Stream Scream Round 2

Royalty ruling poses a threat to music webcasting Leigh Burch plans to make his second nightclub venture a success

City Beat

"You make the East Tennessee area so attractive that my wife and I just spent several days in your area as tourists,â” George Mills of New Brunswick, Canada, said in an email to WDVX 102.9 FM on June 26. â“Promoting this area and its musicians is what we do,â” says Tony Lawson, general manager and program director for the radio station. â“People have moved away, and their connection back to town is WDVX.â”

Benny Smith, station manager for WUTK 90.3 FM, tells similar stories of alumni staying in touch with the university by listening to the college radio station over the Internet. Smith has watched online listenership grow from about a dozen per day when he took over three years ago to nearly 100 per day now. â“Commercial radio has gotten so bad at introducing new music,â” says Smith. â“Unhappy listeners stream music from other markets to find something new.â” Smith says WUTK gets at least three letters or emails each week from out-of-state listeners who want bumper stickers.

SoundExchange, which manages digital royalties, reports a doubling in Internet radio providers between 2004 and 2006, and Arbitron says the audience for webcasts has tripled since 1998. Smith feels Internet radio listeners are more adventurous than traditional listeners, and there is evidence to support him. SONiA of the band disappear fear, in an editorial for The Baltimore Sun , claimed that independent artists received 10 percent of royalties from traditional radio, whereas they get 37 percent of the money collected from digital broadcasts.

Internet broadcasts allow specialty stations to find audiences beyond the reach of their typically modest radio signals, and they also give consumers an opportunity to take a more active role in finding music that suits their tastes. A March ruling by the Copyright Royalty Board (CRB) threatens to quash this emerging music market. Under the new royalty fee structure, WDVX, WUTK and smaller broadcasters nationwide could be priced out of the Internet radio business. On June 26, many Internet radio stations went silent in protest. The new system was scheduled to take effect Monday, but SoundExchange postponed the change until Sept. 13 while it negotiates with small and noncommercial stations that say the new rules would bankrupt them.

Previously, commercial webcasters paid artists and publishers based on revenues, making royalty costs stable and predictable. Noncommercial stations paid modest yearly fees. WUTK made payments to the Intercollegiate Broadcasting System, and WUOT paid National Public Radio (NPR). According to testimony before CRB, most NPR stations paid no more than $150 per year in royalties. The new rules require a minimum payment of $500 per year, with usage-based fees kicking in for stations whose Internet audience exceeds the average reported by NPR stations.

Webcasters estimate cost increases between 300 and 1,200 percent. Brian Tatum, general manager of WFIV 105.3 FM, a locally owned rock station, expects the cost of streaming its broadcast to triple but says they have no plans to discontinue the service. His station has been encouraging listeners to contact Congressional representatives and urge them to support the Internet Radio Equality Bill, which has 134 cosponsors in the House of Representatives, Memphis Congressman Steve Cohen being the only one from Tennessee.

The bill would nullify the CRB ruling and institute a rate of 7.5 percent of music-based revenues, which is what satellite-radio services like Sirius and XM Radio pay.

WUTK's Smith says their simulcast will keep going only if they find a corporate sponsor, and WUOT's website says, â“NPR and the Corporation for Public Broadcasting are confident that WUOT can continue our music streaming operations for the next three months as good-faith discussions are ongoing.

For, the webcasting arm of the Music Genome Project, the new rules could spell certain death. They hire musicians to identify stylistic traits and create a genealogy of bands. Listeners can plug in a favorite band and receive a streamed playlist of similar artists.

When Metro Pulse plugged in Knoxville's Tenderhooks, it got a mix of older bands like the Lemonheads and Old 97s and current bands like Cherry Falls, Bottom of the Hudson and PT Walkley who share their â“subtle use of vocal harmony,â” â“mix of electric and acousticâ” and other musical â“genes.â” Listeners can create up to 100 customized channels this way, and a strict reading of the new rules would require Pandora to pay $500 for each such channel, pushing their royalty payments into the tens or hundreds of millions per year.

SoundExchange offered to cap these fees at $50,000 per year if Pandora and similar services provide detailed reporting of song usage and adopt technologies that prevent listeners from recording music streams. SoundExchange has offered other concessions to small broadcasters if they agree to stop promoting the Internet Radio Equality Bill. Broadcasters say these compromises are temporary and would only postpone the battle until 2009.

The Copyright Royalty Board is a new entity created by the Copyright Royalty and Distribution Reform Act of 2004. The three judges who make up the board were appointed by the Librarian of Congress on Jan. 11, 2006, and the panel has been hearing testimony related to the new fee structure ever since. Their ponderous 32-page ruling rejected arguments and appeals from small and noncommercial webcasters and accepted fees proposed by SoundExchange, which has close ties to the Recording Industry Association of America. CRB's mandate says fees should be based on a â“willing buyer, willing sellerâ” standard, but the SoundExchange proposal was based on negotiations between satellite radio providers and satellite television services, two fledgling industries with minimal competition.

The primary function of CRB in the enabling legislation is â“To maximize the availability of creative works to the public,â” but no form of that phrase appears in the March ruling.

