a

GAO

United States General Accounting Office

Report to Congressional Committees

June 2004 INTELLECTUAL 

PROPERTY

Economic 

Arrangements among 

Small Webcasters and 

Third Parties and 

Their Effect on 

Royalties

GAO-04-700
www.gao.gov/cgi-bin/getrpt?GAO-04-700.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Anu Mittal, 

(202) 512-3841, mittala@gao.gov. 

Highlights of GAO-04-700, a report to 

congressional committees 

June 2004

INTELLECTUAL PROPERTY 

Economic Arrangements among Small 

Webcasters and Third Parties and Their 

Effect on Royalties 

Small webcasters have a variety of economic arrangements with third 

parties, the most common being agreements with bandwidth providers and 

advertisers. Almost all of the webcasters that we interviewed reported 

arrangements with bandwidth providers, and many reported arrangements 

with advertisers. Less commonly reported arrangements included those with 

merchandise suppliers and companies that help small webcasters manage or 

obtain advertising for their Web sites, such as by inserting ads on the Web 

site or into the webcast itself or selling advertising based on the aggregate 

audiences of multiple webcasters. 

Third-party economic arrangements have had a minimal effect to date on 

royalties owed by small webcasters to copyright owners. Of the 27 small 

webcasters we interviewed that had agreed to the terms of the small 

webcaster agreement and provided us with financial data, 19 reported 

revenue and expense estimates below the levels that would result in royalty 

payments greater than the minimum fee. We found limited evidence to 

suggest that small webcasters may not be reporting revenues and expenses 

as required by the small webcaster agreement. Specifically, 2 of the 13 small 

webcasters who reported receiving free or reduced-price items did not 

report the value of these items as revenue for calculating royalties. However, 

the data we obtained in our survey may not reflect conditions that could 

develop as the webcasting industry matures. According to industry analysts, 

revenues of small webcasters are likely to increase as they attract more 

listeners and advertisers rely more on the Internet to reach customers. 

Types of Economic Arrangements with Third Parties 

The emergence of webcasting as a 

means of transmitting audio and 

video content over the Internet has 

led to concerns about copyright 

protection and the payment of 

royalties to those who own the 

recording copyrights. Arriving at 

an acceptable rate for calculating 

royalties has been particularly 

challenging. Under the Small 

Webcaster Settlement Act of 2002, 

small commercial webcasters 

reached an agreement with 

copyright owners that included the 

option of paying royalties for the 

period of October 28, 1998, to 

December 31, 2004, on the basis of 

a percentage of their revenues, 

expenses, a combination of both, 

or a minimum fee rather than 

paying the royalty rates set by the 

Librarian of Congress. 

During debate on the act, copyright 

owners raised concerns that small 

webcasters might have 

arrangements with other parties, 

such as advertisers, that could 

produce revenues or expenses that 

might not be included in their 

royalty calculations. In this 

context, the Congress mandated 

that GAO, in consultation with the 

Register of Copyrights, prepare a 

report on the (1) economic 

arrangements between small 

webcasters and third parties and 

(2) effect of those arrangements on 

the royalties that small webcasters 

might owe copyright owners. 
Page i GAO-04-700 Intellectual Property

Contents

Letter 1

Results in Brief 4

Background 5

Small Webcasters Enter into a Variety of Economic Arrangements 

with Third Parties 11

Available Data Suggest the Effects of Economic Relationships 

between Small Webcasters and Third Parties on Royalties Have 

Been Minimal to Date 16

Appendixes

Appendix I: Scope and Methodology 21

Appendix II: Results of GAO’s Survey of Small Webcasters 24

Appendix III: GAO Contacts and Staff Acknowledgments 38

GAO Contacts 38

Acknowledgments 38

Tables Table 1: Summary of the Royalty Rates and Fees for Small 

Webcasters 10

Table 2: Basis for Royalty Obligations for Two Time Periods 17

Figures Figure 1: Webcasting Transmission Process 6

Figure 2: Traditional Radio Broadcasting Transmission Process 6

Figure 3: Location of Small Webcasters That Signed the Small 

Webcaster Agreement 11

Figure 4: Methods of Selling Advertising Space 12

Figure 5: Types of Advertising Currently Used by Webcasters 13

Figure 6: Sources Providing at Least 10 Percent of Webcasting 

Revenue 14

Figure 7: Types of Economic Arrangements with Third Parties 15

Figure 8: Change in Audience Size among Webcasters 19
Contents

Page ii GAO-04-700 Intellectual Property

Abbreviations

CARP Copyright Arbitration Royalty Panel

DMCA Digital Millennium Copyright Act

GAO General Accounting Office

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-04-700 Intellectual Property

