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SoundExchange Wants to Kill Internet Radio

On "lost" artists, found money and the murder of free enterprise

Other than being musicians from Houston, what do Big Pokey, Mickey Newbury and Lightnin' Hopkins have in common? Or how about Fever Tree, the Hollisters, Ganksta Nip and Los Skarnales?

The answer is that SoundExchange is looking for them in hopes of giving them royalties it has collected on their behalf. And if these people don't contact SoundExchange by June 30, SoundExchange gets to keep their money.

Okay, let's back up a bit. First, this SoundExchange is not the trippy little record store on the corner of Hazard and Richmond. This is the U.S. Copyright Office-approved quasi-official body that collects money for performances of recordings on digital cable and satellite TV, Webcasts, and satellite radio and then disburses a portion to artists. Originally a wing of the widely reviled Recording Industry Association of America, it became independent in 2003, although there are still members of the RIAA on the SoundExchange board.

Over the past seven years, SoundExchange has found and paid thousands of artists, but they have admitted they can't find about 25 percent of the people they have been looking for. Today, that number stands at more than 8,300 artists. I looked over the list and found a few names we can probably help them with: In addition to the names above, local and regional acts such as Barbara Lynn, Big Moe, Big Mike, Clay Blaker, Blind Willie Johnson, Fito Olivares, Clarence Hollimon, Goudie, Amos Milburn, Mark David Manders, Ted Daffan and His Texans, Mark May, Rigo Tovar, Roy Gaines, Sprawl and Trudy Lynn are also owed money.

Obviously, some of these people are deceased; in that case, SoundExchange is looking for their heirs. And please note that the list is very long — all I had time to do was skim it, so I probably missed some. (Check yourself at http://63.236.111.137/jsp/unpaid ArtistList.jsp.) Latin bands are especially numerous — any of you with expertise in that area should go over the list carefully, because I don't know how strong SoundExchange's Spanish outreach program is. If you are one of the people I already mentioned, go to www.soundexchange.com/members/become_member.html for a step-by-step on how to collect.

Now, there's no small potential for mischief here. When an agency gets to keep the money it is supposed to be doling out to people it is responsible for finding, it is easy to detect at least a possible conflict of interest. And yeah, finding just about every working musician in America, or their heirs, is a daunting task, but it must be said that one wonders how hard SoundExchange has truly sought some of these people.

For example, in less than five minutes of Googling, I found the official Web sites and/or MySpace pages of Fito Olivares, Goudie, Mark May, the Hollisters and Los Skarnales. What's more, highly visible people like Cam'ron (fresh off a highly-publicized appearance on 60 Minutes), Fat Joe and Danzig are on the “lost” list too.

SoundExchange has said that they have actually found many of the 8,000-plus artists on the lost list, but that many of them have simply failed to send in their paperwork. And indeed that seems to be the case with Los Skarnales — Nick Gaitan, the band's former bassist, told me that he had neglected to mail in the forms. Gaitan was not aware, though, that if he didn't get on the ball, the band would lose that money forever. I suspect that he is not alone. In a lifetime of hanging around musicians, it has not often been my experience that many of them turn up their noses at free money.

Meanwhile, SoundExhange is also one of the principal forces behind the drive to multiply the royalty rate that Internet radio stations must pay. Late last March, the panel of three Washington, D.C., judges called the Copyright Review Board that is empowered to set royalty rates for copyrighted materials simply rubberstamped the exorbitant rate increase proposed by SoundExchange.

And what an increase it is. In fact, if enacted, it would likely drive every Webcaster in America out of business almost immediately, if not sooner.

Local terrestrial radio veteran and Net radio newbie Dave E. Crockett felt forced to take the most drastic of steps. “We were running a station called DXSRadio.com and I pulled it off the air about a week and a half ago because of the proposed plans,” he says. “They were going to make these fees retroactive back to 2006. And the way they wanted to do this was charge every Webcaster per listener, per song. So if you have a thousand people listening and you're playing ‘Blue Eyes Crying in the Rain,' you have to pay for that song a thousand times.

