Eye On The Industry

NOTICE:  The information below is a cursory summary of the agreement that was entered into between noncommercial religious broadcasters and SoundExchange and is available to all noncommercial (as defined below) webcasters.  This summary is not meant to be a thorough review of all of the details of the agreement and should not be relied upon in making any decisions regarding whether a webcaster should opt into the agreement or in any other manner regarding their streaming operations.  The actual agreement “Exhibit A – Agreed Rates and Terms for Noncommercial Webcasters” should be thoroughly reviewed and an attorney consulted prior to taking any actions regarding the agreement.  Neither CMB, nor any other parties shall take or accept any responsibility for the accuracy, completeness and thoroughness of this summary.  Any reliance upon the information in this summary is taken at the reader’s sole risk and with no warranties of any kind whatsoever. 

Who is eligible:  Noncommercial webcasters as defined in 17 U.S.C. §114(f)(5)(E)(i).  This agreement only applies to non-subscription services.    

Term:  January 1, 2006 to December 31, 2015

How to accept the noncommercial deal with SoundExchange:   You must submit to SoundExchange a completed and signed election form by September 15, 2009 to be covered by the agreement for the years 2006 through 2009.  For all other years, a completed and signed election form must be submitted to SoundExchange by January 31st.  Once an election form has been filed, the election will automatically continue for the subsequent years unless SoundExchange is notified that the election is being revoked for the upcoming year by January 31st.  New services need to submit the election form within 30 days of starting a new service.  The election forms can be found at www.soundexchange.com (click on “Download Forms” and then click on “For Digital Music Services”).  The election forms are for “Noncommercial Webcasters,” but have not yet been posted on the website as of August 11th.  Noncommercial webcasters who do not file an election form by the deadline will be subject to the rates and terms that were ordered by the Copyright Royalty Board (“CRB”) retroactive to January 1, 2006.   

What are the Fees and Rates:
Annual Fee:  $500 for each separate channel or station that is streamed (“Station”).  The annual fee is due by January 31st each year and covers the first 159,140 aggregate tuning hours (“ATH”) per month for each Station.  The annual fee will not be prorated for partial years.         

Rates:  If a Station streams more than 159,140 ATH in a given month, the following rates will apply to those excess ATH and can be calculated as follows:

Year  Per performance  ATH
2006-2010: $ 0.0002176   $0.00251*
2011  $ 0.00057   **
2012   $ 0.00067   **
2013   $ 0.00073   **
2014  $ 0.00077   ***
2015  $ 0.00083   ***

* Stations can choose to calculate and pay for ATH in excess of the 159,140 threshold on a per performance or ATH basis.  Stations where substantially all of the programming is reasonably classified as news, talk, sports or business programming shall pay a royalty rate of $ 0.0002 per ATH. 
**There will be a three-year transition period (2011 to 2013) to allow webcasters to implement systems to calculate their rates on a per performance basis during which time the webcaster can still calculate their fees on an ATH basis by assuming 12 performances per hour.  Stations where substantially all of the programming is reasonably classified as news, talk, sports or business programming shall pay a royalty rate based on one performance per hour. 
*** There is an exception, which will allow webcasters to continue to report on an ATH basis under limited circumstances for 2014 and 2015.
SPECIAL NOTES: 
• Webcasters with multiple AM or FM radio stations are allowed to list each radio station as a separate webcast Station.  By doing so, the webcaster will pay a $500 annual fee for each listed Station, but will have the 159,140 “free” ATH each month for each such Station before paying the per performance/ATH rates.  
• A webcaster must calculate its payments on a per performance or ATH basis during a given year and may not switch between the two during that year.  

What are the reporting requirements:
• Statements of Account
    o Webcasters must submit statements of account each month, which state the ATH used for the subject month, even if the 159,140 ATH threshold has not been exceeded and additional fees are not owed.
    o The statements of account are due 45 days after the end of each month. 

    o The statements of account need to identify the webcaster (as it appears on the notice of use) and the call letters of the Station, if it covers a single AM or FM radio station.

• Reports of Use
    o Webcasters that do not exceed an average of 159,140 ATH per month over the course of the prior year need to provide reports on a sample basis of two weeks per calendar quarter in compliance with 37 C.F.R. §370.3(c)(3).   
    o Beginning in 2011, webcasters, whose average monthly ATH during the prior year exceeded 159,140 per Station for radio station rebroadcasts or 159,140 combined for all other types of streaming, need to provide reports on a census basis each calendar quarter.  The reports shall include every sound recording that was played and how many times they were played.  Until 2011, webcasters who exceed the 159,140 ATH threshold need to provide the two weeks per calendar quarter sample reports as detailed above.         
    o The reports are due 45 days after the end of each calendar quarter.

CMB Performance Royalty Talking Points

·         Radio has and continues to be the best promotional tool for the recording industry.  Every time that an artist’s music is played on the radio, the radio station has essentially run a free commercial for the benefit of the artist and their record label.  

·         Payola existed in the past because the labels knew the value of getting their music on the air even if they had to pay for it.  