United States General Accounting Office

Washington, D.C. 20548

A

June 1, 2004 Letr

The Honorable Orrin G. Hatch

Chairman

The Honorable Patrick Leahy

Ranking Minority Member

Committee on the Judiciary

United States Senate

The Honorable F. James Sensenbrenner, Jr.

Chairman

The Honorable John Conyers, Jr.

Ranking Minority Member

Committee on the Judiciary

House of Representatives

The Internet has led to a new generation of content providers, commonly 

known as “webcasters,” who transmit digitized audio or video works over 

the World Wide Web.1

 The emergence of this new industry raised concerns 

among record companies and performers because their works could be 

widely disseminated, which might result in diminished sales of their 

copyrighted works through record albums, compact discs, and other 

prerecorded formats. To address these concerns and to support the 

emergence of new digital technologies, the Congress extended limited 

copyright protection to performances of sound recordings being digitally 

transmitted. 

Webcasting consists of several steps: assembling the recordings to be 

digitally transmitted over the Internet, translating them into digital format, 

and then delivering performances of the recordings to listeners through an 

Internet connection. The audio quality of recordings that are webcast 

depends on the bandwidth used—the number of bits of information 

transmitted per second. Higher bandwidth results in better audio quality 

and also allows a greater number of simultaneous listeners. Webcasters 

typically contract with other entities (commonly referred to as third 

parties), such as bandwidth providers, to supply different webcasting 

services. In addition, webcasters may contract with other third parties, 

1

This report discusses the webcasting of audio works, specifically sound recordings. Sound 

recordings are the actual sounds of a performance of a musical work and record companies 

typically hold the copyright to them. 
Page 2 GAO-04-700 Intellectual Property

such as companies who wish to advertise products on a webcaster’s Web 

site, to obtain revenue that can help offset the costs associated with 

webcasting and return a profit to the webcaster.

A copyright is a form of legal protection provided to the authors of creative 

works, such as music and literature, that generally gives the owner certain 

exclusive rights.2

 These rights give the copyright owners control over their 

works—usually in exchange for compensation, known as a royalty. 

Generally, copyright owners and parties seeking to use copyrighted works 

voluntarily negotiate the rates at which royalties will be paid. However, the 

Congress has, in some cases, established a process under which the 

Librarian of Congress sets the royalty rates. 

In 1995 and 1998, two key pieces of legislation gave copyright owners the 

right to control performances of sound recordings when they are digitally 

transmitted and gave webcasters the automatic right to use the recordings 

in certain circumstances in exchange for the payment of royalties under a 

statutory license.3

 The royalties were to be set at either a voluntarily 

negotiated rate or at a rate set by the Librarian of Congress, based upon 

hearings before a Copyright Arbitration Royalty Panel and the 

recommendation of the Register of Copyrights. However, arriving at the 

specific royalty rates that small commercial webcasters4

 should pay to 

owners for the use of their copyrighted recordings has been challenging. In 

2002, the panel recommended royalty rates for webcasters that the 

Librarian subsequently rejected. The Librarian established lower rates that 

proved controversial to both copyright owners and to small webcasters. 

Copyright owners believed that the new rates were too low, while small 

webcasters believed that they were still too high, and small webcasters 

sought legislative relief to lower the rates further. In response, the 

Congress enacted the Small Webcaster Settlement Act of 2002, which 

2

Copyright owners have the right to reproduce the copyrighted work, prepare derivative 

works based upon the copyrighted work, distribute copies or phonorecords of the 

copyrighted work, perform the copyrighted work publicly, display the copyrighted work 

publicly, and since 1995, in the case of sound recordings, perform the copyrighted work 

publicly by means of a digital audio transmission. 

