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AG News: 6/5/2008


Internet Radio Fight Continues with SoundExchange

By the end of the day you'll see plenty of reports from the radio industry trades about John Simson, Executive Director of SoundExchange. All will echo the same theme: "SoundExchange Says Internet Radio Continues Growth." Then they'll go on to explain how those thieves who operate internet radio stations want to steal money from artists by not paying royalty rates.

Excuse me while I clear my throat on this next word because it's very important to this story. Bullsh*t.

I've payed close attention to this copyright royalty issue since it surfaced in 1998; was met with a "Day of Silence" in 2002; was revisited in 2007; and continues to be ill-reported by radio industry trade magazines today.

SoundExchange has been, and will always be, a pawn of the record industry that's designed to gouge internet radio stations with royalty rates far exceeding anything collected from other media. What makes this notable is that SoundExchange operates off a government granted license to gouge.

Here are a couple disclosures: I am SVP, Marketing for Spacial Audio Solutions (a leading provider of audio software in the global market). I sit on the board of SaveNetRadio, which is the organization on opposite ends with SoundExchange.

I've read every communique posted by SoundExchange and the Copyright Royalty Board, specifically with the intent of comprehending what is said and, through the years, have written thousands of words to explain the webcasters' side of this story. Here come another 800 words.

No matter what you read about this adventure with SoundExchange, keep this in mind: The whole issue from the webcasters' perspective is that they don't want to pay performance royalty rates which far exceed what satellite radio, cable, and online music services pay. To add to this uneven playing field, broadcasters - your local radio stations - pay no performance royalty fees.

Internet radio operators WANT TO PAY artists. Many times the lead team from SaveNetRadio has made proposals to SoundExchange. Each time they have been met with either no response for very long periods of time, or counterproposals that are so outlandish they do not deserve to be acknowledged.

If nothing else, SoundExchange has a very well-oiled promotion department. Not unexpected for a company that the record industry - a promotion-based industry - created.

Like the record industry, SoundExchange can be rightfully charged with carefully selecting the positioning of its statements to bad-mouth the competition (as the RIAA did with college students) while it spouts incomplete statements that are not researched by reporting publications. Many times publicity releases from SoundExchange are reported simply by lifting long sections verbatim.

Here are some facts you'll not see elsewhere. The first is in response to a quote at FMQB: "While there still are few who are loudly predicting the demise of Internet radio la the boy who cried wolf, the on-the-ground reality is saying something quite different. There is a lot of money to be made in Internet radio and royalty rates are not a barrier to developing strong, workable business models."

1) Whatever dollars are flowing, or will flow, into internet radio, they are not enough to cover the expense
that the Copyright Royalty Board imposed with its rate demands.

2) Multi-revenue organizations like Clear Channel, CBS, and NPR pull from money-makers to pay
SoundExchange for their online money-losers . (There's no incentive for broadcasters to want
independent internet radio stations to survive. They're only more competition.)

3) There are only a few internet-only radio station operators that I am aware of who are able
to meet the royalty payments today. Once these payments rise, as is mandated through 2010,
none of these operators will be able to make payment and net a profit.

4) Nothing has changed in the negotiations between SoundExchange and tens of thousands of smaller
webcasters - in this we include the critically acclaimed AccuRadio, Pandora, Live 365, soma fm,
and the Digitally Imported group of stations. Quoting Jon Potter, head of Digital Media Association (DiMA):
"...they [SoundExchange] have an inflated view of what webcasters can afford."

This is a quote from SoundExchange's latest press release: "Any attempt to devalue the cost of music is an insult to recording artists and the hard work they put into creating the music. Its bad enough we have to fight the radio conglomerates to get a law that requires them to pay recording artists for their work. Webcasters should not be drawn into that zero-value mindset that says music and by extension, the people who create it have no value, especially when the private sector is recognizing that value."

Here's the webcasters' side of this: It has NEVER been said that webcasters want a "zero-value" to the music they play. SoundExchange HAS been offered, many times, proposals from webcasters to pay for the music - at a rate which is fair to both the stations (which make little-to-no revenue in this industry's nascent days) and to the artists whose work is promoted each time a song is played. The rates proposed by SaveNetRadio fall in-line with what SoundExchange charges satellite radio, cable, and online music services.

Yet, this issue is at a stalemate. Neither side visualizes itself as being able to negotiate further.

SoundExchange continues to put out misleading press releases. Radio industry trade publications continue to print these releases nearly word for word, with no investigative reporting as to what the facts are. Anyone who knows mass communications can see that small webcasters are in trouble and are unable to match SoundExchange in this promotion battle. Soon webcasters will be targeted like college students snipped with lawsuits by the RIAA.

If these royalty rates are allowed to stand, you'll soon be hearing only corporate-backed programming online, the same poor quality programming that graces each local radio station in your market.

If the promotional puff that SoundExchange produces continues with no rebuttal, SoundExchange will succeed in its unspoken goal of controlling music on the internet in the same way the record labels have controlled music for decades. If this happens, the only independent internet radio stations will be what's properly dubbed "pirate stations" - they won't pay anyone, anything.

That's not a future I'd like to see. I'm betting it's not one you'd like to live in, either.






To see SaveNetRadio's response to the SoundExchange press release, go here (PDF).

















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President, Audio Graphics, Inc.
Ken Dardis
Online Since January 1997



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