March 25, 2002
The Honorable F. James Sensenbrenner, Jr.
Chairman, Committee on the Judiciary
The House of Representatives
2138 Rayburn House Office Building
Washington, DC 20515
Dear Mr. Chairman:
Arbitron is firmly opposed to the proposed digital rights fees recommended
by the Copyright Arbitration Royalty Panel (CARP). We foresee that the impact
of these fees will dramatically reduce the consumer’s choice of streaming
content, limit the diversity of streaming "voices" on the Internet,
stifle competition among content providers and distributors and impede the growth
of a popular new medium. For these reasons, we propose a five-year moratorium
on digital rights fees for Streaming Media.
Consumers indicate streaming media is a valuable and popular new medium
Arbitron has been a leading provider of audience data for more than fifty years.
For the past several years, Arbitron and Edison Media Research have conducted
groundbreaking research studies on how American consumers use the Internet and
streaming media. Our latest findings8 (conducted in January 2002) show that
streaming is highly popular among American consumers. Streaming media usage
is at an all-time high, as an estimated 80 million Americans have tried streaming
media. Also, regular usage of Internet audio and video increased substantially
in the last year. The growth of residential broadband will stimulate greater
usage. Twenty-seven million Americans now have super-fast, always-on broadband
connections at home and 14% of those with dial-up access plan to get broadband
in the next 12 months. Therefore, we believe that it is crucial to protect and
stimulate this valuable and popular new medium.
Distribution through a wide variety of sources best serves the public by promoting competition, innovation and diversity of choices
Streaming media serves the interests of the public by making available thousands
of signals from around the country and the world. In addition, streaming media
enables small community organizations with the ability for their message, music
and voice to be heard in an affordable manner. Broad access through multiple
points of distribution is crucial to serving the public interest because it
will encourage competition, spur innovation and ensure diversity of voices on
the Internet.
Proposed digital rights fees are prohibitive and impractical
We contend that the fees proposed by the Copyright Arbitration Royalty Panel
would be prohibitive and impractical and the consequence of these fees will
be a business/regulatory environment that would severely restrict the wide distribution
of music entertainment on the Internet.
Examples:
Digital rights fees for a top-ranked music station in New York:
If one of the top-rated radio stations in New York rebroadcast its programming
online and had the same audience on the Internet as it does over the air1, that
station would pay approximately $15 million per year2 in digital rights fees.
Thus, the digital rights fees would be over 25% of what that station currently
derives from selling traditional over-the-air advertising revenue (approx. $56
million per year3). If that online station had original programming on the Internet
(versus a rebroadcast), its digital rights fees would be approximately $30 million,
or over half of the revenue a top-ranked music station in New York derives from
its over-the-air advertising revenue.
Digital rights fees for a top national radio network:
If one of the top national radio networks had the same size audience online
that they do over the air4 , their digital rights fees would be $358 million,
which amounts to approximately 39% of the entire network radio advertising industry
revenue today (approximately $910 million5 ).
Digital rights fees for the entire radio industry:
If the number of Americans listening on the Internet to rebroadcasts of the
programming of music stations equaled the size of the over-the-air audience,
the radio industry would pay approximately $2.4 billion dollars6 in digital rights
fees. This amounts to approximately 13% of radio’s total advertising revenue
for 2001.7
Furthermore, the retroactive nature of the fees and the excessive data and reporting
requirements set forth by CARP add overwhelming start-up and ongoing operational
costs.
The business model for streaming media is not comparable to broadcast model
The business model for streaming media is far different from traditional broadcast,
which makes the proposed digital rights fees even less practical. The cost of
entry in broadcasting is high; however, broadcasters do not incur additional
costs for each new listener. The opposite is true with Webcasting. The cost
of entry is low, which encourages many small start-up companies. However, webcasters
have to pay additional bandwidth and hardware costs as the size of the audience
increases. Broadcasting is an established and healthy advertising medium. Webcasting
is a new advertising medium, which places a significant burden on its ability
to sell advertising today. As a result of these issues, most organizations attempting
to sell streaming media advertising via music-oriented webcasts have been unable
to reach profitability.
