In the UK, royalties from online services jumped by 32% last year, according to a report from PRS for Music, the Performing Right Society in the United Kingdom for composers, songwriters and music publishers. In fact, royalties from online services (including both streaming and downloading) now produces more revenue than radio, according to the new report.
The growth figure reported by the UK body is very similar to the percentage increase recently reported by SoundExchange, the licensing and collection organization for performance royalties in the US. The 2012 reported figure for royalties collected in the US in 2012 was $502.2 million, a 35% increase over the 2011 number.
What’s different of course is that in the US, performance royalties are not paid by broadcast radio services, so a comparison of online versus royalties from radio sources cannot be made.
On May 23 in Brussels we’ll be discussing the business of Internet radio and online audio at RAIN Summit Europe. View the speaker list and agenda here.
Royalty payments from SoundExchange set a record in 2012, and exceeded the previous year by 58%. Payments to artists for performance made by Internet radio, satellite radio and cable radio services hit $462 million. Payments for performances made by subscription services are not included in these figures.
“SoundExchange’s increasing annual royalty payments are a positive indication of where the industry is heading. As digital radio continues to grow, so should the amount that performing artists and rights owners receive for the use of their content,” said SoundExchange President Michael Huppe. “Our distribution represents another record-breaking year for SoundExchange, but more importantly, it means more money in the pockets of the creators of music. We’re optimistic about the industry’s future, and look forward to maximizing digital performance royalties for the people we serve and finding new ways to propel the music industry forward.”
To be accurate it’s important to understand that not all of this money ends up in the hands of “creators of music.” According to Billboard, first, SoundExchange takes 5.3% off the top for administrative fees. After that, the “net” figure gets divided up as follows: record labels, or owners of the sound recording, get 50%. Performance artists get 45% and session musicians and backup singers get 5%.
Earlier this year it was estimated that Pandora was responsible for 37% of that record breaking number collected by SoundExchange. While SoundExchange doesn’t specifically report the figure they pay for performance royalties, they do report a “content acquisition fee”, which topped $182 million through their Q3 of 2012.
In casting around online I found this website. Whymusicmatters.com was created by NARM and RIAA as a resource to help consumers find authorized online music services. The site also features videos by various artists singing about the value of music.
“For the first time, in 2011 digital music revenues surpassed those generated from physical sales and that marker was reached because of a breathtaking array of services and platforms embraced by music companies.”said RIAA Chairman & CEO Cary Sherman. ” We understand that with so many options for accessing music online, users are eager for more information about which services are legitimate and what kinds of functionality they offer. That’s why we’re excited to be partnering with NARM and digitalmusic.org to launch whymusicmatters.com, which will hopefully make it easier for fans to access and discover sites that offer their favorite music.”
I’m glad to have found a resource where I can determine if a service is authorized, since it’s one of my personal policies to avoid promoting services that are not. But I’m disappointed in the site – apparently it’s really a site to help consumers find RIAA/NARM’s preferred online music services. It’s really hard to find Internet radio stations because they are listed as “statutory services” under streaming. All the premium subscription services are listed and linked to individually, with logos and descriptions, on that page, and then at the very bottom there’s a box that says “Statutory Services” which opens a new page where the listener has to click through hundreds of alphabetized radio stations (no logos, no descriptions, no links) to find one.
Unfortunately, this site is a glaring in-your-face example of a bad business partnership. Internet radio services, Pandora in particular, are paying a lot of money in royalties to SoundExchange, the royalty collection arm of the RIAA, and in return they get a listing buried deep in the site with no logo or link. Is there any other business you can think of where the vendors treat their retailers so badly? Because that’s what this is, it’s streaming services buying the rights to content and offering it to consumers. And clearly the RIAA and NARM are bad business partners for Internet radio…
While online radio battles publicly for lower performance royalties lately, satellite radio learned on friday that their rates would increase slightly, but remain remarkably lower than those paid by streaming services. All of these royalty payments are paid to SoundExchange. Beginning in 2013, satellite radio will pay 9% of its revenues to SoundExchange, a 1% increase over this year. The rate will increase by .5% each year after that until 2017.
