At the end of February I'm going to Seattle for the IMA or Integrated Media Association conference. The name sounds reasonably up to date, but in fact it's the leading edge of good old public broadcasting, newly alert and trying hard to navigate the winds of the fast-changing digital mediascape.
I was asked to be on a panel of independent audio, video and new media producers. Fine. I've been early into online media as a niche music service provider and I have some on-the-ground experience to share.
But last week I got another call from the general manager of a midwest public radio station asking me to be on another panel that was going to discuss the situation surrounding payment of royalties by public stations for use of commercial music.
Apparently I pass for an expert on this subject within the world of public radio. In addition to my broadcasting experience, I had a parallel career running an independent record label for 17 years from 1983 to 2001. As a result, I long ago burned the mind-boggling details of the irrationally complicated U.S. music licensing regime into my brain stem.
What's at issue for public broadcasters are "performance royalties" -- the payments radio stations make to ASCAP, BMI and SESAC acting as collection agencies for the music publishers who own the copyrights to the musical compositions.
This is not the same as the copyright for the sound recording itself, which has never required a royalty payment for traditional broadcasting. It's the difference between the "circle-C" (publishing) and the "circle-P" (sound recording) copyright icons you see on CDs.
This distinction dates from 1969 when the sound recording copyright was established, and really got rolling in 1998 with the passage of the infamous DMCA or Digital Millennium Copyright Act, which set out the rules for performance rights payments for "digital transmissions" -- including Internet radio streams, delivery over cable systems, satellites, background music systems and other digital carriers.
Radio stations have made performance rights payments since the 1930s, and it's considered part of the cost of doing business. Public radio and TV have historically paid at a lower rate due to their non-commercial status. The cost is fractions of a cent per broadcast "performance." Frankly, even though stations bitch about it, it really adds up to a very minor percentage of their advertising income in the case of commercial stations. Still, as one veteran ASCAP writer put it, "Nobody wants to pay."
Payment of performance royalties to the collection agencies is a bigger deal for public broadcasters because they are generally much leaner operations. They vary from subsistence economies at small stations, to minimal, carefully managed budgets at medium size stations, to relatively comfortable economies at the leading big city stations. Royalty payments for many public stations are a burden, part of a zero sum game of hard budget limitations vs. service, salaries, and staff.
Things had gotten pretty routine in the royalty area, but in the last few years the arrival of streaming on station web sites threw a new curve into the system. For the first time, thanks to the DMCA, stations were not only responsible for paying royalties to the music publishers for over-the-air use, but also for Internet music transmissions.
For streaming, music publishers were again paid via ASCAP, BMI and SESAC, while record labels were paid through SoundExchange, a new collection agency for the sound recording performance royalty created by the even more infamous RIAA (Recording Industry Association of America).
This new royalty obligation has created more anxiety and teeth grinding than you would ever believe among public broadcasters.
As streaming of each station's air signal went from rare, to optional, to common, to virtually compulsory over the last five years, the chorus of angst has gotten louder. All this for what might amount to a total of a few thousand dollars a year for the average station, plus submitting a list of music played over the course of 3 weeks or a month to the collection agencies.
It got to the point where in 2004, the Corporation for Public Broadcasting (CPB) felt the need to step in and negotiate with the RIAA to pay the royalties for the entire public broadcast system for a period of two years. That agreement will end in 2006 and the word is that it may not be renewed. Thus a fresh round of anxiety from stations about how to deal with it, and the IMA panel on the subject.
How to stop worrying and enjoy paying royalties
About a year ago I did a consulting call with the staff and management of a station that was launching a full time Internet music station around their folk music programming. This was their longtime specialty and they had everything they needed -- music library, air personnel and production resources -- to create a first class niche "channel" around this content.
One of the main reasons they called me was that they were worried about their royalty obligation. My advice was to pay the royalties happily, since that way they would be supporting the artists and labels upon which their programming was based. From my perspective this is just good "cultural citizenship" and too obviously a good thing for disagreement. To my amazement they still resisted the idea -- perhaps a holdover from "broadcast thinking" and the long history of minimal royalty payments in the analog broadcast world.
After years of delay, the rates for "non-interactive" webcasting had been defined in 2004, so the cost of the royalties was finally a known quantity. The RIAA had even created a special rate for non-commercial webcasters that was half the commercial rate. ASCAP and BMI had also created rates and policies for webcasters and published them on their web sites. At last you could have a pretty good idea what your royalty payments would be.
For those who did not have the staff or machinery to create detailed logs and reports, there was an alternate payment scheme based on either percentage of income or yearly budget. The rates were low -- only a few percent of income. When you added it all up, the total of all performance royalties amounted to about 5% of income for a typical webcaster. What, I wondered, was the problem? After all, for music stations, copyrighted music is your main raw material. Most businesses pay far more for materials as a percentage of the cost of their product.
It's the money.
