The Net Untangled has spent some time looking at the SoundExchange / Copyright Royalty Board / Internet Performance Rates Controversy earlier this year. If you've followed the news all over the internet, some of this may be repetitive, but this week will be an update of the current situation.

In short, digital audio streams, like through the internet or satellite, have to pay "performance royalties" to the performers of a song, in addition to the songwriters' royalties that terrestrial radio already pays. Over the past five years, the rates for performance royalties were significant but survivable for online streamers, including terrestrial radio stations simulcasting online.

Then, in March, the Copyright Royalty Board decided on new rates for performance royalties for the next five years that were exceeded revenues for most online streamers - making streaming music online a financial loss, no matter how many listeners a stream was able to build up. Even better, these rates were retroactive to the beginning of 2006 - so businesses that made a decision to start streaming on the web based on past rates would now owe a great deal of money for past broadcasting - even if it made no business sense for them to do so. They couldn't go back in time and un-stream those songs - so they were stuck.

Now, this was somewhat confusing as SoundExchange, the organization that collects these royalties and distributes them to artists, would seem to be hurt by these increased rates as many internet webcasters would simply turn off their stations instead of paying these high rates. But to understand SoundExchange's motivations, you have to look at the music business. CD sales are down dramatically and while paid downloads are growing, their revenue is not big enough to counteract the loss of CD sales. So the music industry needs money.

SoundExchange can provide this in two ways. First, by increasing the compulsory rates that webcasters have to pay to stream music online, they make dealing with labels directly a more attractive option. There is no law that says that webcasters have to pay whatever rates the CRB sets. Webcasters are free to negotiate lower rates with labels directly. This works out for labels since SoundExchange is legally obligated to share the fees with the performers, while rates paid directly to the labels through negotiations can be filtered through the label first - where artists don't see any money until all of the label's expenses have been recouped.

Second, SoundExchange is coming after terrestrial stations next - saying it is unfair that terrestrial radio has not had to pay performance fees. After getting away with charging internet webcasters through the teeth - SoundExchange, the RIAA and others are pushing Congress to extend the performance royalty to analog radio. If they can hold up a high rate against webcasters, it puts them in a much better bargaining position when it comes time to set that rate for terrestrial stations. Compared to the near total annihilation of the internet music radio industry, any rate they propose for terrestrial radio will seem like a deal - and the revenue pie for radio is much greater than the pie for internet streaming. Even if they end up with a smaller piece, it will be worth a lot more.