There is a reason for the high compulsory rate policy

The rate set by the CRB is merely the standard rate. Anyone is free to negotiate with labels directly for a lower rate. If terrestrial radio is forced to pay the absurd performance rates Sound Exchange is trying to get them to pay, radio groups will sign direct deals with labels to pay a more reasonable rate. Crisis averted, right? And if we are able to go around Sound Exchange so easily, what's the point of setting a high rate?

The answer is actually pretty simple. When Congress passed the law for performance royalties, they made sure that 50% of the fees went directly to the artists, never passing through the labels. The rest went to the copyright holders. This meant that half of the money generated would never be seen by the labels.

I suspect most of you know how the music industry works. The label pays for recording, promotional and other costs out of their pocket. Then, when sales start coming in, they take their share, and then they take all of the artists' share until the costs have been repaid. Many artists make very little from album sales. Of all people, Courtney Love explained it all very effectively in this speech. So even though an artist may have a ton of sales, they still may "owe" a label money according to the label's math.

This is where Sound Exchange comes in. Sound Exchange is required to pay artists 50%, no matter how much the label says they are owed. However, if you make a deal directly with a label, they money goes to the label first, and only to the performers after the "debt" has been paid off.

So, by setting rates sky-high, Sound Exchange makes itself useless. Anyone who wants to play music is compelled by finances to make direct deals, which net the label more money by cutting out the performer. So even if you pay the label only 51% of the rate that Sound Exchange sets up, the label still makes out better for the deal.

Radio is up next

CD sales, which had been dropping, are now almost in free-fall - over 20% less than last year. The whole business model of a music label may be becoming obsolete. If artists can create home studios for cheaper and cheaper every year and get distribution over iTunes and the internet, what do they need labels for? Thankfully for labels, musicians generally get into music because they hate thinking about business type decisions, so they are slow to recognize what's going on.

With their business model in trouble, they need to find revenue wherever they can get it. If they can establish crazy rates through the CRB and Sound Exchange, they either get those rates, or negotiate artists out of the equation and still make good money.

Terrestrial radio needs to get into online broadcasting, not watch it whither. We need to be in front of the technology wave, not under it. We need to fight Sound Exchange now, because destroying internet radio is bad for American radio. (International stations don't have to pay these royalties, and if you have an internet connection, a station in Zimbabwe sounds the same as a station next door.)

If that isn't enough of a reason, the fact that the head of Sound Exchange, John Simson, as well as their Congressman, have announced their intentions to apply these rates to analog terrestrial broadcasts as well. First there going to stifle internet radio, and then they're coming after terrestrial radio. The only group to benifit would be talk show hosts - who would suddenly be in great demand because screaming about politics or whatever requires no royalty payments. Yet.

Finally, make sure you read that interview in Royalty Week (PDF) between SImson and "Webcasting Pioneer" Brian Zisk – it’s really telling. Like this section, where you can actually hear the talking points forming.

John Simson: Look, believe me, we love internet radio and satel­lite radio so much more than terrestrial radio for a lot of reasons.
Brian Zisk: Right and I think that we would both agree that the terrestrial radio folks should be paying for the masters as well but that’s a whole differ­ent issue –
John Simson: When we take on that battle I’m hoping that you guys are actu­ally in the trenches with us.
Brian Zisk: We will be; we are there.

First, the head of Sound Exchange openly admits he likes terrestrial radio least of the internet/satellite/terrestrial trio. Second, you can see how they are trying to redirect the anger of internet streamers to terrestrial radio instead of where it belongs – Sound Exchange.

As always, AllAccess has my “The Net Untangled Tip of the Day” each weekday and a column on Website Wednesdays. So check back and together we’ll get our internet presence focused on keeping radio strong in this world of increasing competition.

Do you agree with me? Or am I full of hot air? If you have comments or any questions about radio websites – either general questions relating to the industry or the web or even specific (HTML, PHP, .NET, Javascript, etc.) questions, send me an email through http://Preppermint.net/contact . I’ll answer your question quickly and maybe even use it for a future column.