The Examination Of A Folly
Kurt Hanson's Radio And Internet Newsletter links to a Beta News article which illustrates just how absurd and out of whack the new SoundExchange royalties really are.
Beta News analyzed the amount of royalties that AM/FM broadcasters pay for composers' royalties to ASCAP, BMI and SESAC. Beta News estimates that the total royalties paid by AM/FM broadcasters in 2006 to the three organizations combined is approximately $437.5 million. These amounts are for the royalties paid by all of the over 12,000 AM/FM stations in the United States.
It is important to keep in mind that AM/FM stations are exempt from paying the SoundExchange royalties that Internet broadcasters are required to pay on top of ASCAP/BMI/SESAC royalties.
Here is where this starts to get interesting - as well as bloody absurd.
According to Beta New's calculations, in 2006, AM/FM stations in the USA paid, on average, $1.56 per listener in royalties. By contrast, based on the recently announced retroactive SoundExchange royalty rates for 2006, Internet broadcasters would owe, on average, $8.91 in per listener royalties for that same year. By the year 2008, this cost would rise to an average of $15.59 per listener.
Let's do some math.
According to that article, 56.7 million listeners tuned into Internet radio every week during 2006. Using Beta New's numbers, 56.7 million x $8.91 = $505.2 million in royalties retroactively owned by Internet broadcasters for the year 2006.
Now let's go back and look at the numbers quoted earlier.
In 2006, the over 12,000 AM/FM stations combined paid $437.5 million in royalties verses the $505.2 million that Internet radio broadcasters will have to pay under the new royalty rates that Internet broadcasters will owe retroactively for the year 2006. In other words, under the new rates, Internet broadcasters will have to pay 67.7 million more in royalties for 2006 than all AM/FM stations in the USA combined despite the fact that the audience for Internet radio is only one fifth the size of the AM/FM audience.
To put it bluntly - there is simply no basis on which anybody this side of a mental institution can claim that such royalty rates are reasonable, rational or just. That is why, to me, the only apt description of the new royalty rates is: they are insane.
There is a famous line in a novel that says: "Don't bother to examine a folly - ask yourself what it accomplishes."
The new royalty rate structure may be insane. But unless quick and immediate action is taken, it will do exactly what it was designed to accomplish: to close down Internet radio and eliminate the competition and threat that it poses to the large audience concentrations on FM radio the major labels which dominate the RIAA depend on in order to promote the sales of lowest common denominator hit recordings.
Please speak up NOW and don't let that happen.
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