Webcasters like Pandora meanwhile pay approximately 50% of their revenues to SoundExchange, and attempts to lower that fee have been met with fierce condemnation by record companies and artists. The Internet Radio Fairness Act calls for lower rates for streaming that would be closer to those of satellite radio. Broadcast radio in the US does not have a performance royalty obligation.
This announcement that the Copyright Royalty Board has reviewed all the information and chosen to maintain low percentage of revenue royalties for satellite ratio can only help to validate the argument that streaming royalty rates for webcasters are unfairly high. While I won’t pretend to understand all of the ins and outs of the legal case that was presented at the CRB hearing on this matter, I think I do know enough about the lay of the land to be concerned about the future of Internet radio. It would certainly appear that record labels, and possibly even the CRB have set it sights on the industry, arguing fiercely for much higher rates than other technologies pay, and refusing to budge in negotiations. Now this has been validated by a government agency, meaning this was no mistake…
I’ve been thinking lots about the latest round of royalty struggles between Internet radio players (such as Pandora and iHeartRadio) and artists and record companies, represented by SoundExchange and MusicFIRST (and other lobbying organizations). The history behind this is complex and multi-layered.
The crux of the matter is that webcasters have a compulsory license to stream music as long as they pay performance royalties to SoundExchange and follow certain programming rules. That license was designed to make it easy for webcasters to stream without having to go door to door to each artist and record label to get licenses. Unfortunately, that left the matter of determining how much the royalty paid to SoundExchange should be, and that is supposed to be determined by a willing buyer/willing seller equation.
Pandora, which bears the biggest share of the royalty burden because they have the most listening of any of the webcasters, is paying somewhere around 50% of their revenues in royalties. They want a more equitable rate. But they have to get SoundExchange, funded by the record companies to agree, and that’s been a challenge.
The reality is that if Pandora claims they can’t pay what the record companies and artists claim is the rate they are willing to accept, then there is no willing seller in the room. And if that’s the case then webcasting services like Pandora, with more than 100 million listeners, go away. Can that possibly be what artists want?
Pandora has made some mistakes recently in their PR battle for a fair royalty. Top executives have been selling shares of the stock in big numbers and pocketing cash, and while there is nothing wrong with that, this might not be the best time to be taking profits while claiming that their business model is broken. But the bottom line is that Pandora is a hugely popular music platform that enables lots of musicians to reach their audiences, and artists need to notice that. If they gave one hoot about the business model they would have to admit that the royalty was too high. The willing buyer/willing seller model is supposed to incentivize artists to care about the business model and include them in the market process.
Instead, it’s created a battle of words controlled by lobbyists and press relations firms. It’s time to stop pandering to the press and start figuring out a way to stream music that works for everyone.
Zoe Keating is an independent musician who has an independent opinion about the Internet Radio Fairness Act that’s worth listening to. She says that almost every day someone asks her what she thinks of it, so after doing a lot of thinking she took the time to write a really great post on her tumblr about it all. First let me say that I try hard not to overdo it with discussions of royalties here on my blog because I think that others do a better job writing on that topic, and frankly, it’s a little dry for me. So I was charmed to read this on Ms Keating’s post:
“The subject of internet performance royalties is not only mind-numbing and very hard to focus on, especially when you have a toddler attached to your leg, but it is also joyless. It’s not rocket science, but I think rocket science would be more fun.”
Amen. Nonetheless, she perseveres, and comes up with some great thoughts that are not the usual gibberish that musicians spout after being prepped/educated by their record labels.