Fred Kelly of local band The Rockwells feels the Internet has served that purpose well. â“Every month we sell a couple things out of the blue,â” he says. People might hear one of their songs on a social-networking site like MySpace or on music-oriented sites. â“Any exposure is good, and once people hear your music there is more of a chance they will actually pay you for it.â”

Musicians earn money through performances, merchandise, recordings and royalties. For bands like The Rockwells, whose members hold down regular jobs while trying to build a career in music, royalty payments are a distant fourth among those four sources of income. Scott Miller, who earns his living entirely as a musician, ranks royalties third on the list, with recordings fourth, most of that revenue winding up with his record label. Miller says, â“Some artists have gone so far as to give away their records as free downloads once they hit a certain point, making the money back on live shows... genius. I am not that smart.â”

SoundExchange says the average yearly royalty earned by artists is $360. That figure is skewed by highly successful artists, and most musicians earn much less. Kelly says many bands are â“trying to cross-pollinate into television and film,â” where royalty payments are hefty. SoundExchange estimates total online royalties will grow from around $5 million yearly under existing agreements to $25 million and higher as the new rates phase in. Half of that goes to music publishers and half to artists. By the time the money trickles down to musicians you might hear on WUTK or WDVX, it is little more than beer money, and if it comes at the cost of shutting down such stations' webcasts, independent artists may suffer along with listeners.

Responding to questions via email from China, local songwriter Todd Steed says, â“Webcasts are good for American music, American musicians and American radio. They make it possible for audiences to enjoy our country's music and culture in places like Beijing, Moscow, Cairo, Capetown or even Birmingham, Ala. I had someone in Beijing mention to me they listened to my Improvisations radio show on the WUOT stream. Anything that may limit this great cultural opportunity should be carefully examined.â”

WDVX's Lawson is optimistic that good-faith negotiations between SoundExchange and the various segments of the Internet broadcast industry will yield an acceptable system, but he knows the stakes are high. â“This will determine how we listen to music, what music we listen to, and how much we pay.â” â" Rikki Hall

Finally, developer Leigh Burch will have the opportunity to run a nightclub his way.

When Burch partnered with Scott West in the now-defunct ThinQ Tank, he says he was never privy to day-to-day operations. But with his new venture, Club 106, which will fill the space left vacant by ThinQ Tank and more recently Red Iguana, Burch is making certain he's involved in every aspect of the management process.

â“Scott and I are good friends, but we have very different management styles,â” says Burch of West, who is the former owner of Preservation Pub and is currently serving a prison sentence after being charged with laundering money made from trafficking marijuana.

â“We had a lot of disagreements about the direction of the ThinQ Tank. We might've done fine if we treated people properly and didn't hire friends and family to run the place.

â“I go into something calculated. I'm about dollars and cents, and I'm not in it to win any awards. It's a business.â”

Although the â“Las Vegas sports bookâ”-style description Burch gave the News Sentinel last week appears a bit ambiguous, he says the focus of Club 106 is clear-cut:

â“I didn't jump into this thing in a vacuum. I've got a group of people together who have been in the restaurant industry and we meet weekly to discuss the club,â” says Burch, who is fast-tracking renovations for a September opening. â“We have a clean, simple concept: create an environment where people can enjoy themselves and when they sit down they can get good food and a drink for a good value.â”

Burch is planning a complete overhaul of the club, installing several high-resolution plasma screen televisions and opting for a more contemporary design. He says sporting events will be on around the clock, while still making a strong effort to retain a dance-club environment. But Burch will be catering to a completely different demographic than the Red Iguana, which shut down earlier this month after numerous citations for selling alcohol to minors and one for an alleged sex show.

â“I went in the [Red Iguana] not long ago, and it just wasn't my crowd,â” he says. â“We started thinking how can we get the beautiful people, the young professionals, to come here?â”

Club 106 will be a much more high-end establishment than the Red Iguana with a food menu that features â“affordable but qualityâ” selections, according to Burch. He says he is targeting a college crowd with the installment of televisions, which will show every televised University of Tennessee sporting event along with other major events like the Super Bowl.

â“If you look at the most successful places in town, the ideas are not complicatedâ"they're just well executed,â” he says.

Burch says the reasons for the ThinQ Tank's demise are also what led to the recent closing of the Red Iguana.

â“The service was just poor,â” says Burch, who partnered with Second Coast LLC to purchase the property at 106 S. Central St. in May 2003. â“My club is going to be very service-oriented.

â“The biggest problem with the Red Iguana was the owner [Kevin Hensel] was only there six times a year or less,â” continues Burch, who bought out Hensel's remaining lease for $40,000. â“I'm an owner who lives here and will be actively involved in day-to-day operations.â”

Burch says there were times he would receive calls from ThinQ Tank customers who weren't being served or were ignored by the nightclub's staff, which is something he ensures will not happen at Club 106.

West said in 2004 that the ThinQ Tank folded because the financial backing in the form of third partner Bill Kane disappeared, and he no longer had the means or energy to run the club.

â“We had three managers during the short period of time the club was in business,â” West said not long after ThinQ Tank closed. â“Leigh and I also had conflicting directions for where the club was headed, which added more controversy.â”

Kane, who has partnered on other developments with Burch's real estate firm, Terminus, could not be reached for comment.

Burch contends that Kane pulled out because West wasn't allowing either of them to have any input in the business. He says that will be different this timeâ"he'll be the one doing the hiring and firing.

There will be a new staff put in place by Burch and his business partner, Robert Townsend, but Burch says he will retain a few of the â“hard-working and talented Red Iguana employees.â” â" LaRue Cook


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