3

A statutory license is a license provided by copyright law, as opposed to one that is 

voluntarily granted by individual copyright owners. The license allows those webcasters 

making noninteractive transmissions to use copyrighted works provided they pay the 

statutory rates and adhere to certain programming and reporting requirements.

4

Small commercial webcasters are defined as those who earned less than $500,000 in 2003. 

Throughout this report we refer to small commercial webcasters as small webcasters.
Page 3 GAO-04-700 Intellectual Property

allowed small webcasters and copyright owners to enter into an agreement 

that provides for the payment of royalties based on a percentage of 

revenues, expenses, both revenue and expenses, or a minimum fee, for two 

time periods—the historical period, which began on October 28, 1998, and 

ended on December 31, 2002, and 2003 through 2004.

During the debate on the Small Webcaster Settlement Act, copyright 

owners also raised concerns about the economic arrangements that small 

webcasters have with third parties, arguing that these arrangements could 

produce revenues or expenses that might not be included in the calculation 

of royalties that the small webcasters owed to them. To provide more 

information on such arrangements, the Congress mandated that GAO, in 

consultation with the Register of Copyrights, prepare a report on (1) the 

economic arrangements between small webcasters and third parties and 

(2) the effect of those arrangements on royalties that are based on a 

percentage of the webcaster’s revenues or expenses.

As required by the act, we coordinated with officials from the U.S. 

Copyright Office throughout the course of our work and incorporated their 

technical and other comments into the report as appropriate. To respond to 

the objectives of this study, we met with officials from organizations that 

represent small webcasters, the Recording Industry Association of 

America,5

 and SoundExchange.6 We interviewed advertising agency staff, a 

bandwidth provider, and industry analysts. We also reviewed relevant 

copyright laws, regulations, and articles. In addition, we conducted 

structured telephone interviews with 58 small webcasters located 

throughout the country—30 that had agreed to the terms of the agreement 

reached under the Small Webcaster Settlement Act and 28 that had not.7

 In 

conducting our interviews, we requested the same revenue and expense 

data that these small webcasters were required to submit to copyright 

owners under the small webcaster agreement. Twenty-seven of the 30 small 

webcasters that had agreed to the terms of the small webcaster agreement 

provided us with estimates of their revenues and expenses.

5

The Recording Industry Association of America is a trade group that represents the U.S. 

recording industry. 

6

SoundExchange is a nonprofit organization designated by the Librarian of Congress, at the 

request of both copyright owners and webcasters, to receive royalty payments from 

webcasters and distribute them to copyright owners and performers.

7

Throughout this report we will refer to the agreement reached by copyright owners and 

small webcasters as the small webcaster agreement.
Page 4 GAO-04-700 Intellectual Property

Because the U.S. Copyright Office does not enforce copyrights or collect 

financial data, we did not have access to the financial records of the small 

webcasters that we interviewed and thus could not verify the accuracy of 

the revenue and expense data they provided to us. Nor did we attempt to 

determine whether these small webcasters had paid the royalties based on 

those estimates. Appendix I provides additional details on our scope and 

methodology.

We conducted our work from May 2003 through May 2004 in accordance 

with generally accepted government auditing standards.

Results in Brief Small webcasters have a variety of economic arrangements with third 

parties, such as bandwidth providers, businesses seeking or selling 

advertising space, and merchandise providers. Virtually all of the 

webcasters that we interviewed—the 30 that had agreed to the royalty 

terms in the small webcaster agreement and the 28 that had not—reported 

having arrangements with bandwidth providers from 1998 through 2003. 

Forty webcasters reported arrangements for selling advertising space 

either directly or through advertising firms. However, advertising sales 

have remained low, according to industry analysts, in part because of the 

collapse of the high technology business sector since 2000 and the relative 

novelty of the Internet as an advertising medium. Twenty-five, or 44 

percent, of the small webcasters that we contacted also reported 

arrangements with businesses to sell merchandise, such as T-shirts and 

coffee mugs, through their Web sites. Less commonly reported 

arrangements included those with companies that help small webcasters 

manage or obtain advertising for their Web sites such as by inserting ads on 

the Web site or into the webcast itself or selling advertising based on the 

aggregate audiences of multiple webcasters. 

