--- Bob Olhsson <olh@xxxxxxxxxxxxx> wrote:
Reading this, I think you must have a fundamental misunderstanding of what a statutory rate is. It is a rate that webcasters only have to pay when they fail to come to an agreement with an artist or group of artists and insist on playing their music without having an agreement. The law clearly prefers that everybody negotiate rates that they find mutually beneficial. The statutory rate is the default rate for when people can't come to an agreement.
While the above is accurate IT DROPS CONTEXT AND MISSES THE POINT.
First off, to correct something - artists, per se, have NOTHING to do with this. Unless they happen to own the copyrights to their recordings, any negotiation is, quite properly, with the COPYRIGHT HOLDER. The only artists who own their copyrights are independents - in which case one is negotiating with them not in their capacity as artist but as copyright holder.
Second - IT IS NOT PRACTICAL FOR WEBCASTERS TO CONTACT AND DIRECTLY LICENSE EACH AND EVERY INDIVIDUAL COPYRIGHT HOLDER. I have read that there are something like 10,000 record labels out there - and that is not counting ones that have gone out of business.
HOW is a webcaster supposed to negotiate a direct license deal with the dozens or even hundreds of copyright holders whose recordings he wants to play?
And if some of the small labels DO wish to get paid a royalty but are willing to take something more realistic than the statutory rate - how on earth is it going to be practical for a webcaster to track dozens or hundreds of different licensed copyright holders and cut checks to each and every one of them, all at the various different rates that have been negotiated? One would have to have a separate accounting department to do that - which alone would bankrupt the vast majority of independent webcasters.
And once you answer that, then please explain how THOUSANDS of webcasters are supposed to comply with the same. It would mean that every mom and pop label out there would end up having to spend a great deal of time having to sort through and field phone calls and letters from webcasters they have never even heard of before asking for direct license deals - and then they would have to keep track who they have worked with and who they haven't. Most small labels are probably not in much of a position to do that either.
In practice, what this means is several things. First, the ONLY practical way for webcasters to get around the statutory rate would be to negotiate a deal with the four major RIAA labels and stop at that point. One would only have four corporate entities to negotiate with and it would give one access to all mainstream popular recordings. And, of course, this is EXACTLY what the RIAA is pushing for because IT WOULD EFFECTIVELY SHUT OUT NON-RIAA COPYRIGHT HOLDERS FROM INTERNET RADIO AIRPLAY.
Furthermore, in practice, it would force the vast majority of webcasters out of business because, I assure, you the RIAA labels will NOT negotiate a direct license deal with every Tom, Dick and Harry out there who wants to play DJ and stream music. Not only has the RIAA already expressed their utter contempt for such "wannabes," they don't have the resources to do it even if they wanted to. It is probably not worth their TIME to deal with countless webcasters individually. So the option of simply dealing with the RIAA labels and ignoring the independents is NOT open to the vast majority of webcasters. And there is NO way possible for webcasters to negotiate with independents on a collective or wholesale basis.
The point is that it is CRUCIAL to both copyright holder AND webcaster that there exists a means to license sound recordings ON A WHOLESALE BASIS in the same way that it is possible to license composers royalties on a wholesale basis through ASCAP/BMI and SESAC.
Right now there is NO SUCH WAY to license sound recordings on a wholesale basis EXCEPT through SoundExchange at STATUTORY rates. The ONLY alternative is to contact each and every copyright holder INDIVIDUALLY - which IS NOT PRACTICAL
Webcasters are in a situation that is really no different than that of someone who owns a small supermarket. Even a small independently owned supermarket in a Podunk town somewhere is going to carry THOUSANDS of different products on its shelves.
Ask yourself how such a supermarket could survive if it was not possible for the supermarket owner to buy his stock through a grocery wholesaler and instead had to contract with each and every manufacturer on an individual basis. He would have to have an entire accounting department that would do nothing but keep up with and pay the thousands of bills for merchandise. He would also have to have someone who spent a good chunk of his day constantly contacting thousands of manufacturers every time stock started running low on certain products - and since each manufacturer is going to have different shipping time frames, that that is also something that the store owner will need to keep track of if he is to always have the merchandise his customers want in stock. Furthermore, he would have to pay shipping charges to each and every manufacturer he deals with - which, of course is expensive on a piecemeal basis.
There is a REASON that supermarkets do not operate this way - they would go out of business if the did because their expenses would be too high as would be the prices they would be forced to charge customers. There is a REASON that independent supermarkets buy most of their stuff through wholesalers and buy directly from manufacturers only when a manufacturer is large enough to have a local presence to maintain routes and service the individual supermarkets themselves.
Now, imagine a weird and twisted world where the ONLY grocery wholesaler that existed AT ALL was a monopoly called FoodExchange that was controlled by a cartel (The Food Industry Association of America or FIAA) of major food manufacturers such as Kraft, Kellogs, Phillip Morris, ConAgra, etc. If you owned a supermarket and wanted to buy wholesale, you would HAVE to buy your products from FoodExchange at very, very high prices. And if you wanted to stock an off-brand product in your store, the price you would have to pay through FoodExchange would be the EXACT same price you would have to pay for a national brand such as Kraft.