Proposed digital rights fees likely to create an environment that will severely limit consumer access and choices
If the proposed fees are enacted, we foresee that very few companies if any would be able to pay the cost. Already, a number of radio station group owners and webcasters have indicated that they will cease streaming as a result of the proposed new fees. Thus, the proposed fees are likely to create a business/regulatory environment that will limit competition, stifle innovation, reduce consumer choices and diminish diversity by concentrating the distribution of music to a handful of sources.
American public will be upset by loss of streaming sources
Our research8 shows the public would be upset if these digital rights fees caused their favorite online stations to go away. Sixty eight percent (68%) of people who listened to audio online in the last week say they would be upset if the radio stations they listen to online were no longer available due to fees Internet broadcasters would have to pay.
Excessive fees will limit the ability to use the Internet to promote and sell music online and offline
For years, radio has served as a vital public service and an outstanding marketing vehicle for promoting music to American consumers. Radio’s exposure of music to the public has contributed significantly to retail sales of records, tapes and CDs. Consumer research indicates that radio airplay exposure of music is the number one reason why people purchase a CD. The Internet promises to be a valuable new way to promote and sell music to the public. However, overwhelming digital rights fees will limit the number of choices for consumers which in turn will limit the medium’s ability to drive the additional sales of music both offline and online.
Streaming music on the Internet does not pose a significant threat to retail sales
Streaming technology is different from the digital download models such as Napster and its successors. In the case of the digital download models, retail music sales could be cannibalized because consumers could make unlimited copies of the content. It is our understanding that, music that is streamed cannot be downloaded and cannot be copied. Therefore, the risk of consumers making copies of music from streaming sources does not pose a significant threat to retail sales.
Moratorium recommended for digital rights fees
For these reasons, we believe there should not be any digital rights fees implemented or, at a minimum, there should be a five-year moratorium on digital rights fees for streaming media. In addition, the retroactive aspect of the current proposal should be eliminated. Little would be lost by giving the industry the breathing room it needs to grow since streaming media has not yet generated significant revenues and since the streaming of music on the Internet does not pose a threat to retail music sales. Furthermore, a moratorium would enable the popular but fledgling streaming media industry to grow. Most importantly, the public interest will be better served by assuring the broad distribution of programming needed to stimulate competition, foster innovation and promote diversity.
Sincerely,
Bill Rose
1 Approximately 162,000 listeners during an Average Quarter-Hour
during the Fall 2001 Arbitron survey in the New York Metropolitan Statistical
Area.
2 162,000 listeners per Average Quarter-Hour X 15 songs per hour X 24 Hours
per day X 365 Days per year X $.0007 proposed digital rights per performance
fee for radio stations that stream a rebroadcast of their over-air content online
= approx. $15 million
3 Source: Broadcast Investment Analysts (BIA) 2001 annual revenue estimate for
the top-ranked music station in New York.
4 Approximately 3.9 million people listen to a top ranked radio Network during
an Average Quarter-Hour, according to the RADAR Summer 2001 Radio Network Audience
Report.
5 Source: Radio Advertising Bureau
6 Approximately 32 million Americans listened during an Average Quarter-Hour
according to the Fall 2001 RADAR Radio Network Audience Report. Approximately
82% of listening during anAverage Quarter-Hour is to music-formatted radio stations
according to Arbitron’s American Radio Format Trends. 32 million listeners
per Average Quarter-Hour X 82% X 15 songs per hour X 24 hours per day X 365
days per year X $.0007 proposed digital rights per performance fee for radio
stations that stream a rebroadcast of their over-air content online = approx.
$2.4 billion.
7 $18.36 billion; source: Radio Advertising Bureau
8 Arbitron/Edison Media Research Internet 8, Winter 2002.