·         The record labels are trying to claim that they do not receive a meaningful promotional benefit from having their music played on the radio, but how many artists and labels do you know who would refuse to allow their music to be played on the radio if they were not paid for its use?  The answer is none.  Artists know that if their music is not played on the radio that their records will not sell. 

·         At awards shows, artists constantly thank radio for playing their music and for what radio has done for them.  The artists know that radio is the key to their success, not an industry that is unfairly taking advantage of them.  No one makes it to the top of the charts without radio airplay.

·         The record labels claim that there is an unfair imbalance because songwriters are compensated when their songs are played on the radio, but that the artists who perform the songs are not.  The artists, as the labels are well aware, benefit from the sales of records, concert tickets and other merchandise, which are spurred primarily through free radio air play, while the songwriters do not. 

·         This is not about fairness to artists and musicians.  At least half of the proposed fees will go the record labels.  Only about one percent combined will go to all of the backup musicians and singers who perform on recordings.  There will also be administrative fees that will be deducted from the royalties before they are disbursed to the artists and musicians.    

·         Stations with revenues under $1.25 million will be considered “small” stations and will have to pay an annual fee of $5,000.  Those stations with over $1.25 million in revenues will have to pay a performance royalty based on a percentage of their revenues, not their profits.   

·         Non-commercial “educational” stations will pay a $1,000 annual fee.  

·         The proposed legislation offers a $1,000 annual fee to non-commercial educational stations based on the FCC definition of “educational.”  If it is determined that non-commercial religious stations that are not affiliated with educational institutions are not truly “educational” within the meaning of the FCC’s definition, the “discounted” $1,000 rate would no longer apply and the commercial rates would apply.  

·         A pamphlet, which was distributed by musicFirst (the lobbying organization for the recording industry) states that more than 80% of religious stations will qualify for the “discounted” fee.  That would mean that nearly one in five religious stations (based on their figures) would have to pay the higher commercial rates.

·         Revenue does not equal profit.  That is why the IRS bases a business’ taxes on their revenue, not their profits.  Many stations can have $1.25 million in revenue and still make little or no profit.  A commercial station which is struggling to get by with $200,000 in revenue would still have to pay the $5,000 fee.  A station with just under $1.25 million in revenue could easily have only $25,000 in profits and the “discounted” $5,000 fee would be $20% of their profits.

·         Due to the small profit margins for many stations, the $5,000 fee could be the difference between a station, especially those stations in small cities, surviving and shutting down.  The loss of stations can greatly impact the services and quality of life in those small and underserved communities.  

·         There is no cost of living increase for the $1.25 million proposed threshold.  With even standard inflation, the value of $1.25 million will be reduced over time.  With time and inflation, more and more stations will exceed the $1.25 million threshold even if they are not increasing their revenues after factoring in inflation. 

·         The threshold does not take into account that different cities and communities have different costs of living.  $1.25 million in New York City is not the same as $1.25 million in Kilgore, Texas. 

·         The rates for commercial stations that exceed $1.25 million in revenues have not yet been determined.  They will be based on a percentage of the station’s revenues, not profits. 

·         A recording industry spokesperson stated that the rates will be “reasonable” and estimated the rate would probably be in the area of six to eight percent of the station’s revenues.  However, another recording industry representative stated in court recently that six to eight percent of revenues for satellite radio was too low.  Can they still be expected to be reasonable after they have been given what they have asked for?  Which statement about what is reasonable should we believe?  How many “large” stations can survive an immediate minimum (in their estimate is to be believed) six to eight percent deduction from their revenues?

·         The recording industry has not adapted to changing times and technology.  They have not developed new and effective ways to distribute and sell music and they have not effectively used existing technology or developed new technology to combat piracy.  They have tried to combat piracy by suing individuals for illegal downloading music, which was a public relations failure.  They now want the radio industry to pay additional fees to them for their failure to act and are doing so under the guise of fairness, even though radio has done nothing wrong and has been their greatest ally.  

·         There is nothing that guarantees the “discounted” rates for any period of time. 

·         There is no limitation upon the increases that can be imposed in the future.  

·         At some point in time, the recording industry will decide that the performance royalties that are being paid by the small commercial stations and the non-commercial educational stations are no longer fair and reasonable.  When this happens, the cost of opposing a rate increase will likely be prohibitively expensive for most small commercial and non-commercial educational stations and the cost of litigation could make the cost of the performance royalties seem small by comparison.  This recently occurred with BMI, ASCAP and SESAC when Christian songwriters complained that they were underpaid because so many Christian stations were non-commercial (and therefore paid lower rates).  The resulting BMI, ASCAP and SESAC rates for many non-commercial stations increased ten-fold.   

·         Religious non-commercial stations and webcasters still do not have a completed deal with SoundExchange for the ongoing 2006 to 2010 royalty rate period or for the upcoming 2011 to 2015 rate period despite hundreds of thousands of dollars in attorney fees (the matter is still being litigated and the parties are currently awaiting an appeal ruling) and diligent and good faith efforts to settle this matter.  This is noteworthy because SoundExchange (who is the collecting agency for the internet streaming fees) will also be the collecting agency for the performance royalties if the legislation passes.  Our past experience has shown us that future rate negotiations and rate proceedings will be difficult, time consuming and expensive.