First of all, Ms Keating wants to know why the Internet related royalty payments that she receives are so hard to figure out. For example, she says she gets statements from SoundExchange that don’t even tell her anything about how many people have listened or how many plays she’s getting paid for. And she’d like to know that. In fact, she’d rather have that information than money because she recognizes that it would help her know her audience: “I wish I could make this demand: stream my music, but in exchange give me my listener data. But the law doesn’t give me that power. The law only demands I be paid in money, which at this point in my career is not as valuable as information. I’d rather be paid in data.”
After a really long and logical explanation of what she gets paid in royalties and what she thinks would work, Zoe Keating comes to this wonderful conclusion:
“we should make royalties equitable and fair for every kind of service: internet radio, satellite, commercial terrestrial radio. On the internet we can determine how many people are listening…In essence, let there be One Royalty Rate To Rule Them All and get rid of the percentage-of-revenue system (unless a broadcaster is non-profit, or maybe even during a well-defined start-up period)… I think this means internet royalty rates will need to come down (although not as much as proposed), and satellite and terrestrial will come up.”
All that, and she can play too…
Last week the Electronic Frontier Foundation, which tasks itself with protecting the public interest with regard to digital rights, got my attention by coming out in support of the Internet Radio Fairness Act. That’s the bill that has been introduced in congress to equalize the performance royalties that various streaming platforms pay around one standard. Currently, different standards are applied to streaming services based on who owns them and the type of services they provide.
From their post on the topic, here’s an excellent explanation of the issue at hand:
Music services aren’t all treated the same, though – Congress gave older, more established companies a leg up. For satellite and cable radio, the judges set prices to give the labels and artists a “fair return” and the music service a “fair income.” In practice, the judges tell these services to pay about 10% of their revenues to the artists and labels. For Internet radio, though, the judges are supposed to set rates based on what a “willing buyer and a willing seller” would do in an open market.1 This sounds pretty good, except that there is no open market, so there’s no consistent benchmark. As a result, judges have set Internet radio royalty rates at cripplingly high levels. Internet stations went to Congress twice, in 2008 and 2009, to get temporary relief from rates that would have put them out of business. Today they pay about 50% of their revenues to SoundExchange.
In case you got lost, they explain that satellite and cable services pay 10% of their revenues in performance royalty fees, while streaming services pay 50%. Simply because the technology is different. These are services that do not provide on-demand access to songs. You can’t download anything.
An article yesterday in the NY Times quotes Clear Channel’s Bob Pittman and Pandora’s Tim Westergren in support of the bill. The two companies compete fiercely as brands, but have paired up to support the bill as leaders in the Internet Radio Fairness Coalition.
MusicFIRST meanwhile, is the coalition of record labels, artists’ representatives, and unions that would like to bring the bill down. They would like fairness, but they’d like everyone to pay based on that “willing buyer/willing seller” arrangement that nets them 50% of revenues. Which would likely drive streaming out of business. And what would happen then you might ask. Would all the younger demos that have gotten so attached to streaming stop listening, or would they go underground and start listening to services that pay nothing? I’m just saying..
The Internet radio world is buzzing with talk of new legislation just proposed that would change the standard for determining performance royalties. If it passes, it would likely set the stage for lower rates, which would create a far more attractive playing field for Pandora and others. The services that would be affected are those that qualify as webcasters – services that play a programmed stream of music, but not those which play any specific song or artist on demand.
I’m not going to dissect the proposed bill here – there are places where you can read the technical nuances. But I do think that a general understanding of the issue is important to industry watchers and business folks. So here are the basics, at least as I see them..
- The Copyright Act is the law of the land for setting rates for most royalties. In it, section 801(b) uses a “fair market value” assessment to evaluate and determine rates paid for the use of copyrighted works, such as an artist’s song.
- 801(b) is the law of the land for satellite music, which is similar to webcast services in many ways but different in the technological delivery of the audio because it is delivered via satellite rather than stream.
- Webcasting services were specifically excepted from using the “fair market value” standard for their rate setting negotiations with license holders (recording services). Instead, they must use a “willing buyer, willing seller” standard.
