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Pandora's losses highlight DMCA's effect on Internet radio

Written by Rich Fiscus (Google+) @ 26 Aug 2011 13:07 User comments (13)

Pandora's losses highlight DMCA's effect on Internet radio Pandora, the popular Internet radio service, continues to grow at an amazing pace, so why is it they can't seem to turn a profit?
The answer lies in a fateful ruling from the Copyright Royalty Board. The CRB's existence is the result of a DMCA (Digital Millenium Copyright Act) provision mandating arbitration to determine fair Internet radio royalties in the event rights holders and webcasters couldn't reach their own agreement.

In theory this guaranteed that Internet radio providers would be on equal footing with the much larger music labels in royalgy negotiations. In practice it didn't work out that way.

In 2006 SoundExchange, a royalty collection agency created by the RIAA, entered into arbitration with a variety of webcasters entered into arbitration. The Copyright Royalty Board was created, under a 2004 law, to act as arbitrators, fulfilling the DMCA mandate.

The key point to understand is exactly what that mandate is:

In establishing rates and terms for transmissions by eligible nonsubscription services and new subscription services, the copyright arbitration royalty panel shall establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller


The problem with this wording lies in the definition of "a willing buyer and a willing seller." According to CRB judges, that means both sides must be assumed to have equal market power.

Obviously we know that assumption to be false. Even a relatively large operation like Pandora wouldn't be able to survive the loss of major label content for long, while the labels themselves would be relatively unaffected in the short term by the loss of Pandora's business.

The long term effects for the labels would certainly be dramatic, but that doesn't negate their current market power. Thanks to the resulting CRB decision, setting royalty rates so high no webcaster could possibly afford them, the labels' superior negotiating position is even greater now than before.

Most webcasters including, eventually, Pandora were forced to negotiate lower rates with SoundExchange. Of course, by that time SoundExchange was holding all the cards. The only alternative to whatever SoundExchange offered was the higher rates mandated by the CRB ruling. It was a choice between a long drawn out death or immediate execution.

Late last year the CRB set new webcaster royalty rates which more or less conform to the same standard as their 2007 ruling. This time around they didn't need to consider a hypothetical market, as they did the first time around. Instead, they ruled primarily based on the rates webcasters were forced to accept following the original CRB decision.

Of course Pandora, and all the webcasters who struck long term deals with SoundExchange previously, are stuck with those royalty arrangements regardless. CRB rulings only apply to webcasters who haven't reached an agreement with SoundExchange.

Pandora had it's IPO earlier this year. Initially the stock seemed to be in trouble due to concerns about profitability. Despite reporting nothing but losses since going public, optimistic statements about the future have resulted in the stock price actually increasing.

But eventually they will have to turn a profit. It remains to be seen whether that will ever be possible without drastic reform to the royalty calculation process.

Given their current influence in Washington, as evidenced by the recent actions of Immigrations & Customs Enforcement and ongoing legislative efforts on their behalf, don't expect that to happen any time soon.

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13 user comments

126.8.2011 14:46

More idiot a$$holes trying to get something for nothing. The CRB is nothing more than BMI or ASCAP bilking the very organizations for money that 1. won't ever get to the artists, 2. that wouldn't have been generated from record sales had it not been for the 'free airplay' originated by the broadcasting agencies in the first place.

Back when I was in radio (late 70s, early 80s) record companies sent you new titles/artists for free, hoping to get air time. Yet BMI & ASCAP race in, hot on the heels of any recording to charge the station thousands of dollars for having played those very same records/songs.

It has always been my opinion that radio stations should just purchase a copy of the album being released & fore go any further expenditures. This could certainly work seeing as BMI & ASCAP could have just as easily charged you & I for each time we played a song despite having initially purchased a copy. What do you think these 'cloud' services are designed for?

This message has been edited since its posting. Latest edit was made on 26 Aug 2011 @ 14:48

226.8.2011 23:14

I kinda hope Pandora and all the other free/cheap music services go under...that way, piracy would take their place and these greedy bastards wouldn't get jack!



327.8.2011 0:13

Originally posted by KillerBug:
I kinda hope Pandora and all the other free/cheap music services go under...that way, piracy would take their place and these greedy bastards wouldn't get jack!
Think of the children!!!!

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427.8.2011 8:34

LOL speaking of the 70's...Anybody remember the "pay for play" scandals that rocked the industry where the record companies were actually paying bribes to get their stuff played on the radio?

