Photo by Marco Volpi
On December 16, a relatively obscure U.S. administrative body issued rules with broad implications for online music. Every five years, the Copyright Royalty Board, or CRB, determines the rates that non-interactive services like Pandora and iHeartRadio will pay to stream sound recordings online. The details are dizzyingly complex, but this time around the bigger Internet radio companies generally cheered the ruling, while SoundExchange, the organization set up to distribute these royalties to artists and copyright holders, expressed disappointment. One set of stakeholders, though, raised existential alarm about the new terms: small, independent webcasters.
At issue was an agreement between SoundExchange and a group of webcasters more than six years earlier. The Webcaster Settlement Act of 2009, which allowed small online radio station operators to pay royalties based on a percentage of revenues rather than a per-stream rate, expired at the end of 2015, and it hasn’t been renewed. Without a new agreement, some digital music industry observers say, many low-budget online radio stations could be forced to shut down. Still others may never be launched.
The timing, following a year in which Apple launched its own Beats 1 digital radio station and Pandora acquired pieces of radio and on-demand streaming company Rdio, to some suggests webcasting’s Wild West days may have come to an end. Deborah Newman, founder of digital music consultancy MusicStrat, says online-radio startups like Songza—now owned by Google—were the Internet music business equivalent of a prior era’s college radio. "It seems like the landscape is in consolidation now," Newman says. Without a more favorable rate for small commercial webcasters, she adds, "I don’t see much new development going on in that world, because I don’t think anybody can afford it, and they’ll just end up getting clobbered."
David Porter, founder and CEO of Internet radio service 8tracks, estimates an online radio startup in the new environment would need to raise "table stakes" of at least $10 million to $15 million. He worries these fresh barriers to entry could reduce competition. "It’s almost, in some sense, the gate has been closed behind us," he says. Moodsnap founder David Blutenthal, whose image-based music streaming app formerly relied on the small-webcaster royalty licenses, tells me, "The next hit service—say, being developed in a computer science student's dorm room—may now never see the light of day because it’ll cost as much as their tuition to launch."
Rusty Hodge, founder of listener-supported SomaFM, has been vocal about how the new rates threaten his business. He tells me that if the service continues as it does now, it will owe about $15,000 a month in SoundExchange royalties, which are on top of a separate batch of royalties involving music publishers and songwriters. Hodge says other options include forming a tax-exempt nonprofit to handle many of SomaFM’s channels or moving to a subscription-only service, which would shrink the audience but run counter to SomaFM’s goal of exposing "all people to new, different and unique music they can’t hear other places." He adds, "None of the options will be easy."
Live365, a platform for small webcasters since 1999, recently announced layoffs, specifically citing the CRB decision along with the loss of investor backing. In a statement, the company said the lack of a revenue-based royalty option "will make legally streaming copyrighted musical content prohibitively expensive for many small to mid-sized Internet broadcasters." (More recently, multiple media reports have suggested Live365 will shut down at month-end.) Kurt Hanson, founder and CEO of another smaller webcaster, AccuRadio, said in RAIN News, where he is publisher, that the new rate could devour almost all of his service’s revenues and might drive niche webcasters to close. Smaller online radio stations saying they’ve turned off their streams due to the CRB decision so far include Smooth Jazz Chicago and EDM-focused Pulse 87 NY.
It’s unclear how many webcasters had used the old small-webcaster license, and the number may well be low. Some of the comparatively large examples, Hodge says, included Digitally Imported, Radio Paradise, Boomer Radio, GotRadio, idobi Radio and 181.fm.
Another recent high-profile Web radio shutdown, of the online simulcast for Columbia University’s WKCR, apparently wasn’t related to the new royalty rates. As The New York Times reports, a school spokesperson said the problem instead involved the station’s contract with its "provider," while David Oxenford, an attorney who writes the Broadcast Law Blog, noted that the relevant rules for noncommercial webcasters haven’t changed.
Noncommercial webcasters pay different types of rates than commercial webcasters. In October, the CRB signed off on a royalty settlement between the public radio networks, including NPR, and SoundExchange, as Billboard reports. "There is a long history of NPR and the CRB playing a role in establishing sustainable rates for these stations," says Vickie Nauman, founder of the digital music consultancy Cross Border Works. "And I support that because stations like KEXP, KCRW, WXPN, WFUV, and WFMU are all playing incredibly important roles in tastemaking and discovery for an engaged and active music audience. They are non-profits and rely on financial contributions for their livelihood."
Back in the realm of commercial webcasts, other online-radio stakeholders indicated support for smaller players. The Digital Media Association, or DiMA, a trade group for the online audio and video industries, told me in a statement that while it appreciates the CRB’s "careful and considered" ruling, it’s "unfortunate that the judges were not presented with appropriate evidence to allow them to provide for a sustainable rate specifically for truly small webcasters."
A common theme among those I interviewed was the need for balance. Darius Van Arman, Secretly Group co-owner, told me: "Having a diversity of webcasting platforms is very important to consumers, to artists and to culture at large. Our music ecosystem needs small and medium-sized webcasters. The challenge, however, is balancing the incubation of these smaller webcasters with the appropriate compensation of creators. This is something the music industry’s best minds should think about."
SoundExchange declined to comment on the record, citing the limitations of being a party to the case.
SomaFM’s Hodge says he and other small webcasters tried to present their case during the CRB hearing but found the time and cost of complying with the CRB’s filing standards to be prohibitive for individuals. "We had to spend almost $500 in FedEx fees just to send a notification to everyone that we were dropping out," he tells me. "And you really need an attorney or legal assistant to do the filings for you." Hodge adds that in his petition withdrawing from the case, he offered to provide witness and statements representing small webcasters, but says the CRB never asked him for any follow-up information.
The CRB has yet to release the full text of its determination, which will offer more details. Eventually, some action providing relief to small webcasters doesn’t look out of the question. Oxenford, the attorney for broadcasters, wrote in a blog post, "As after the 2001 and 2006 decisions, it is possible that there can be post-decision settlement agreements, but whether such deals can be negotiated and enacted remains to be seen." Hodge said he and other small webcasters are hoping the CRB will open the door for SoundExchange to negotiate a new percentage-revenue deal for small webcasters.
Casey Rae, CEO for musicians-advocacy group the Future of Music Coalition, who was among the first to signal concern about the new rates’ lack of a separate category for low-budget players, suggests that one or more of the smaller webcasters might one day grow out of the category and strengthen the webcasting community. U.S. broadcast radio, unlike online radio, still isn’t required to pay these types of royalties, just royalties related to publishers and songwriters—in Rae’s view, the interests of webcasters, artists, and labels are aligned when it comes to closing that exemption.
"We want a decent rate," Rae says, referring to the royalties for smaller webcasters. "And it is temporary. The goal is to motivate the companies who can have success as standalone webcasters to take advantage of the special rates to grow their business and be good partners to those of us on the creative side. We're working on getting that message out there and hoping to get people to the table sooner than later." The end of small, independent online radio stations—and the pioneering Internet culture they represented—appears imminent, but the final notes are still to be played.