SoundExchange Offers 'Small Webcasters' a Royalty Cap Concession

If SoundExchange were willing to settle for 12% as a reasonable royalties cap for small webcasters, why isn't that cap good enough for larger enterprises as well?

Once we began digging for the answer to that question, the first hints of an answer surprised us a bit. Using the current formula agreed to by the CRB, and based on ratings numbers for last March published by Arbitron, there were as many as 166,800 listeners to all Clear Channel online streams combined, during an average 15-minute period during the weekdays.

Using Arbitron's latest numbers, BetaNews projected that under the CRB rates for 2007 (assuming ratings stay stable for the year), Clear Channel may owe SoundExchange $15.4 million in performers' royalties. If the firm is charged backdated royalties for 2006, it could owe an additional $10 million for that year.

In its annual report, Clear Channel doesn't break down revenues from Internet streaming and terrestrial broadcast operations, probably because they are effectively the same operations - Clear Channel online stations are typically Web feeds of over-the-air programs. Advertising for those channels may or may not be separate. For its fiscal 2006, the company reported annual revenue from radio operations (which excludes its outdoor advertising business) at $3.7 billion.

SoundExchange has recently suggested that terrestrial and online operations should both pay equal performers' royalties. If it were to have applied the same 10-12% formula to Clear Channel as it's offering to small webcasters for the year 2006, Clear Channel would have received a bill for $44.36 million.

So how likely is it that Internet operations would account for 22.5% of Clear Channel's revenue from radio? If it accounts for less than that, then a theoretical 12% concession on the part of large webcasters as well as small ones, would not be a good deal for Clear Channel.

In a statement late this afternoon, Live365 CEO N. Mark Lam stated a concession would mean his firm - which produces Internet radio and nothing else - would pay SoundExchange $1.5 million in royalties this year. Based on that figure, it's safe to assume Live365 expects to earn $12.3 million in 2007.

BetaNews estimates Live365 would pay just over $4 million in 2007 royalties, and perhaps as much as $6.8 million in backdated royalties for 2006, when the CRB rates go into effect. That means it could receive a bill later this year for 88% of its entire 2007 revenue.

So for Live365, a 12% cap would be a fair deal. That presumes, of course, that SoundExchange would be willing to accept the notion of the nation's #4 webcaster being "small," leaving AOL Radio, Yahoo LaunchCast, and Clear Channel as the only broadcasters to whom the CRB per-performance/per-listener fee would apply.

But Live365 goes on to allege that SoundExchange would seek an additional $5 million in administrative costs, as part of a "little noted provision [that] would put Live365 out of business, and with it, the 10,000 small webcasters and millions of listeners who depend on the company for affordable, royalty compliant streaming of a wide variety of artists and music heard nowhere else."

This is why the definition of "small webcaster" in the SWSA becomes important for its absence: Is Live365 a single, amalgamated network or a collective of small webcasters who all deserve a break? And if Live365's collective deserve it, do Clear Channel's 1,200+ terrestrial radio stations deserve it as well?

But even the reduced royalty rate may not be enough for Lam. "Someone please explain to me why the smallest webcasters are being offered a royalty rate that is double the rate afforded to billion dollar satellite and cable radio industries," he wrote this afternoon. He went on to invite SoundExchange representatives to meet with Live365 and other industry leaders, for that sit-down that Rep. Berman requested in writing.