If your webcasting activity has to be carved out of an already distressed station operating budget and is simply a clone of your over-the-air broadcast signal with no other accommodation to the unique character of the Internet -- then any additional cost, including the technical expenditures necessary to maintain the stream, is going to be burdensome. This is why even the cost of streaming bandwidth, now a commodity with steadily dropping prices, is still mentioned by stations as a problem.
This reaction reveals that the underlying problem is not about royalties or bandwidth -- it's about business models. Thus the key to comfort in meeting royalty obligations is having a dependable income stream from Internet broadcast activity. Unfortunately, establishing non-commercial broadcasting online is a more challenging problem than simply reproducing an over the air program stream and putting your hand out. In particular, moving the old voluntary contribution "membership" model over to the net will not work, or not work well enough, in most cases.
Why? One reason is the incremental per user cost of streaming vs. broadcasting, but this has become less of an issue as streaming has become cheaper. The real reason is that the net is an abundance economy, whereas non-commercial broadcasting in the U.S. (and even in Europe where it is tax-supported but still limited) -- has always been a scarcity economy. To put it another way: people behave differently when they have abundant choices. And from now on they do.
Lewis Hill and his colleages at the Pacifica Foundation faced a more difficult business model problem head-on in the early 1960's when they had to figure out a way to support a group of independent stations on the infant FM band with an installed base of close to zero. By comparison, our problems are easy.
Along with giving away receivers with subscriptions, they came up with the radical notion of engaging their listeners at a level well beyond passive entertainment, building a community, and making the service important enough to listeners that they would pay voluntarily, when asked. Over 50 years later, almost everything that has happened in public broadcasting since has been built on top of these concepts.
These days the income portfolio for most stations has long been hedged, and is now typically a combination of voluntary contributions, government grants, advertising aka "underwriting," and funding from parent institutions like colleges and universities. But voluntary support from the audience is still the biggest percentage of income in most cases.
Unfortunately, even though the general concept of communities is booming online, this model won't work for webcasters unless you have a unique, popular and difficult to reproduce service. Perhaps the best example of this is KCRW Santa Monica, which in addition to its huge local audience, enjoys substantial success online due to
1) being technically progressive and early into the game
2) having high quality volunteer and professional talent available in Los Angeles and
3) leveraging numerous unique and high quality existing programs and "assets" like in-studio music recordings
All of these add up to substantial ability to raise money online directly from Internet listeners, most of whom are from out of town.
Cultural Citizenship
Imagine that it's 10 or 15 years into the future and the digitally networked world we are now building is an established reality, touching every literate citizen hundreds of times a day as they live, work, shop, travel and relax.
In this world, a pervasive abundance of information, media and digital services of all kinds is the baseline of most people's lives. The aggregation of public service content offered in limited ways by today's newspapers and periodicals, radio and TV stations, cable and satellite systems, is effectively unlimited and available to everyone, from multiple sources, wired and wireless -- to multiple devices, fixed and mobile.
In this world the core value of public service content -- its educational, cultural, informational or philosophical value -- is more important than ever. But it is far more available, and it comes from an unprecedented variety of sources.
This is a world in which most content creators -- artists, writers, programmers, designers, photographers and videographers -- create with a worldwide audience in mind. Global distribution and basic access to information, current programming and archives is taken for granted.
Program and service brands are more important than ever, as they represent the symbolic identity and reputation of that media product in the expanded cultural landscape. And promotion and marketing of these brands, whether by professional campaigns, word of mouth, or computerized recommendation algorithms -- is the real challenge.
The question that is being argued now and driven, however chaotically, toward resolution is how content creators will be compensated for their creative output. (I did not say "intellectual property," a term that has effectively confused the issue.)
One of the things we've learned from the existing cultural panorama is that commercial media, whether supported by advertising, ticket sales, subscriptions, pay-per-view or underwritten by 3rd parties for whatever reason -- is only one possible model for media support.
We can expect that there will continue to be a vast supply of free, publicly and privately supported media and information, as well as a vast amount of personal media created voluntarily by individuals and ad hoc groups that will be published online and accessible to all. All of this will tend to erode the position of today's broadcasters by adding more noise and competition for our time to the environment.
Where do public service broadcasters fit in a world of superabundant media and ubiquitous distribution?
I'm convinced that in this new media ecology all public service broadcasting as we now know it will be left with is its mission, its program brands, its commitment to truth and quality, and whatever level of competitive service it can provide to end users.
For this reason I believe that incumbent public service broadcasters are overdue to focus on creating their next generation business model -- one based on an unprecedented level of content and service that will positively incentivize users to form valued financial relationships with their chosen service providers on local, national and international levels.
To me this inevitably means going beyond the voluntary contribution model and offering a comprehensive, bundled premium service for a competitive price, along with the community focus and features that the best stations and emerging networks encourage and support. This is the promise of new distribution platforms like OMN (Open Media Network) which offer both free distribution and a robust service platform to both broadcasters and the public.
