Webcaster Bill Appears Dead in Senate

Just when it appeared a compromise had finally been reached regarding webcaster royalty payments, the bill now appears dead in the Senate:

Legislation that would steeply discount the royalties small webcasters will pay for streaming music was dealt a potentially fatal blow Thursday night when it failed to clear the Senate.

The bill was killed — at least until the Senate reconvenes Nov. 12 — after a Republican lawmaker raised objections to the measure.

Sources with inside knowledge of the proceedings said that Sen. Jesse Helms of North Carolina placed a last-minute “hold” on the legislation, which effectively prevented it from being considered by the Senate. A hold is an informal, anonymous way senators can delay legislation.

Supporters of the legislation expressed dismay at the last-minute tactic, which sources said was prompted by religious broadcasters.

“We are surprised and disappointed the small webcast legislation was not passed as expected by the Senate Thursday night,” said Hilary Rosen, chairman and CEO of the RIAA. “We hope the senators will work this out quickly. All parties interested in this legislation should contact the Senators and urge passage of the bill.”

The Senate’s failure to act marked another turn in the tortuous path taken by the legislation. Helms’ hold was at least the third one placed on the bill in the last few days.

Sen. Diane Feinstein, D-Calif., released a hold on the legislation earlier Thursday, which had prevented consideration of the bill on Wednesday night, after she received assurances that musicians had agreed to the measure, according to knowledgeable sources.

On Thursday, a Feinstein spokesman declined comment on whether she was the senator who had put the hold on the legislation but said she had no “current hold” on the bill.

Sen. Sam Brownback, R-Kansas, had placed a hold on the legislation earlier in the week. Brownback said he was originally concerned that the bill could be used as a precedent for other legislation or the royalty-setting process or could prejudice judicial action.

Senate approval of the legislation is necessary or the bill will die, and small webcasters would be forced to pay the full royalty set in June by the Librarian of Congress. The House approved the legislation before adjourning until late next month.

Both the House and Senate must approve identical versions of the legislation before it can go to the president for his signature. Unless the Senate approves the bill — sponsored by Rep. F. James Sensenbrenner Jr., R-Wis. — it will die, as it is unlikely that Congress would consider it in a lame-duck session.

Although it now appears moot, yesterday RAIN ran a pro and con analysis of the bill:

Pro: Most small webcasters who’ve been around for 3-1/2 years (and had limited revenues and expenses) will only have a retroactive obligation of the minimum payment of $6,500, payable in three installments, as opposed to possibly a bankruptcy-inducing tens of thousands of dollars due this Sunday if the bill doesn’t pass.

Con: Some small webcasters will have to pay more — specifically, if the greater of 8% of their revenues or 5% of their expenses to date are higher than the minimums described at left. For a small webcaster that took a risk and spent a lot of money building an infrastructure, their bill (at 5% of expenses) could also be in the tens of thousands of dollars.

Pro: “Small” is defined (for 1998-2002) as less than $1 million in revenues over the past three years. In this nascent industry, that’s actually pretty big!

Con: On the other hand, some webcasters you’d think should qualify may not (e.g., Live365?).

Pro: The definition of “small webcaster” for 1998-2002 apparently includes the webcast operations of certain larger broadcasters — specifically, those who set up their webcast operations as a separate company.

Con: The definition described [above] seems to exclude most broadcasters who happened to not do so, which seems arbitrary and unfair.

For 2003, the definition of “small” jumps to $500,000, including revenues of the parent company. Thus any webcasters who are subsidiaries of larger companies will lose any benefit from this bill in 2003 and 2004.

An odd clause in the bill says that any webcaster who’s a “natural person” (i.e., not a corporation) has to pay royalties (of 8%) based on all of the revenues of any company he owns 5% or more of (Q: Why such a low cutoff?!?) if that company offers “audio or entertainment programming” or is an “Internet or wireless service.”

Pro: Given the low revenues of most small webcasters to date in the current advertising environment, a royalty rate of $.0007/performance is greater than 100% of their revenues. Even the high end optional rate in this bill (12%) is much lower than that.

Con: The optional royalty rate offered to qualifying small webcasters for 2003-2004 is THREE TO FOUR TIMES the size of the royalty paid to composers (ASCAP/BMI) or paid as the sound recordings performance royalty in other countries.

Pro: Offers the noncommercial FM discounted $.0002/performance rate (from the CARP decision) to noncommercial entities without an FM license. (Note: This also opens an opportunity for hobbyists to establish a nonprofit entity and qualify for this rate.)

Con: Many hobbyists and non-comms were hoping for an even lower rate and lower minimum. (However, note that the RIAA has previously expressed a willingness to come up with a special hobbyist deal later this year, once the more time-critical issue of small commercial webcasters was resolved.)

The recordkeeping requirements for 2003-2004 are tougher than those that have been floated by the Copyright Office, including “the start date and time of each transmission of each sound recording” (!).

The bill establishes in legislattion the concept of “third-party participation revenues,” which may put the record industry in a stronger position in their future efforts to try to get a percentage of rep firms’ commissions as part of their royalty income.

Despite language in the bill, some parties may try to use the rates contained within it as precedent in future CARP proceedings.

Pro: Language in the bill helps resolve some issues that could potentially be in dispute between record labels and recording artists regarding the operation of SoundExchange.

This bill genuinely helps a certain class of webcasters: Most of those who would otherwise be bankrupted by the royalty obligation that comes due on October 20th.

Con: If the bill passes, Congress may feel they have “fixed” all issues involved in webcasting. (For example, all parties involved want to see a change in the procedures of future CARPs. This bill addresses none of those concerns.) The truth is, this bill only addresses the needs of one small segment of webcasters – those that fall in a certain size range and have a certain business model.