I think they've lost site of the free advertising concept where someone hears a song on the radio and goes out and buys it (if they like it). Surely the business model has and is changing drasticly but..in the end..isn't radio (and internet radio) still providing the same service?

I can't say how many albums, tapes and CDs I have purchased over the years due to hearing something on the radio. Sure they need to find a better way to get paid (or at least the artists do) but if I never hear your track I won't be looking to buy it in any form.


Just my $0.02,

dEwMe

527.8.2011 9:10

You know, eventually greed begets greed. Karma has an interesting way of biting people in the ass, and what goes around comes around. The more they clench the hands tighter guys, the more these music programs will slip through their fingers!! Piracy will rule no matter what, and they are just flailing their arms in the darkness, as they can't see their head from their ass!

627.8.2011 14:07

Originally posted by dEwMe:
LOL speaking of the 70's...Anybody remember the "pay for play" scandals that rocked the industry where the record companies were actually paying bribes to get their stuff played on the radio?
70s hell, it got started back in the 50s with the Payola scandals. Dick Clark was one of the biggest asswipes benefiting from it. The best depiction & historical insight to the scandal is in a movie named American Hot Wax (1978), loosely based on Alan Freed. He basically wouldn't cave in to the FCC hammering down on payola & he lost his entire career over it.

Funny how it's a complete contradiction when the same labels (through a middle man, BMI & ASCAP) turn around & come re-collecting for the airplay that these guys started. Just goes to show you how hypocritical these business' are.

727.8.2011 18:30

Originally posted by LordRuss:
Originally posted by dEwMe:
LOL speaking of the 70's...Anybody remember the "pay for play" scandals that rocked the industry where the record companies were actually paying bribes to get their stuff played on the radio?
70s hell, it got started back in the 50s with the Payola scandals.


And the last time I heard about a label getting in trouble for it was the 2000s.

The fact is these services offer free promotion, just like terrestrial radio. Of course the labels have frightened terrestrial broadcasters into giving them royalties as well. However, they benefited from actually being equals to the labels in their market, and got more reasonable terms.

Basically the whole thing is an all out effort to replace CD revenue by taking a cut from any service which is making money around their recordings. They don't believe for a moment that radio, Internet or otherwise, impacts music sales. They just can't figure out how to make as much money as they're used to without taking it from somebody else.


Rich Fiscus
@Vurbal on Twitter
AfterDawn Staff Writer

828.8.2011 13:34

Originally posted by vurbal:
Basically the whole thing is an all out effort to replace CD revenue by taking a cut from any service which is making money around their recordings. They don't believe for a moment that radio, Internet or otherwise, impacts music sales. They just can't figure out how to make as much money as they're used to without taking it from somebody else.
It has been a scam since 1914 (ASCAP's inception). CDs have absolutely nothing to do with it. These fleecing organizations are devised for the sole purpose of getting money for nothing. They will claim every profit based loss scam they can to justify their actions. Having a relative who is/was hired by BMI & ASCAP (as basic muscle to go & collect for them) told me that there is no such thing as 'honored customers' or budget payment plans for broadcasters or any other such individuals playing music in their establishments. Everybody gets screwed heavily & equally.

Muzak was invented & sold as a means of which for storefronts to play music in their establishments & not continually be harassed by BMI or ASCAP representatives. [Yes, they would actually come into a store & demand payments because you were playing a radio station where the general public could hear it] Seeing as the music being played is not performed by the original artist or any lyrics actually being performed, the songs fall outside the parameters of BMI/ASCAP's racketeering practices.

928.8.2011 14:36

Originally posted by LordRuss:
Originally posted by vurbal:
Basically the whole thing is an all out effort to replace CD revenue by taking a cut from any service which is making money around their recordings. They don't believe for a moment that radio, Internet or otherwise, impacts music sales. They just can't figure out how to make as much money as they're used to without taking it from somebody else.
It has been a scam since 1914 (ASCAP's inception). CDs have absolutely nothing to do with it. These fleecing organizations are devised for the sole purpose of getting money for nothing. They will claim every profit based loss scam they can to justify their actions. Having a relative who is/was hired by BMI & ASCAP (as basic muscle to go & collect for them) told me that there is no such thing as 'honored customers' or budget payment plans for broadcasters or any other such individuals playing music in their establishments. Everybody gets screwed heavily & equally.

