NEW STREAMING TARIFF EXPLAINED Chris Byrnes - ByrnesMedia After a 13 year legal battle, the Copyright Board ruled on the fees radio stations that stream music must pay via Tariff 22.B. In fact, they issued decisions B through G, which deal with a variety of online music uses and game sites.
Back in 1996, The Society of Composers, Authors and Music Publishers of Canada (SOCAN) asked the Copyright Board of Canada to approve their Tariff 22, which would have compensated their members by charging Internet service providers for the music that crossed their networks. The Copyright Board denied this as did the Supreme Court of Canada in 2004, but they sent it back to the Copyright Board.
SOCAN redrafted the tariff and submitted it again in 2005. This time they went after radio stations, as well as other users, perhaps because they felt this might be an easier target. They asked the Copyright Board to rule that radio stations that stream music pay a royalty which would be based on a percentage of revenue, or expenses, or monthly fees, whichever was greater. On October 24th, 2008, the Copyright Board released their decision which only applies to the years from 1996 to 2006. This excludes revenues that are already included in calculating royalties pursuant to other SOCAN tariffs. The board determined that broadcasters' online use of music should attract essentially the same liability as their traditional broadcasts. The tariff covers online uses of music other than downloads, which was covered by Tariff 22A. SOCAN have now filed for 2007 onwards, but that decision is still to be heard.
What must have been a major disappointment for SOCAN was that the board also ruled that it did not have enough information respecting music use by certain miscellaneous sites. It declined to certify a tariff for businesses that use music primarily to publicize a brand or a store, amateur podcasts, social-networking sites such as Facebook and MySpace, and even video sharing sites such as YouTube.
The Copyright Board appears to have accepted the vast majority of the CAB’s economic and legal arguments, which means that SOCAN will get 88% fewer dollars than they were asking for. That might make some broadcasters feel better about paying their annual CAB fees.
As an example, SOCAN argued that the costs associated with streaming a signal are minimal, so station profits would be higher, and therefore a radio station should share a higher percentage of those profits with SOCAN. Fortunately, the Copyright Board agreed with the CAB argument that only the revenue associated with the music (the simulcast) should be included in the base rate. They successfully argued that there should also be a discount applied to reflect the ratio of page views to the simulcast. However don’t feel too badly for SOCAN. One industry expert told me that based on current radio revenues, both over the air and streaming, radio stations could pay over $80 million dollars per year starting in 2009 to SOCAN with both Tariffs 1A and 22B.
Since that ruling, radio stations have been receiving letters from SOCAN demanding that they pay this tariff. If you have not heard from SOCAN as yet, don’t feel left out, they will get to you eventually. To help you sleep better at night here is a quick summary of how this new tariff works: If you operate a commercial radio station that streams music on your website, you are required to pay 4.2% of any revenue generated via your website, plus a ratio of audio page impressions to all page impressions. So if a station had 250,000 page impressions in a month and 5,000 audio page impressions, the ratio or discount would be .02. The ruling means the radio station must pay SOCAN 84 cents for every $1,000 of web revenue. However, if the radio station cannot provide SOCAN with the page view information, then the ratio SOCAN asked for and was granted was 0.5, which would result in a station paying $21.00 for every $1,000 in web revenue generated. Hence, there is real incentive to track your online statistics all the way back to 1996 or the date you started streaming audio. By the way, SOCAN is also charging interest on all outstanding amounts, which could amount to as much as 48% of the fees for the 1996 year. Stations in larger markets that have a higher ratio of online listeners will be paying more given the ratios will be different, but you get the idea. The most any station will pay is 50% of the 4.2% of Internet revenues.
“What we have is a very good result” says Gabriel Van Loon, Senior Legal Counsel for the Canadian Association of Broadcasters. “The CAB argued successfully that radio station websites contain a lot of non music content that are of interest to the audience.” This is one of the reasons why the ratio of audio page impressions to all page impressions was proposed and accepted as the means of determining a fairer fee structure.
Non-commercial stations are required to pay 1.9% of the station’s gross Internet operating costs, as well as the ratio mentioned above. The CBC pays using another formula, as does television, but I’ll focus on commercial radio in this article.