- This has resulted in enormous royalty obligations for webcasting services where Pandora has in recent history paid about 70% of its revenue in royalties, while Sirius XM pays 8%.
My colleague Kurt Hanson, Publisher of RAIN: Radio and Internet Newsletter, gave an excellent example of the reason why “willing buyer/willing seller” is a bad standard during his State of the Industry talk at RAIN Summit Dallas. Kurt’s cat is old and tired, and not very pretty. But he loves that cat and wouldn’t sell it for any price. For the purpose of the example, let’s say he would sell it for $2000. But, after seeing the pathetic picture of the cat that Kurt put up on the screen, there’s not a sane person in the world that would pay even $5 bucks for that cat. It’s an excellent example! Artists can’t be objective about their art – of course each song is just like Kurt’s cat. Forcing webcasters to keep offering $5 bucks when they think they’re worth $2000 is like continually rubbing salt in the wound…
Over the weekend, Pandora Founder Tim Westergren sent out an email to Pandora listeners. “This bipartisan bill will correct the incredible inequity in how different digital radio formats are treated under the law when it comes to setting royalties…In 2011, Pandora paid over 50% of our revenues in performance royalties, while SiriusXM paid less than 10%.”
It seems simple, right? MusicFirst Coalition, which represents artists, is already against the bill, preferring the existing standard. Record labels will oppose it as well. But the proposed legislation has some strong support as well – the Consumer Electronics Association, and the National Association of Broadcasters have already come out in support of the bill.
Details of Apple’s entry into the Internet radio space appeared last week, and because it’s Apple, they got lots of attention. Apple has been interested in the space for a while, so this does not come as a big surprise. As WSJ.com puts it – Apple pioneered the online music business with iTunes, and drove it with hardware sales. Now that streaming services have begun to cut into song download sales, it’s time for iTunes to step it up.
Reportedly, Apple is in private talks with the record labels to negotiate royalty deals. Everyone knows that the performance royalty issues related to streaming are prohibitively expensive – content acquisition is the pricey challenge in the space. Indeed, Pandora shells out 50 – 60% of its revenue to labels and artists. The question is, does Apple have the kind of clout with the labels that can leverage an improved royalty landscape? And if so, is it possible this would benefit the streaming marketplace overall?
As far as what the service will be – it does sound a lot like Pandora. The NY Times says “Apple’s service would probably take the form of a preinstalled app on devices like iPhones and iPads and might be able to connect to users’ iTunes accounts to judge their tastes.”
First responders to the news about a streaming service from Apple proclaimed doom and gloom for Pandora. And the truth is, Pandora is so big and so reliant on Apple at this point that they probably will lose listeners if Apple opens up a service of their own. But that doesn’t mean it would be the worst thing for the streaming marketplace. In fact, given Apple’s golden touch, the fact that they are looking so closely at streaming and radio in general these days, could bode well for the space…
Royalties collected by SoundExchange grew by 40% in 2011 to more than $377 million, up from $270 million in 2010. According to their annual report, SoundExchange distributed $292 million in the form of payments to artists, in 2011. The revenue represents royalties from streaming, cable and satellite services.
According to a report by the New York Times yesterday, SoundExchange has paid $1 billion to artists and record companies since its founding in 2000. Quarterly payments this year top $100 million. This significant revenue figure was a long time coming and the recording industry has suffered huge losses due to the shift from listening to cds to streaming. Now, some artists are starting to recognize the online opportunity.
According to the Times, Jagjaguwar Records, whose acts include Bon Iver and Dinosaur Jr., has received $95,000 in payments from SoundExchange since 2007, according to founder, Darius Van Arman, who called the service “an increasingly vital source of revenue.”
This news comes at a time when Pandora Founder Tim Westergren and others are lobbying Congress for more equitable performance royalty rates among broadcast, satellite and streaming services.