My biggest concern is that if public broadcasters do not do this, they will effectively cede their audiences to Google, Yahoo, AOL, MSN and a new breed of specialized online media portals that will in time provide all the public service and niche content most users will ever want in cheap, convenient interfaces.
And because they will finally be running a business where income can be linked directly to use, I believe that providers of public service content should positively embrace the payment of royalties and revenue splits ("revenue sharing") to their content providers -- whether network or station-based, salaried or independent, domestic or foreign. Ultimately, I think this may have to extend to sharing revenue from sponsorship and underwriting as well as direct downloads and subscriptions.
This may sound wildly utopian compared to current practice, but I believe that anything less than this level of commitment will ultimately doom specialized content aggregators (read: stations, networks, portals, services) to 3rd class status or worse in the emerging digital mediascape.
The era of effective monopolies on exposure of public service content is over. Along with the audience, public service producers and content creators will finally have choices: they can, and will, choose to work with those who pay them fairly and with fully transparent mechanisms -- even though the payments may be fractions of a cent per minute or per use. This idea is already working in the affiliate and commission programs of Amazon and other online retailers.
The challenge facing the incumbent system is to learn how to build, operate and charge for premium levels of service -- while strengthening and supporting their content providers by paying royalties, commissions and revenue shares. At the same time, stations will "hyperlocalize" and build more intimate and interdependent relationships with their users, suppliers and underwriters.
It's the future, and the future is already here.
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Interesting to read this today. KCRW (your chosen example) is off the air due to the changes in royalty rates. I guess they don't realize they should be "paying happily".
Posted by: John Doe | 10 March 2007 at 10:22 AM
Mr. Doe,
I don't make policy at KCRW, but I can tell you that the station has multiple income sources, is doing quite well financially, and could pay substantially higher royalties for its webcasting activities if required.
Pulling their streams is part of a larger campaign by the webcasting community to ramp up public reaction and pressure on the Copyright Royalty Board and the music industry to keep rates at current levels. See www.savethestreams.org.
In other words, it's politics, not economics at work here.
My larger point — that there is a structural difference between free, ad or listener supported webcasting and more comprehensive, subscription or fee-supported services, I believe remains valid as a long term solution.
Posted by: drSpace | 10 March 2007 at 02:56 PM
Summarized like this, it reads like a truism: Subscription or fee-supported services are different structurally from free (whether ad- or pledge-drive-supported) services...
One webcasting question is why should web-based media pay more royalties than traditional broadcasters -- never mind "happily"...
The other question (larger than the webcasting issue, of course) is this: if "public service producers and content creators [...] will choose to work with those who pay them fairly", what's public about them?
Posted by: John Doe | 11 March 2007 at 07:00 AM
Good questions, John. I've never thought that traditional broadcasters should pay less royalites than web-based or other providers of "digital transmissions" — but that's the way it is.
The whole situation is deeply irrational and badly corrupted by history and political influence. Others have detailed this story far better than I, so I'll only hit the high points by saying that the two laws that set up the current situation — The Telecommunications Act of 1996 and the now infamous DMCA or Digital Millennium Copyright Act of 1998 — were a very deliberate play by the music copyright stakeholders and their lobbying arms (record companies via the RIAA and music publishers via the NMPA) to repair a problem that dates back to the 1920s.
As I detailed above, conventional radio and TV pay composers, authors and publishers a statutory rate for use of the underlying music composition copyright, while digital transmissions (webcasting, cable music and satellite) pay both the publishers and the owners of the sound recording. This is the normal practice in Europe and the rest of the world.
The history in the U.S. is that when radio emerged as a new technology in the 1920s, the music publishers were the reigning power center in the business. Record labels scarely existed, and the RIAA wasn't even on the horizon. Airplay was considered promotion for the recordings — a quid pro quo. Thus the royalty that is collected by ASCAP, BMI and SESAC in the U.S. goes to the music publishers, composers and songwriters, not to the recording artist or record label.
The concept of a separate copyright for the sound recording didn't even exist until 1969 (the "circle P" copyright), and it was not until the DMCA set out the rules for payment for digital transmissions and SoundExchange was created to collect them, that it became a burning issue for webcasters, who've been fighting to keep the rates low ever since.
On the other side. the incumbent radio and television industries through their powerful lobby the NAB, have been doing everything you'd expect to maintain the status quo and slow down the emergence of digital competitors.
In short, more politics. I agree with you that in theory it makes sense for all transmissions to carry the same royalty obligations. Unfortunately, the real world situations are totally different between say, established commercial radio stations and webcasting startups. As a result, we have a messy fight.
As for your second question, the whole issue of what constitutes "public" service media has been distorted beyond all former boundaries by the Internet. The producers, distributors and content aggregators I know all have complex motives and widely varying means of generating support for what they do. I was making a general statement about a sustainable system, but if the current situation is any guide, I'm sure that whatever emerges will defy attempts at generalization.
:: SH
Posted by: drSpace | 12 March 2007 at 02:09 AM