Hi Brian,

Hope you're well too. Frankly, I was surprised at your e-mail, because I simply can't believe that you could be so misinformed. Here are some corrections and thoughts ...

1) No spin about 50 percent of the royalties going directly to artists is necessary. The statute requires that 50 percent of the royalties be allocated to artists, and the CARP determined that this 50 percent should be paid directly to the artists (i.e., not through the record companies, and thus no recoupment). Period. In fact, the members of SoundExchange had already agreed to direct payment -- the CARP decision ensures that others distributing royalties will do so as well.

2) Where have you been? While SoundExchange is currently a division of RIAA, it won't be for long. RIAA, record companies and artist groups (including FMC) agreed last fall that SoundExchange should be governed by a board that is evenly split between sound recording copyright owners and artists representatives. The process of separately incorporating SoundExchange has begun.

3) Yes, it is true that the costs of collecting and distributing royalties will be deducted from the royalties, but how else would the money get to the record companies and artists? And why should record companies, which fronted millions for the CARP on behalf of all royalty recipients, be stuck with the bill for 100 percent of those costs? Shouldn't all royalty recipients share the costs? Again, everyone involved in SoundExchange agreed to this, including artist representatives FMC, AFTRA, AFM, MMF and RAC. By the way, isn't that how other collection and distribution agents, such as ASCAP and BMI, work -- they deduct costs (including litigation) from the royalties collected?

4) Maybe you are suggesting that webcasters should pay the costs of collection and distribution instead of the royalty recipients. We'd be all for that. In fact, if you are so concerned about limiting the necessary costs of collection and distribution, you should be preparing comments in the upcoming record-keeping proceeding that ensure webcasters will provide detailed information so that SoundExchange's costs can be limited.

5) Your statement that all the royalties could end up in RIAA's or the labels' coffers is most misleading of all. As I've already said, 50 percent of the royalties go DIRECTLY to artists (without passing go). The provision you referenced in our agreement with the artists' groups doesn't change that -- that provision was an agreed-upon mechanism to ensure that RIAA's investments in building the infrastructure of SoundExchange won't be lost to reckless decisions by the board. Remember, RIAA (not the artist community) invested millions to establish SoundExchange, and it is now giving 50 percent of the organization over to artists. Isn't it prudent to protect that investment with some kind of safeguard remedy in the event the board, without a super-majority vote, does something to undermine that investment? In any event, no one expects that that provision will ever actually be invoked, and the artist groups agreed to it.

6) Now to your propaganda about webcaster finances. First, you point out that most webcasters are either out of business or on shoestring budgets. For those out of business, I assume you'd agree that royalties had nothing to do with it because they'd never paid a dime (e.g., NetRadio went out of business before the royalty rates were even announced thus denying record companies and artists in the millions of dollars). For the others, you claim that most are using Shoutcast or other free software. But they still must be either paying for bandwidth costs that would generally exceed their royalties, or having someone like live365 pay on their behalf. Live365 participated in the CARP proceeding (and actually hired two different high-priced law firms to represent them!). In the proceeding, live365 submitted evidence demonstrating how their costs for bandwidth, employment, sales and marketing, and hardware and software were many, many times their revenues. Of course, I can't tell you the exact amount because live365 conveniently redacted that information from the public record so as not to undermine their other arguments.

7) In fact, we took the opportunity to check out some of the webcasters cited in yesterday's New York Times article (which I assume you are familiar with given that most reporters I've spoken with had already spoken with you). Here are some real facts:

The article said Beethoven.com would pay more than $100,000 in fees, but according to Measurecast reports on time spent listening, they would actually pay $23,476. (Ken Shively at Beethoven.com told me the fees would be a little higher because Measurecast doesn't capture all the streaming, but even then the number would be closer to $35,000-$40,000, roughly the same as their bandwidth costs alone.) OnionRadio is part of the WarpRadio Network, which includes 12,518 stations. WarpRadio is likely to be paying, not OnionRadio. More important, based on Measurecast reports, WarpRadio would owe about $57 per station. By the way, I called OnionRadio to make sure that they understood how the rates work, but my message was returned by DiMA -- thus confirming our belief that leaders in the webcast community are using small webcasters as pawns in an orchestrated misinformation campaign designed to influence the appeals process and policymakers primarily so that large companies like AOL and MTV can get lower rates. KSDS-FM, which the article said shut down, told me that their fees based on the per performance rates would be about $51 annually. Finally, JavaJane is part of the live365 network. Again, live365, which participated in the CARP, will pay on behalf of JavaJane. Moreover, if you go to the site, you will see that JavaJane is in the "10,000 and up" category of listening hours per month. At 10,000 listening hours per month, the fees would be $2,520 a year. Even if we assumed 50,000 hours, the fees would amount to only $12,600 -- hardly the $200,000 that was reported in the New York Times article. (We don't have actual numbers because JavaJane never responded to us.)

8) We understand that hobbyists are different. We are prepared and intend to work with true hobbyists to find a solution. Remember, hobbyists were not represented by other webcasters in the CARP and the arbitrators had no evidence to set a separate hobbyist rate. Also, we've already worked out a separate deal with NPR to cover all CPB-funded radio stations.

9) Finally, with regard to your observation that the confusion about the artists' share of royalties is the fault of SoundExchange because its Web site is not up to date, you'll be happy to know that's because SoundExchange doesn't have a webmaster -- thereby eliminating one more thing that might otherwise "siphon" money from the artists.

Hope that helps clear up some of these issues for everyone.

-- Steve Marks

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