Data obtained from the small webcasters that agreed to the terms of the 

small webcaster agreement suggest that the overall effect of economic 

arrangements between small webcasters and third parties on royalties 

owed to copyright owners has been minimal to date. Of the 30 small 

webcasters we interviewed that had agreed to the terms of the small 

webcaster agreement, 27 provided us with financial data. Nineteen of the 

27 reported revenue and expense estimates that were below the levels that 

would result in royalty payments at an amount greater than the minimum 

fee for either or both of the time periods for which payments were to be 

made. The remaining 8 owed royalties that exceeded the minimum fee. In 

addition, 2 of the 13 small webcasters that reported receiving free or 
Page 5 GAO-04-700 Intellectual Property

reduced-price goods or services did not report the free service they 

received as revenue in their calculations of royalties. However, these data 

may not be reflective of conditions that may develop as the industry 

matures. Specifically, revenues and expenses of small webcasters might 

increase as they attract more listeners, and advertising opportunities and 

rates may also increase as the webcasting industry matures and advertisers 

rely more on the Internet as part of their advertising efforts, according to 

industry analysts.

Background The advent of the Internet and digital transmission of sound recordings 

through personal computers has revolutionized the music industry and 

created a new way to transmit music directly to listeners. Although 

personal computers have been available since the late 1970s and music in 

digital form since the early 1980s, it was opening up the Internet to 

commercial activity in 1992 that set the stage for webcasting. In webcasts, 

sound recordings, such as records and compact discs, and live 

performances can be transmitted to listeners over the Internet. The 

popularity of webcasting is growing, with the number of listeners tripling 

over the past 3 years. 

Webcasting and traditional radio broadcasting follow essentially the same 

steps to deliver music to listeners (see figs. 1 and 2). Many webcasters and 

traditional radio stations deliver music to listeners at no charge.8

 A key 

difference, however, concerns the number of potential listeners. In 

traditional radio broadcasting, a station’s signal is available to any number 

of listeners within range of the transmitter. In contrast, the potential 

audience for a webcast is anyone in the world whose computer is equipped 

with a media player.

8

Some webcasters and radio stations offer subscription services that deliver music to 

listeners in exchange for a fee. The focus of this report is nonsubscription webcasts.
Page 6 GAO-04-700 Intellectual Property

Figure 1: Webcasting Transmission Process 

Figure 2: Traditional Radio Broadcasting Transmission Process

Webcasting, also called Internet streaming, is the process of transmitting 

digitized audio or video content over the Internet. The content can 

originate from live performances, records, compact discs, or other 

prerecorded formats. A webcast consists of several steps. The webcasters 

must first assemble the music that will be transmitted and then translate it 
Page 7 GAO-04-700 Intellectual Property

into one or more digital formats. Music that is not streamed “live” must be 

stored so that it is available to individuals who use their personal 

computers to access the Web site created by the webcaster. The final step 

is delivering the music through an Internet connection. 

Choices about the audio quality of the transmitted music and the size of the 

audience affect the webcaster’s operation costs. The quality of the resulting 

music depends on the bandwidth—the number of bits of information 

transmitted per second—used by the webcaster. Higher bandwidth results 

in better sound quality of the transmitted music and allows a greater 

number of simultaneous listeners. The size of the Internet connection to 

the webcaster’s server and the choice of bandwidth determine the potential 

size of the audience. Although in its most basic form webcasting can be a 

relatively inexpensive “do-it-yourself” operation using a minimum of two 

computers and an Internet connection, the trade-off is lower sound quality 

and smaller audience size. Alternatively, webcasters that hope to reach a 

large audience with high-quality music frequently contract with one or 

more third parties to provide the different steps. Such third parties can 

provide a single service or some combination of services, including 

translating the music into digital form and adjusting bandwidth needs to 

accommodate the number of simultaneous listeners. Some may also 

provide data on the number and location of listeners. Because webcasters 

frequently deliver their music at no charge to listeners, webcasters may 

contract with other third parties, such as companies that wish to advertise 

products on the webcaster’s Web site, to obtain revenue that can help offset 

the costs associated with webcasting and return a profit to the webcaster.

