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Today, Hanson and Rosenthal focus on promotion on the internet. Previously, they debated webcasting economics, the distinctions between online and broadcast radio and whether webcasting should be open to hobbyists. Tomorrow they'll discuss the history of copyright lawsuits.

Who's getting the value here? By Jay Rosenthal
Kurt,

Stanley Kubrick would have loved this one. I see Dr. Strangelove rising from his wheelchair, proclaiming loudly that artists should not be afraid of webcasting. Rather they should embrace it because of all the wonderful promotional value it brings to their careers and how it helps to sell their records. And then I see the screen filing up with all these images of former recording artists all over the world working at McDonalds. Now that is some serious science fiction.

As important as the question may be, perhaps the reverse question is more important: Should the webcasters stop worrying and learn to love to pay the artists for all the music they use to draw listeners to their websites?

Or perhaps promotion is simply in the eye of the beholder.

I have thought about this promotional conundrum for many years. Mostly in relation to U.S. terrestrial radio networks' bogus rationale for not paying recording artists and labels a public performance royalty—but also lately in relation to webcasting and satellite radio broadcasting. It is a classic dilemma: which comes first, the chicken or the egg?

I realize there are problems in determining valuation. The question is very nuanced. But clearly, there is some promotional value to artists when webcasters play their music. And just as clearly, there is promotional value to the webcasters when they—like the terrestrial radio networks—use music to draw listeners to their websites. If one would have to actually weigh the two, I believe the greater promotional value may actually lie with the webcasters. Those listening to the music may or may not buy a record or attend a concert. But there is very little doubt that an Internet radio listener is listening for any other reason than the music.

I have, however, reached one incontrovertible conclusion. Webcasters are without a doubt getting a free ride if they do not have to pay for the music that draws listeners to their websites. Webcasters not only receive great value by using the music, they have actually created an industry using the music.

Now I understand that you are claiming, and not without some merit, that excessive rates (and I am not conceding that the rates set by the CRB are excessive) could possibly cripple or destroy your industry. And we have beaten that issue to death. As with any industry, pricing, costs and supply determine viability. But we are not dealing with that question here. The question here is whether music should be gratis in exchange for promotional airplay. And that I conclude is an unambiguous "no." The music industry should absolutely continue to worry about getting paid for the value they give to the webcasters.

The more nuanced question, of course, is who gains more. In other words, is the music more important to the webcaster than the webcasting is to the artist? The answer to that question is much more subjective in nature. There may be some validity to the point that younger artists need promotion more than established artists. And there should not be any doubt that webcasters hoping to expand their reach use the more established, higher profile music that will appeal to the greater masses.

But with all that said, the key point as it relates to webcasting is that your industry is very young, and I believe it is not unreasonable to conclude that webcasters need music more than artists need webcasting. So I state it with more conviction this time: It is the webcasters who have to stop worrying, and just accept the proper and righteous duty that the music they use must be paid for so that the webcasters gain from the use of that music all the promotion they will need to create a long-lasting and financially viable industry.

Jay

Jay Rosenthal is a partner with the Washington DC law firm Berliner, Corcoran & Rowe, LLP; co-legal counsel to the Recording Artists' Coalition; and a SoundExchange board member. He also represents numerous recording artists, independent record companies, producers, songwriters and independent film companies and is an adjunct professor of entertainment law at the George Washington University School of Law and at the Washington College of Law of the American University.


Tough to be sanguine By Kurt Hanson
Jay,

Is it truly so bizarrely Dr. Strangelovian, as you say in your opening paragraph, to think that artists might embrace webcasting "because of all the wonderful promotional value it brings to their careers and how it helps to sell their records"?

That actually sounds pretty reasonable to me, Jay! Let's take a look at a couple of examples:

  • Canasta is a local indie "chamber pop" band in Chicago that plays three or four club gigs a month and has self-released one CD. We're playing them on AccuRadio's indie rock channel, mixed in between The Shins and Modest Mouse, and they're pretty happy with that! They're getting exposure to a national audience and making CD sales via the link we provide on our player. Our Chicago-area listeners who have noticed and learned to like their music are far more included to go see Canasta perform live than they would otherwise be.
  • The same is true of Chicago-based cabaret artist Justin Hayford. He's recorded three terrific albums of obscure pop standards (OK, they're obscure, so they're not really standards) on the indie label LML Records and supports them with occasional cabaret (and piano bar and restaurant) gigs. Do you think Justin doesn't like having his CDs played to hundreds of thousands of listeners every quarter, mixed in among Frank Sinatra and Blossom Dearie tunes, with Amazon links prominently displayed on our media player while the song is playing? Of course he likes it!
  • Finally, trying to head you off at the pass, let's talk about Frank Sinatra: Perhaps the finest singer America has ever produced, Sinatra has gotten virtually no airplay on American AM or FM radio stations since he and Nancy had a pop hit with "Somethin' Stupid" back in the '60s. Do you conceivably imagine that his Capitol and Reprise CDs sell more copies because he gets no FM airplay than they would if there were a major FM station in every U.S. city that featured pop standards and he did get airplay? We're playing his entire modern catalog on AccuRadio's "Swingin' Pop Standards" channel, listeners love it, and I will bet you dollars to doughnuts that those listeners are buying more Frank Sinatra CDs now than they were before they discovered our channel. (For some informal market research to support this point, click here.)

