music that was downloaded, despite the fact that their costs are much lower than a physical CD.

It's been widely published that the record companies split profits with iTunes about 50/50, so on the download version, EMI makes about half of the $15.48, or $7.75 gross. They pay the artist 10% less royalty ($0.70), and pocket the rest ($7.05).

Now as we celebrate that we have successfully picketed and petitioned the record industry to remove DRM, the net result is that we as consumers have less, the artists have less, and (surprise) the record industry has doubled profits.

But still, this is progress. Let’s hope a year from now we’ll be looking back at this like we do to the day the wall came down in Berlin… a small act that grew to symbolize a big change.