Why We Wrote This Guide
This guide serves as a logical counterpart to our On-Demand Streaming guide, which itself serves as a counterpart to our Digital Download guide. In order to better understand digital music and its role within the music industry, we recommend reading all three.
As of 2017, out of all Americans ages 12 and older, 47%—an estimated 124 million people—claim to have listened to online radio in the last month, while 36%—94 million people—claim to have listened to online radio in the last week. Both of these percentages have increased since 2013, from 45% and 33%, respectively. The average time users spent listening to online radio increased from 11 hours and 56 minutes per week in 2013 to 13 hours and 19 minutes per week in 2014, according to Nielsen Media Research data published by the Radio Advertising Bureau.
Usage is more popular among teenagers and young adults than it is with older Americans. As of 2017, 75% of Americans ages 12-24 listened to online radio in the last month, while 50% of adults aged 25-54 and 21% of people 55+ listened in the last month. Weekly percentages for each age group are 64%, 37%, and 13%, respectively, according to Edison Research. In 2015, 53% of Americans ages 12 and up—143 million people—listened to Internet radio.
Given the popularity of this form of music consumption, its rapid growth since the beginning of the 21st century, and its huge potential to provide new and existing sources of royalties, any interested party should seek to understand the ins and outs of non-interactive music streaming and their implications for the future of the music industry.
Table of Contents
What Is “Non-Interactive” Music Streaming?
Non-interactive music streaming differs from on-demand, or interactive, streaming because it allows users to play music but does not allow them to select the song that plays next.
Both “webcasting” and “Internet radio” are terms used in reference to non-interactive music streaming; however, the term “webcasting” can be defined as a broadcast over the Internet from a single content source to many simultaneous listeners. Therefore, webcasting also technically applies to on-demand streaming. In this guide, however, “webcaster” will primarily be used to refer to non-interactive streaming services. Internet Radio can be defined as a digital audio service transmitted over the Internet. Internet Radio presents listeners with a continuous audio stream of songs which, in the case of non-interactive music streaming, cannot be skipped or replayed, similar to traditional broadcast media like AM/FM radio.
The most important thing to remember about non-interactive music streaming is its namesake: the Digital Service Provider (DSP) does not allow you to skip, rewind, skip forward, or know the playlist of songs ahead of time. You may only “tune in.”
Licensed Right to Webcast
In order for a webcaster to broadcast a non-interactive stream on its platform, the webcaster must obtain a license from both the sound recording copyright owner and the underlying composition copyright owner.
License to Webcast the Underlying Composition
Webcasters must obtain a license to publicly perform the underlying composition over the Internet from a performance rights organization, just as they would need to obtain a similar license for traditional broadcasting (AM/FM radio, TV broadcasts, etc.).
Under the proper license, a webcaster obtains the right to transmit the composition as an audio stream over the Internet on approved sites. In addition, the webcaster may digitally encode, reproduce, archive, and copy the composition solely for the digital broadcasting purposes specified in the license.
License to Webcast the Sound Recording
In the United States, webcasters must obtain a sound recording license directly from SoundExchange. The website directs service providers to identify and obtain the proper license.
Occasionally, smaller stations will forget to obtain a license for use of the sound recording from SoundExchange. To combat this, SoundExchange now distributes warning letters to webcasters who are streaming without a license. The Federal Communications Commission (FCC) can fine DSPs which are not properly licensed, so it is mandatory for webcasters to obtain a sound recording license.
Due to the Webcaster Settlement Act (discussed further below), SoundExchange negotiates webcaster terms and rates annually. Therefore, if a webcaster wishes to renew its license for the following year, it must file a Notice of Election with SoundExchange. Again, this may be completed on the company’s website.
A stipulation within most webcaster agreements requires the webcaster to report the usage of all copyrights in a given time period; however, certain educational stations are permitted to waive this requirement if they have fewer than 55,000 monthly Aggregate Tuning Hours (ATH). ATH is a unit of measurement for audience size equal to a period of time in hours multiplied by the average number of listeners during that period of time.
Royalties to the Record Label / Recording Artist
Public Performance Royalties for Use of the Sound Recording Copyright
The Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 grant a public performance right to the record label and recording artists when a sound recording is transmitted via digital audio transmission and/or webcast. Previously, only music publishers and songwriters could collect performance royalties from terrestrial or digital broadcasts in the United States.
A Compulsory License for Public Performance
The Digital Millennium Copyright Act of 1998 also included a provision which granted webcasters a compulsory license to use sound recordings, meaning if a webcaster meets certain requirements, the owner of the sound recording is legally required to allow its public performance on the webcast for a negotiated fee.
To qualify for a compulsory license, a DSP must be non-interactive. It must not release advanced notice of which songs it will play next. A number of other requirements restrict the number and type of plays webcasted by the DSP, including:
- The webcaster cannot play more than three songs from a particular album, including no more than three in a row within a three-hour period.
- The webcaster cannot play four songs by a particular artist, including no more than three in a row during the same period.
- Other restrictions refer to looped programming, archived programming, and the number of times the webcaster can repeat programs during a certain period.
The webcaster is required to register with the U.S. Copyright Office by filing a Notice of Use of Sound Recordings and comply with Sections 112 and 114 of the Copyright Act.
The Statutory Rate
After the 1998 provision, several years of negotiations and rate-setting procedures between webcasters and record labels ensued. Some argued that certain proposed royalty rates disadvantaged independent Internet-only radio stations, and would eventually drive them out of business. These disagreements eventually culminated in a “Day of Silence” during which U.S. broadcasters shut off their audio streams or played ambient sound in order to focus attention on the consequences of the increasing rates.
