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ARSCLIST  July 2007

ARSCLIST July 2007

Subject:

Re: Urgent Message From SaveNetRadio

From:

Dismuke <[log in to unmask]>

Reply-To:

Association for Recorded Sound Discussion List <[log in to unmask]>

Date:

Wed, 18 Jul 2007 09:38:48 -0700

Content-Type:

text/plain

Parts/Attachments:

Parts/Attachments

text/plain (301 lines)

--- Bob Olhsson <[log in to unmask]> 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.

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