If you think this is draconian, then spare a thought for our neighbours to the South. The U.S. Copyright Royalty Board recently established a new royalty scheme that dramatically increases the fees that webcasters will be required to pay to stream music online. The rates include a minimum fee of $500 (U.S.) per year, per channel, with escalating fees for each song played. In 2006 (the decision is retroactive), the applicable fee would be $0.0008 per performance. Since a performance is defined as streaming one song to one listener, a webcaster with 10,000 listeners would pay 10,000 times the going rate for every streamed song. The fee structure increases each year with rates that more than double by 2009. A friend of mine was making a tidy living running an online radio station based in the US that had lots of web visitors and advertisers who were seeing a good return on their advertising investment. He had ten employees and was generating well north of $1 million a year, but the royalty fees kept going up and he eventually shut down the business, putting 10 staff out of a job. Not only did the business model quickly fall apart because of the increasing royalties, but also the fear of yet to be determined fees that could be applied retroactively meant it was no longer a viable business.
StreamingRadioGuide.com’s, Fred Stiening, says “the ‘peak’ of full-power [AM/FM] broadcast stations streaming was around 7,400. The number now is down to about 7,100.” So far, it’s independent owners that are backing out, but if one of the big companies stops streaming these figures could look dramatically different very quickly. The latest figures I have access to indicate that only 36% of AM stations and 55% of FM stations are streaming in the States.
SOCAN is fighting the CBC, the gamers, the cable companies, the recording industry and they are also going after the social networks. In fact, they appear to be fighting on so many fronts that it’s hard to see how they can be successful. They have a deal with radio at least up until 2006, and there are some who feel that SOCAN will want to have at least one less fight on their hands, so they may settle the radio/Internet tariffs for 2007 onwards.
Stations only pay the tariff on the revenue earned from their website. I spoke to a number of radio stations as I researched this article and most admitted they were not making any money from their websites. Some are using the web as a bonus, and therefore, have already paid via Tariff 1A and do not have to pay any additional royalties. It appears only the major broadcast chains in Canada are generating any significant revenue and only because they can provide a huge number of page visits to national advertisers.
Providing a radio station has accurate audio page impressions to total page impressions then chances are the station will pay a much lower fee for revenue generated via the station website. Radio stations currently pay SOCAN about $42 per thousand via Tariff 1A. But using this new tariff, a station may be paying less than $1 per thousand generated via web revenue. I suspect a number of stations will be looking carefully at all revenue generated since they started streaming and may be going back to SOCAN asking for a refund.
Moving forward, it may be less expensive to give radio ads away for nothing and charge the client for their web advertising!
Another interesting suggestion that was made to me by a broadcaster was to set up a different website that provides audio streaming only and link that via the main station website. If this second site generates zero revenue, then perhaps there may be no fees to pay. It’s called the “offshore approach” and I am aware of some radio stations that have this all ready to go if the landscape changes and other tariffs are announced.
But this may not be the end of the tariffs, as SOCAN licenses performances only, so this tariff only covers one piece of the puzzle. SODRAC and CMRRA license reproductions. These organizations currently have a proposal for licensing reproductions before the Copyright Board of Canada, so it’s entirely possible that radio stations will have to pay even more money for the right to stream their signal via their website, and that future tariffs may be retroactive. “The good news is that we have established a precedent” says Van Loon. “This should help us moving forward as we deal with future tariffs.”
At this point it is unclear how this new tariff may impact the revenues of companies who offer streaming services to radio stations. Andrew Snook who is Vice President of StreamON, one of Canada’s largest streaming companies based in Edmonton, says "The issues are complex, contentious, and rarely come to conclusions that are totally equitable. Royalty rates affect a wide group of stakeholders who have a lot to win or lose. Nonetheless, we're thrilled that this thing is finally resolved so that broadcasters can embrace the future of radio and stream on!"
My hope is that these tariffs will be settled quickly and we can all get on with life. One has to wonder how the Composers, Authors and Music Publishers feel about SOCAN spending so much money on legal fees.
Both the iPhone and iTouch offer downloadable applications to enable consumers to stream radio stations, which is a great way to get portable radio back in the hands of millions of consumers. Apple’s new iPod Nano shows encouraging interest in the interactive features of the FM tuner by the younger listeners who are the heaviest users of such devices. If this cool new gadget gets the market share that is predicted, then even more young people will have access to portable radio. I am also seeing more and more companies offering Internet-only radio sets, which is another way for listeners to easily access radio provided they have Wi-Fi. Our medium is becoming portable and easier to access than ever before, but if the fees continue to increase for radio, the margins will get even slimmer. Those that have their hand out looking to radio to fill their coffers may one day find that the well is dry.
At ByrnesMedia we have developed specific strategies to help radio stations attract higher website total page views, which may lower the ratio between audio page impressions to all page impressions and therefore lower the tariff fees a commercial station has to pay. Give us a call at 1-866-332-1331 and we can discuss this further. |