“Listen, this is Internet radio, and we are charging about three or four dollars to advertise,” he continues. “You can understand that if you are paying for a song a thousand times, and you're playing 12 songs an hour, and you have a thousand listeners in that hour, three dollars isn't gonna cover it.”

Here's how the math broke down for the now-defunct DXSRadio. The proposed retroactive rate for 2006 looks infinitesimal — just $.0008 for each song per listener. But multiply that by 1000 listeners, and you get 80 cents. Still looks cheap, right? But multiply that by 12 songs per hour and you get $9.60. Crockett's cheap rates would mean a deficit of six or seven bucks per hour, which adds up to more than $50,000 for 2006, which would come due on July 15 of this year.

And because of the retroactivity of this proposal, that's just what he would have in his past-due column. Meanwhile, the rate going forward would gradually increase to $.0019 by 2010. Under those terms, three years from now, Crockett wouldn't be able to pay for the music he was broadcasting until he sold at least $200,000 in ads. And Crockett is small potatoes. “I was talking to this one guy the other day, and he told me he would owe $2.5 million,” he says.

SoundExchange's executive director John Simson has said revenue generation shouldn't be a problem. In an interview with Royalty Week magazine, he put it this way: “Webcasters have a number of opportunities to maximize revenue with...banner ads, pop-ups, video pre-rolls, audio commercials.”

“SoundExchange are a bunch of idiots,” Crockett says.

Or are they? To boldly mangle a metaphor here, maybe they are just idiotic like a fox. Sure, butchering Internet radio might seem foolish. After all, SoundExchange claims to represent the financial interests of thousands of labels and artists, and it would seem to be in the best interests of all parties if that music was played as widely as possible. Silencing it would seem to be a case of killing the golden goose.

But like the rappers say, big bank take little bank. SoundExchange might have bands like Los Skarnales and tiny little labels on their rolls, but as their past affiliation with the RIAA would lead you to believe, they are most interested in the collective well-being of the Big Four record labels. And if there's anything the Big Four hates, it's the decentralized, diffused music market that Net radio has helped create and is continuing to foster. They pine for the Good Ol' Days, when white males 18–24 all listened to corporate rock radio and “urban” females 25–37 all tuned into homogenized R&B and so on. They love it when people cease being people and transform themselves into demographics, and the bigger the demo the better. Squiring your mistress down to St. Barts for a dirty weekend isn't getting any cheaper, even if the price of music has cratered.

And now they think they can get it back. They can smell that money, and now they are as crazed as a rutting elk with a snootful of pheromones. It's probably no coincidence that the attempted murder of Internet radio follows quickly on the heels of Big Radio's rollout of HD radio, their own corporate-controlled, sanitized-for-your-protection answer to the wild Web. If they can somehow force-feed us HD, they can start calling the shots again.

And in the meantime, they may even think they can drag all 52 million American Internet radio listeners back kicking and screaming to the wonders of the traditional radio dial. Crockett is convinced that the National Association of Broadcasters is behind the lobbying on the price increase. “The N.A.B. represents terrestrial radio stations, and the last thing they need is anything to draw people away, because listenership to terrestrial radio has declined 22 percent since deregulation in 1996,” he says. “So they want to make Webcasting so unbelievably expensive that there is no way that anyone would ever do it.”

“This type of legislation really smacks the free-enterprise system in the face, simply because it discourages Webcasters from growing their business,” Crockett continues. “If I am going to be charged per listener, what's my incentive to grow my listener base?”

And if SoundExchange loses money every time it finds an artist it is supposed to pay, what is its incentive to actually do its job? Are we really supposed to trust an organization that claims it can't find Max Stalling (www.maxstalling.com), Vicente Fernandez (hint: Try Mexico) or freaking Mother Maybelle Carter?

Thankfully, the SoundExchange/Copyright Review Board proposal is still just that. A much more sensible proposal has been put forth. It is federal legislation, it is called H.R. 2060 and it would supersede the C.R.B's ruling. It calls for a royalty rate of 7.5 percent of total revenue or .33 cents per listener-hour, as decided by the provider, so the artists would get paid and the Webcasters could survive.

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