SoundExchange Offers 'Small Webcasters' a Royalty Cap Concession

Yesterday, the SoundExchange organization which the US Copyright Royalty Board designated as the handler for performers' royalties, offered "small webcasters" the option of returning to an earlier arrangement, which would cap the amount of royalties it receives from them at 10% of net revenues up to the first $250,000, and 12% thereafter.

The deal may be encouraging to streaming music providers who might otherwise be faced with annual royalty fees that many predict - and evidence compiled by BetaNews appears to confirm - could conceivably usurp their entire revenue stream. It would effectively extend the provisions of the Small Webcaster Settlement Act of 2002 (SWSA) - which was allowed to lapse in 2005 - until 2010.

That extension could be important, because the SWSA includes very important language that was beneficial to the burgeoning business of webcasting five years ago: Specifically, it concedes that the fees agreed upon at the time by rights agencies and large webcasters neither "provides for or in any way approximates fair or reasonable royalty rates and terms, or rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller."

In other words, the Act codified into law the objections of small webcasters. However, it doesn't actually specify what the alternative rates would be, nor does it define "small" with respect to "webcaster" - in other words, it leaves it up to the market to determine how little revenue one must make to qualify as small. However, in this case, SoundExchange appears to be willing to extend the same percentages that rights agencies agreed upon in 2002.

The concession comes, SoundExchange said, in response to a letter from the chairman of the House Judiciary Subcommittee on IP and the Internet, Rep. Howard Berman (D - Calif.), asking it to enter into good faith negotiations with small and private webcasters to help ensure their viability.

How meaningful would such a concession be? Judging from figures previously published by AccuRadio founder Kurt Hanson, it could reduce a potential 2007 royalties fee of about $600,000 to a much more palatable $50,000.

What isn't codified at this point, however, is whether agreeing to this concession would place small webcasters in the position of acquiescing to the notion that large webcasters' royalties should be above 12% of revenues, or whether rates above that amount would even be fair.

But SoundExchange Executive Director John Simson made clear, in a statement yesterday, he feels such a concession is practically a gift - or, more accurately, an outright subsidy, in the name of helping a new industry blossom and grow.

"Although the rates revised by the CRB are fair and based on the value of music in the marketplace," Simson wrote, "there's a sense in the music community and in Congress that small webcasters need more time to develop their businesses. Artists and labels are offering a below-market rate to subsidize small webcasters because Congress has made it clear that this is a policy it desires to advance, at least for the next few years. We look at it as artists and labels doing their part to help small operators get a stronger foothold."

Next: Is a 12% revenues cap for royalties reasonable?