In 2007, the Copyright Royalty Board (CRB) set a statutory royalty rate: $0.0008 per play/per listener for 2006, which would gradually increase to $0.0019 in 2010. The CRB gave smaller webcasters the option to pay a percentage of their gross revenues or a percentage of their expenses, whichever was greater.
Then, in 2008, Congress passed the Webcaster Settlement Act, which allowed the music industry to negotiate its own rates for webcasting annually. SoundExchange, the only organization allowed to collect royalties from webcasters (according to Sections 112 and 114 of the U.S. Copyright Act), now had the authority to negotiate private agreements with webcasters that differ from the rates and terms set by the CRB. The Webcaster Settlement Act also specifies that SoundExchange must offer a license on whatever terms it negotiates to any webcaster wishing to use them.
To understand royalty rates, it is imperative to understand the various types of webcasters broadcasting music over the Internet. Note that not every one of the DSPs listed below pertains to non-interactive music streaming. Note also that each type of DSP is not mutually exclusive. For example, a Small Webcaster could also be both a Pureplay Webcaster AND a Commercial Webcaster depending on its business structure.
|Type of DSP||Description of DSP|
|Commercial Webcasters*||DSP licensed by the Federal Communications Commission to broadcast over the Internet|
|Pureplay Webcasters*||DSP’s only business is webcasting music|
|Educational Webcasters||e.g. a college radio station|
|Non-Commercial Webcasters||e.g. a charity, NPR, etc.|
|Small Webcasters||earns less than a specified revenue amount, or has less than a certain number of Audience Tuning Hours (= one listener for one hour)|
|Micro-Webcasters||very limited listening audience|
|Satellite Digital Audio Radio Services (SDARS)||audio is transmitted from orbiting satellites to receivers on Earth’s surface (e.g. Sirius XM)|
|Business Establishment Services (BES)||DSP which webcasts music for stores, restaurants, hotels, bars, etc.|
|Cable/Satellite Services (CABSTAT)||DSP delivers music over cable or satellite to a listener’s TV or set-top box|
|Pre-Existing Subscription Services (PES)||DSP in existence prior to July 31, 1998|
*In 2009, SoundExchange announced a license fee deal involving commercial “pureplay” webcasters, taking into account revenues, streaming data, and type of service. The license fee lasted through 2015.
Within the category of commercial “pureplay” webcasters (the most common type of DSP in the world of non-interactive music streaming), three rate classes exist, each with its own unique SoundExchange license fee.
|Royalties for Commercial “Pureplay” Webcasters|
|Webcaster Rate Class||SoundExchange License Fee|
|Large||25% of gross revenue or per stream rates**|
|Small||12% of their first $250,000 in revenue and 14% of revenue above that figure or 7% of expenses or per stream rates** (whichever figure is greater)|
|Bundled, Syndicated, or Subscription Services||per stream rates** or the flat percentage figures|
**As of 2015, the per-stream rates were $0.0014, $0.0025, and $0.0024, respectively.
All royalties received by SoundExchange as a result of the compulsory license are distributed according to the following breakdown:
- 50% to the owners of the sound recording (usually the record label)
- 45% to the featured recording artist(s)
- 2.5% to non-featured vocalists
- 2.5% to non-featured musicians
NOTE: This breakdown is pre-Music Modernization Act. Learn more about the Music Modernization Act, and how SoundExchange’s royalty breakdown has been affected.
In 2012, SoundExchange distributed over $300 million to copyright owners.
Royalties to the Music Publisher / Songwriters
The Performing Rights Organizations of the United States—ASCAP, BMI, SESAC, and GMR—offer standard licenses that permit webcasters to perform all the compositions in each organization’s repertoire, regardless of file format.
ASCAP issues a specific non-interactive music streaming license which allows a webcaster to perform the composition without letting users download or “select” particular compositions. Fees are based on the webcaster’s revenue and/or activity.
Under BMI’s non-interactive music streaming license, fees are computed as a percentage of gross revenue or a music “area” calculation, depending on whether music is a primary feature of the webcast or part of the website’s total traffic.
SESAC offers a non-interactive music streaming license with fees based on the number of monthly page requests and whether there is advertising on the site or not.
The big industry players (Sirius XM, Rhapsody, iHeartRadio, Pandora, among others) do not accept standard license agreements and instead negotiate their own specific deals with each performing rights organization.
ASCAP and BMI are governed by consent decrees, defined by the Future of Music Coalition as “limitations agreed upon by parties in response to regulatory concerns over potential or actual market abuses.” Under the consent decrees enforced by the U.S. Government, ASCAP and BMI must give identical terms to webcasters. These licenses remain non-exclusive, however, and the individual members of either PRO still maintain the right to individually license their selected works.
If ASCAP or BMI cannot agree with a webcaster regarding fees or terms of the agreement, a rate court judge determines all terms and fees after a trial of the facts.
For example, if SiriusXM cannot agree with ASCAP regarding which rates will be paid to the PRO for use of the underlying composition, a rate court judge will make this determination, as specified by the consent decrees.
Webcasters still possess the right to voluntarily agree to terms and fees with ASCAP and BMI outside any judicial involvement, and they often choose to do so.
This guide was composed by Luke Evans, Mamie Davis, Jacob Wunderlich, Rene Merideth, Jeff Cvetkovski, & Aaron Davis.
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