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An Alternative Model to CARP
Last week, I argued that the disproportionate role played by the RIAA/Yahoo! webcasting licensing agreement in determining "rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller" was fundamentally flawed because:
(i) it neglects the RIAA's ability to use its monopolistic power to influence the final statutory rate through private agreements;
(ii) specifically neglects the incentive of "two major players of comparable skill, size, and economic power" to collude towards common goals (such as limiting the number of competing independent webcasters through high royalty rates);
(iii) even taking the agreements between all 26 webcasters and one seller (the RIAA) do not provide an adequate basis for divining a market rate.
So what's the alternative? What other benchmark could be used to derive a market-based solution? Parties representing webcasters point out that performance licenses for transmission over broadcast radio have been collected for decades by the performing rights organizations BMI, ASCAP & SESAC. In fact, the rates proposed by webcasters in the CARP proceeding were extrapolated "from the aggregate fees paid to ASCAP, BMI, and SESAC by over-the-air radio stations holding blanket performance licenses." In addition, webcasters propose a percentage-of-revenue structure as an alternative to per-performance and per-hour fees, based on ASCAP/BMI/SESAC broadcast radio licenses.
Whether the final rate proposed by webcasters was adequate or not, the benchmark they use is certainly more market-based. It includes more sellers (three PROs) than a "monopolistic collective" as well as many more buyers. In addition, they have passed the test of time versus the RIAA's agreements which was only reached recently. Finally, they have contributed to the development of a successful radio marketplace while appropriately compensating rights holders represented by the performing rights organizations. Is this not more representative of a real life marketplace than agreements reached by 27 players?
In order to make an adequate judgement on the question, one can consider the end result. If the rate structures derived in both cases are relatively similar, we could begin to conclude that the RIAA agreements are in fact an appropriate benchmark. The fact, however, is that the proposed CARP rate structure differs significantly from agreements proposed by the PROs, to the detriment of webcasters.
Under the CARP proposal, webcasters are subject to a narrow and rigid formula: an upfront flat rate and one set commercial rate, dependent on the type of stream, per performance. As such, all players in the webcasting market (let us set aside simulcast for the purpose of this argument) are treated 'equally,' independent of their market size or business model. This is in contrast to a standard market economy which tends to develop a multiplicity of pricing models, terms and conditions. As such, a market economy resembles a restaurant menu: you may have an option to purchase 'a la carte', prix-fix menu or all-you-can-eat, to name a few. Some restaurants offer only one model while others may offer several, depending on their size, market and positioning. The result is that a consumer can select the best model for their particular budget, taste and circumstances at the time of purchase.
This diversity of models is exactly what we find PROs offering webcasters, as opposed to the CARP structure, for exactly the reasons stated above. For example, the BMI website states: "In order to better meet the needs of the Internet business community and support new and emerging businesses and business models, we have instituted a choice of rates in our licensing models to reflect the diverse nature of the medium."
This recognizes some essential factors that will increasingly characterize the Internet. For the recording industry, revenue is basically a factor of CD sales. It is to some extent a commodity market. For PROs, on the other hand, their revenues have largely been based on the use of their music, whether by audio/video broadcasters, venues or brick-and-mortar businesses. As such, its business has always been more service than commodity-based. As service-based organizations, they must place particular care to the specific needs of their potential customers at the risk of pricing them out of the market. In addition, they must be able to meet the changing nature of their customers' businesses in order to retain their business.
"Many web sites base their business on the use of music, while others offer it as an adjunct or compliment to the rest of the content on their site. BMI offers several licensing options in recognition of the diverse and evolving nature of business on the web. The different rate calculations make sure that a reasonable value is placed on your particular use of music."
BMI offers websites two main licenses: (1) the standard Web Site Music Performance Agreement; and (2) the Corporate Image License. The first license, aimed at "commercial entities that generate revenues from the operation of the website," offers two different royalty calculations, based either on gross revenues or a "Music Area Calculation," which weighs the royalty in relation to the number of music-related pages to the total webpages. The Corporate Image License, meant for businesses generating little attributable revenues from music, has a rate based on traffic to pages on your web site.
The significant differences between the CARP rate structure and licenses offered by PROs should be a wake-up call for both the panel & Congress. Shifting to a menu of models that allows webcasters to self-select the best rates & terms for their particular circumstances will not only lead to promoting the development of new webcasting services and models, but increased overall revenues for record labels and artists.
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