Furthermore, if you are a small food manufacturer and wished to sell your product on a wholesale basis, the ONLY wholesaler that existed for you to do that through is FoodExchange. And the people at FoodExchange HATE you and companies like you because you represent a competitive threat to the cartel that controls FoodExchange.
Let's say you sell a line of jams and jellies and have built up a small and successful following though selling them at roadside fruit stands, flea markets, farmers markets, county fairs etc. Your products are great. And since you only have a handful of employees, half of which are family members and do not have a huge bloated bureaucracy to support, your costs are low. You are proud of your product and now wish to hit the big time and make it nationally famous and get rich in the process. You realize you have an uphill battle because nobody has heard of you. You realize that one of the things you will have to do in order to gain attention on store shelves is sell your product for less than the famous national brands so that people will give your products a try and hopefully come back for more. The only problem is, if you sell through FoodExchange, you are not allowed to sell your product for less than the national brands. So there is very little incentive, and even a disincentive because your product is NOT famous, for supermarkets to carry your product.
Furthermore, small independent supermarkets are going out of business right and left because the large national chains that ONLY sell national brands have all struck sweetheart deals with the FIAA brands allowing them to bypass FoodExchange, by buying direct from the FIAA brands and distribute themselves. Small supermarkets do not have the ability to self-distribute and furthermore it is not cost effective for the FIAA brands to negotiate and service countless small supermarkets individually even if they wanted to - which they do not.
Since the independent supermarkets have gone out of business because they had no competitive grocery store wholesaler to turn to and since the major chains do not carry anything but famous brands, you have no alternatives left for your jam and jelly business but to continue on a small time basis selling at farmers markets and roadside stands where you represent no real competitive threat to Kraft and other major companies. Yes, you and the independent supermarkets DO have the option to deal with each other directly - but that option is MEANINGLESS because it is not economically viable for either of you to conduct business on such a piecemeal basis.
THIS is the situation that webcasters and small copyright holders find themselves in. Currently, the ONLY way that either have to license music on a WHOLESALE basis is through the RIAA's SoundExchange monopoly where one has to pay the same price for an unknown artist or a very niche genre recording as one does a major mass market hit. This basically stacks the cards in a dramatic and profoundly unjust way in favor of the perpetuation of the RIAA's lock over the music industry - a lock which was at once time necessitated by technological limitations that no longer exist.
There ARE valid arguments to be made that, if one is to have statutory rates, they need to be on the high side. But they are valid ONLY in a context where there are viable marketplace alternatives to statutory licensing. Such alternatives currently do NOT exist. So long as statutory licensing remains the ONLY means of licensing on a wholesale basis, then those rates need to be set at a level that is reflective of marketplace realities. And one of those marketplace realities is that some recordings are worth more in the marketplace than others. When it comes to airplay, recordings of unknown artists and niche genres probably have a NEGATIVE marketplace value - it other words, under present market conditions, it costs more to stream a given recording that it is able to earn back in advertising. That is certainly true of the recordings that I play - the ONLY way that they can get airplay is if enthusiasts like myself subsidize them. There is a REASON why the term "payola" exists in our language: in some cases, airplay of a recording is more beneficial financially to the copyright holder than it is to the radio station.
If statutory licensing is the ONLY way possible to license recordings on a wholesale basis, the best way to take account of the vast difference between recordings in terms of their marketplace value is by charging for royalties on a percentage of revenue basis as ASCAP/BMI and SESAC have done for decades. That way, to the degree that a station is able to earn revenues from playing copyrighted music, the copyright holder gets a fair share of those revenues. And to the degree a station does not bring in a lot of revenue - well, one possibility is that the station is not very efficient or well managed, which is what SoundExchange always brings up. But the other and more frequent possibility is that the station is more likely playing music that is not able to generate a lot of revenue. A station that plays nothing but Ukrainian folk music would be very lucky if it broke even. For SoundExchange to say that such stations are "inefficient" and need to go off the air misses the point. Efficient at what? If such a station attracts a small but loyal following and provides Ukrainian folk bands an opportunity to gain greater exposure to both their genre and their recordings, I would say that such a station is VERY successful and efficient. For the RIAA to demand that station pay the same royalty rates to play Ukrainian folk music as it would cost to play Brittany Spears is not only unrealistic, it is profoundly unjust to both the webcasters, the artists and the listeners.
If one wished to go to a system of very high priced per-song per-listener statutory licensing, well such a system would need to give the marketplace time to develop alternatives before such a scheme would go into effect. Congress should have created multiple licensing organizations from the get go or, even better, announced a gradual 10 year phase in towards such a system under which rates are announced ahead of time and gradually increase so that copyright holders and webcasters have plenty of time to bring alternative performance rights organizations into existence while still being able to stream and grow their businesses. Of course, the RIAA would have fought tooth and nail against such a proposal. The RIAA has no interest in creating a viable system of performance licensing that addresses the needs of all copyright holders and webcasters. It is terrified of the prospect of the emerging competition - especially the prospect that the artists themselves will go into competition with the labels. The RIAA has made it pretty clear that it wants nothing less than a system that will make it financially impossible for anything other than RIAA dominated FM radio type formats to be streamed over the Internet.