2008 Webcaster Settlement Act / The Payola Paradox / My advice to Webcasters

CNET News just reported that the 2008 Webcaster Settlement Act has passed. I'll be honest with you, my knowledge of this Act is scant, other than the basic gist of it. In fact, I'm embarrassed to admit this, but I hadn't even heard of it until today. I checked Wikipedia and couldn't find any info on it. Googling "webcaster settlement act" turned up a number of results for news stories, such as the CNET story. There are also results for a 2002 Webcaster Settlement Act, which I'm presuming is different from the 2008 Settlement Act. I occasionally check in with Kurt Hanson's Radio and Internet Newsletter (RAIN), and Radio World Online, and don't recall any mention of this bill in the last few weeks (admittedly I don't check these sites every day). I also read a number radio blogs, and no mention there either. I'm not implying anything conspiracy-like. Rather, I'm amazed how quickly this thing has gone from virtually unknown to congressional sign-off. But let me explain why I think this is...

In essence (and this is all based on my reading of the CNET article) the Act allows for webcasters to negotiate directly with copyright holders (read RIAA), and negotiate lower royalties than what are stipulated by the Copyright Royalty Board's decision. So what does this all mean, and why did this new Settlement Act pass through so quickly when the Internet Radio Equality Act stalled?

My guess is that Tim Westergren (founder of Pandora) convinced RIAA that it was making them more money than it was costing them. Namely, Pandora (like many other webcasters), sells music through it site. While I have no idea what kind of margin Pandora gets for each sale, I do know that most of that money goes back to RIAA's major labels. While the overall amount of cash going back to the labels might be less than what RIAA could have got had they received the original CRB rated royalty, it's still an overall net profit for RIAA's labels. Therefore, if Pandora were to shutter its service, the music industry would effectively be "cutting off their nose to spite their face". I suspect this is why Pandora has restricted its service to US customers only. I suspect this is why Pandora has been publicly threatening to shut down its service.

I will get back to the Settlement Act in just a minute, but want to discuss a related piece of news first. Namely, a couple weeks ago Wired reported that Adman Doug Perslson proposed a business model around Payola. Wired's journalist (Eliot Van Buskirk) did a good job at explaining the background and the idea, but was ultimately dismissive of the concept. My take on payola? It's now both inherent and irrelevant to radio. This sounds like a paradox, but let me explain. Payola as you may know is the illegal practice of paying off stations to force their deejays to play music so as to boost the music's sales. The reason it failed listeners is that the music wasn't always what deejays wanted to play, and by extension what listeners were counting on the deejays to play for them. Now things are different. Because of affiliate programs (like the iTunes affiliate program), anyone and everyone is in a position to "sell" music. Remember all those innocent mix tapes you made as a teenager for your friends. Back then it was all about making a cool tape that you were hoping your friends would appreciate, or that you could turn them on to new music. Now all you need to do is fill out a form or two and get paid for doing just that. Does this mean you would create a tape that would sell better? Take some time to think about this. I think you'll realize that you would make the same recommendations since your objective (unless you're some kind of sadist) is to turn your friend on to new music that you think they would like. Not only do you know your friends and family better than anyone else, but you also influence them the most too. Take me for example. My friend James (who's blogged here before) turned me on to tons of music, and never saw a cent from any of this. While I doubt he would have got rich off me, he was always a guy I looked to. For a non-conformist, and skeptic of capitalism, James probably made more money for the music industry through his recommendations than anyone else I know. If he were to be paid after-the-fact with no pressure on his decisions before-the-fact, I doubt he would have changed his behaviour much, apart from possibly recommending even more music.

So what's my advice for webcasters? My advice is (if you haven't done so already) to sign up for one or more affiliate/associate programs (e.g. iTunes, Amazon.com), and remind listeners that if they like the track they're hearing they should buy it from your site to keep the station going. For now, streams are not the same as a custom radio application like Pandora or Last.fm, so it's harder to be sure that your recommendation results in a purchase from your site (hence my skepticism that webcasters are out of the woods yet). This is why it's important to remind people of where they should go to make their purchase if they like the song. It will be these numbers which will be your strongest argument if it ever comes to negotiation with the labels.

The good news is that the message is finally hitting home that Internet radio is making the labels money and not taking away. Common sense prevails!

Stay TUN3D.