Muzak was invented & sold as a means of which for storefronts to play music in their establishments & not continually be harassed by BMI or ASCAP representatives. [Yes, they would actually come into a store & demand payments because you were playing a radio station where the general public could hear it] Seeing as the music being played is not performed by the original artist or any lyrics actually being performed, the songs fall outside the parameters of BMI/ASCAP's racketeering practices.
This is separate from BMI/ASCAP royalties. This is exclusively for the recordings, and is on top of other royalties. In fact during the negotiations, webcasters argued the amount of the new royalties should be set based on performance royalties paid to songwriters and publishers. The CRB determined that the DMCA's language dictated a different calculation, which in turn resulted in significantly higher royalty payments to SoundExchange for use of the recordings than to ASCAP/BMI/SESAC for the compositions.

Rich Fiscus
@Vurbal on Twitter
AfterDawn Staff Writer

1028.8.2011 15:45

Originally posted by vurbal:
This is separate from BMI/ASCAP royalties. This is exclusively for the recordings, and is on top of other royalties. In fact during the negotiations, webcasters argued the amount of the new royalties should be set based on performance royalties paid to songwriters and publishers. The CRB determined that the DMCA's language dictated a different calculation, which in turn resulted in significantly higher royalty payments to SoundExchange for use of the recordings than to ASCAP/BMI/SESAC for the compositions.
A point I made earlier on (with regards to CRB being another money grubbing spin-off). Obviously, the CRB is using 'new' verbiage in order to fill gaps not covered by the old language of ASCAP/BMI that clearly didn't/don't accommodate the newer digital formats & legislation.

I didn't mention SESAC as they are a 'paid' source of coercion & artist/composers have to 'join' their collective, but only after the artist has "been approved". I.e., they are a profit oriented entity. While BMI/ASCAP are Not-For-Profit organizations. Not only to mention, SESAC's mission is to basically sue you for not having a pre-paid 'license' to play a song (live or recorded in any format imaginable). Thus BMI/ASCAP work under the guise of a 'government style' heading, whereas SESAC is basically a law firm.

1128.8.2011 16:22

Originally posted by LordRuss:
Originally posted by vurbal:
This is separate from BMI/ASCAP royalties. This is exclusively for the recordings, and is on top of other royalties. In fact during the negotiations, webcasters argued the amount of the new royalties should be set based on performance royalties paid to songwriters and publishers. The CRB determined that the DMCA's language dictated a different calculation, which in turn resulted in significantly higher royalty payments to SoundExchange for use of the recordings than to ASCAP/BMI/SESAC for the compositions.
A point I made earlier on (with regards to CRB being another money grubbing spin-off). Obviously, the CRB is using 'new' verbiage in order to fill gaps not covered by the old language of ASCAP/BMI that clearly didn't/don't accommodate the newer digital formats & legislation.

Not at all. ASCAP and BMI license Internet radio separately. Their cut of the pie isn't altered in any way by the CRB ruling.

It's the labels who get most of the performance royalties collected by SoundExchange, with a minority earmarked for artists who own their own recordings, many of whom aren't ever paid because they don't know to contact SoundExchange.

It wasn't exactly new in the DMCA. It was actually an extension of the Digital Performance Right in Sound Recordings Act from 1995. The DMCA just extended it to define how performance (recording rights) royalties would be set for Internet radio. It's a new class of licensing which didn't exist in analog (terrestrial) broadcasting.

The point is, it's not filling any cracks. It's adding an entire new wing to the building.

Rich Fiscus
@Vurbal on Twitter
AfterDawn Staff Writer

1228.8.2011 17:14

Redundantly stating what I have already mentioned is of little help or comment worthy... Only to say that your interpretation of the DMCA is possibly flawed... in that the DMCA is for copyright infringement & not how monies are collected for the use of copyrighted material. The only stipulation (interpreted) is that other sub categorized governing bodies make those particular decisions.

As I will redundantly repeat: The aforementioned alphabet Nazis are nothing more than legal houses actively blackmailing moneys for content use or actively seeking restitution (due to allegedly legal based infringement) from a bled out industry that makes their very existence possible. I.e., if I may use such an analogy... another fast food chain store cropping up in an already bloated market.


1330.8.2011 14:23
jacksinsanity
Unverified new user

no matter how you try to paint it; it's still bullshit.

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