Small Webcasters Forced To Shut Down Thanks To Royalty Increase

A number of issues seemed to have doomed thousands of small webcasters who use the Live365 platform, which closed down today. The webcasters include everything from one man niche programmers dedicated to new music discovery, to smaller radio stations like Smooth Jazz Chicago and Pulse 87 NY.

One of the main issues that caused the Live365 to close is the recent Copyright Royalty Board ruling to increase the royalty rates webcasters must pay to artists and songwriters.

In 2009 SoundExchange (which collects the royalties and then distributes them) negotiated a rate based upon the amount of revenue generated by a webcaster which helped the smallest webcasters stay on the air. A webcaster with no revenue could pay a flat rate to Live365, which then passed it on to SoundExchange.

That agreement terminated at the end of 2015 however, which now means that smaller webcasters are subject to the same per stream rates as major entities like iHeart Radio and Pandora. With a massive royalty commitment and little revenue to count on, most small webcasters can't afford to stay on the air, and even medium sized webcasters find that all their revenue will be eaten up.

The Live365 platform had additional issues, as it never turned a profit, and now with the new CRB ruling, faced a loss of much-needed investor backing.

This is actually a very complex issue, as there are multiple rates for commercial versus non-commercial webcasters. The fact is that many small webcasters were responsible for exposing new music while paying a very low royalty rate.

Musicians and songwriters now make marginally more, but to what end? If there are fewer outlets for your music, there seems like no winner in this decision, but many with a lot to lose.

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Will Indie Streams Earn Less Than Major Label Streams?

In case you've ever wondered how the streaming rates for services like Pandora and iHeart Radio are determined, it's by a trio of judges selected by the US Library of Congress called the Copyright Royalty Board or CRB.

Ever 5 years the CRB sets a new rate, which usually increases slightly each year of the five.

Non-interactive services like Pandora currently at mandated to pay $0.00014 per stream, but that's due to change in 2016, and the CRB is meeting now to determine by how much, if any, the streaming rate will increase.

There's some evidence that the CRB is looking into variable royalty rates this time around. This means that there could be one rate for the major labels, and another cheaper rate for indies.

This would be a disaster for any artist not signed directly to a major, and as you'd probably expect, the outcry from indie labels has been great.

To be clear, the CRB has NOT determined this is the way to go yet, but there's evidence that the direction has been explored. Obviously not a good thing if it happens, as all those thousand's of a cent rack up over time into some real money.

The CRB does not set the rate for on-demand streaming like Spotify, which does direct deals with the labels.

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The New Digital Music Mechanical Royalties

Don't look now but the a new mechanical royalty rate for digital media is coming. The Recording Industry Association of America (RIAA), National Music Publishers Association (NMPA), and the Digital Media Association (DiMA) have all settled on an agreement that will cover how digital media creators and their representatives will be compensated from 2013 through 2017. The agreement still has to be approved by the US Copyright Royalty Board, but at this point that seems to be just a formality.

The agreement generally keeps the music publishing royalty status quo of 9.1 cents per song download, per song on a CD or other physical formats, 24 cents per ringtone, and the complex formula for subscription and streaming formats, but also adds 5 new categories:

• Paid Digital Music Locker Services providing on-demand streaming and downloads like those supplied by iTunes and Amazon, where music publishers will now get a mechanical royalty rate of 12% of revenue or 20.65% of total content cost, or 17 cents per subscriber, whichever is greater.

• Free Digital Music Locker Services that include a download purchase, music publishers will receive a mechanical royalty rate of 12% of revenue or 22% of total content cost, whichever is greater.

• A new term for a category called "Mixed Bundle" which could include a locker service, limited interactive service, download or ringtones combined with non-music product like a cell phone, consumer electronics device or Internet service would provide music publishers a royalty of 11.35% of revenue or 21% of total content cost, whichever is greater.

• Another new category called "Limited Interactive Service," which is when a subscription service offers a limited amount of music to a single genre or playlists that the user can access at a lower price, will pay publishers 10.5% of revenue, 21% of total cost, or 18 cents per subscriber, whichever is greater. 

• And yet another new termed category called "Mixed Bundles," which is when a CD comes with a download, publishers see 11.35% of revenue or 21% of total content cost.

How publishers get paid for these scenarios has been a very contentious issue over the last few years, but the new categories seem to insure that the writer and publisher will get paid in those circumstances where they didn't before. That said, the above figures come mainly from the industry association's own press release, so there are a lot of details that are yet unknown. I'm sure we'll revisit the topic many times as more info becomes available.

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