So, first, I reject your presumption that this is some kind of bizarre concept.

But let's take a look at the rest of that intro paragraph—the display of "all these images of former recording artists all over the world working at McDonalds."

Exactly which class(es) of artists do you have in mind?

If you're thinking of the artists who never had a hit record, one big reason is no doubt that they didn't get radio airplay in the first place, and a sound-recordings performance royalty isn't going to help them because they're not getting any airplay nowadays anyway.

If you're thinking of one-hit-wonders like The Oneders (pronounced "oh-NEE-ders"), I don't see why you presume that having one hit record should guarantee people a life of carefree luxury forever after, which is what you're implying; and in any event, even the most optimistic financial projections for royalty payments that could be received by the member of a one-hit-wonder band is, I believe, perhaps tens of dollars a year at best. You can do the math: Take any size pot of royalty money you like; subtract out SoundExchange administrative fees; split the balance 50% to the artists; split that by the hundreds of thousands of songs that get to divvy that pool of money up (with the bigger portions going to this year's power-rotation hits); then split that among the band members. It's no three-bedroom house in the suburbs, that's for sure.

If you're thinking of a mid-level artist like, say, Mary Wilson of the Supremes (who spoke out on behalf of SoundExchange last month), you know, Jay, she's not working at McDonald's, she's out performing club dates or something. Certainly, though, she's in the class one would be most sympathetic to. But...

If you're talking about Celine Dion or Rod Stewart, which I know you're not, well, here's the problem—to get Mary Wilson $100, you probably have to get Celine or Rod thousands upon thousands of dollars. And the only way to do that, in 2007, is to set a rate so high that it bankrupts—and thus shuts down—the webcasting industry.

And then you get nothing at all, and the public loses a medium it is in the process of embracing, and everyone loses.

In any event, Jay, I too have reached an incontrovertible conclusion. Record labels and musicians are without a doubt getting a free ride if they do not have to pay for the promotional exposure that radio stations give them. Record labels not only receive great value from this billions of dollars' worth of marketing power, they have actually created an industry using this marketing support.

Of course, as you may have noticed, what I've done here is taken your sixth paragraph above and flipped it on you. I'm just kidding. But, to use Al Franken's term, I'm "kidding on the square." That means I'm not really kidding.

We talked yesterday about the "long tail." If we both accept the premise that one of the influences of the Internet has been to reveal the true "long tail" of consumer preferences, and record labels are going to try to take advantage of that to make money, what would be most helpful?

Probably free promotion for all of your "long tail" genres—e.g., for your Celtic artists and your Broadway original cast albums and your electronica sublabel and your classic jazz catalog. Well, you're obviously not going to get that from terrestrial radio, and Starbucks only has room for about four CDs on the counter, so what you might like most if some kind of service—I don't know what you'd call it—promoted those genres with three- to four-minute free (to you) commercials, complete with picture of the cover art of the CD being promoted, plus a link that would enable consumers to buy the CD being promoted at that moment. That would be sweet! That would really enable you to build the "long tail" aspects of your businesses quickly and affordably.

Hey, I know what you'd call it—Internet radio!

There's a saying I love but I don't know who to attribute it to: "The role of technology is to provide opportunities for the entertainment industry, and the role of the entertainment industry is to seek injunctive relief from those opportunities."

That's exactly what's going on.

That "seek injunctive relief" quote is so funny and dead-on that I should probably stop right there... But me address one more point.

Music and radio have operated on what seems to be a pretty fair quid-pro-quo basis for years. Both sides of the business have built massive shareholder value with the help of the other side: Radio stations became popular and profitable playing great recorded music, and record labels became large and profitable thanks to the trillions of hours of free promotion that radio gives their releases.

But what you're saying in your piece today, Jay, is "Yeah, we help each other. But I want more."

I guess it's understandable. To paraphrase a classic line from David Mamet's film, Heist, ''Everybody wants money! That's why they call it money!''

But when you say, "It is the webcasters who have to stop worrying, and just accept the proper and righteous duty that the music they use must be paid for," you're leaving out the issue of "how much."

You're leaving out the fact that your organization went to the Copyright Royalty Board and asked for (and was granted) a rate that equates to far more than 100% of every webcaster's total profits—and in fact (I continually find this astounding) more than 100% of most webcasters' total revenues.

(The hypocrisy of the labels' behavior is beginning to drive me crazy. Your guys used the precedent of other countries' laws as your rationale for establishing a sound recordings performance royalty. OK, fine. But then when it comes time for proposing a rate to the CRB, you ask for 20 times the rate paid in those other counties, completely ignoring precedent! Arrrrghhh!)

It's tough to be sanguine about terms like that.

Kurt Hanson is Publisher of RAIN: Radio And Internet Newsletter, the leading trade publication for the field of Internet radio, and CEO of AccuRadio.com, a popular multichannel Internet radio property that reaches almost half a million unique listeners per month. He previously worked at WLS/Chicago and WLUP/Chicago.

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