The Internet and the ability to digitally transmit sound recordings have 

created opportunities for the recording companies that typically own the 

copyrights in sound recordings to reach an unprecedented number of 

listeners. Accompanying these opportunities are challenges for copyright 

owners to maintain control over, and be compensated for, the use of their 

copyrighted recordings. In the United States, the owners of copyrights in 

sound recordings have not historically enjoyed the exclusive right to 

control or authorize public performances of their recordings. Traditionally 

these copyright owners generated royalties by selling copies of the 

recordings in the form of albums, cassette tapes, and compact discs. 

Although radio broadcasters pay royalties to publishers and writers for use
Page 8 GAO-04-700 Intellectual Property

of a musical work, they were not obligated to pay record companies for the 

use of sound recordings.9

Two key pieces of legislation gave copyright owners the right to control 

performances of sound recordings when they are digitally transmitted and 

gave webcasters the automatic right to use the recordings under certain 

circumstances in exchange for the payment of royalties under a statutory 

license. The Digital Performance Right in Sound Recordings Act, enacted in 

1995, granted copyright owners the exclusive right to control or authorize 

the use of recordings when they are digitally transmitted but not, for 

example, when they are transmitted for use as background music in a 

restaurant.10 In the Digital Millennium Copyright Act (DMCA), the Congress 

expanded the scope of this digital transmission right.11 Among other things, 

the DMCA specifies that webcasters may operate under an automatic 

license to use copyrighted works at either a voluntarily negotiated rate or 

at a rate recommended by a panel known as a Copyright Arbitration 

Royalty Panel (CARP), subject to review by the Librarian of Congress.12

These rates, retroactive to October 1998, were to apply through December 

2002. The act called for this procedure to be repeated every 2 years as the 

webcasting industry developed, though it could be extended by agreement 

between the copyright owners and webcasters.

However, the legislation created conflict between record companies and 

webcasters. The DMCA provided the opportunity to negotiate royalty rates 

independently. But after negotiations between owners and webcasters 

broke down, the Library of Congress convened a CARP to resolve the issue 

and determine the appropriate rates. The CARP held hearings for 6 months, 

during which both the copyright owners and webcasters presented their 

cases. In February 2002, the CARP issued a royalty rate recommendation. 

9

The sound recording and the underlying musical work are separate works, each of which is 

protected by its own copyright. Both webcasters and traditional radio broadcasters are 

responsible for paying royalties to owners of copyrights in the underlying musical works.

10Pub. L. No. 104-39, 109 Stat. 336 (1995).

11Pub. L. No. 105-304, 112 Stat. 2860 (1998).

12The Librarian of Congress is empowered to review CARP decisions and must accept its 

recommendations for setting rates and terms, unless the Librarian, based upon the 

recommendation of the Register of Copyrights, determines that the CARP’s 

recommendations are arbitrary or contrary to law. 
Page 9 GAO-04-700 Intellectual Property

In June 2002, the Librarian rejected some of the webcasting rates 

recommended by the CARP and issued a regulation that set royalty rates 

for Internet transmissions. Both record companies and webcasters 

contested the Librarian’s rates and sought relief in the courts. Some small 

webcasters believed that the rates set by the Librarian were too high, 

arguing that they would have to close their operations because they could 

not pay the rates set by the Librarian and that these rates would put an end 

to the promise of webcasting. Copyright owners believed the rates were 

too low and did not reflect the true market value of their music, causing 

them to, in essence, subsidize the webcasters. Moreover, they argued that 

royalties are simply another cost of doing business, like buying bandwidth, 

and webcasters that could not afford to pay them should not be operating.

In response to these concerns, the Congress passed the Small Webcaster 

Settlement Act of 2002.13 The act did not set new royalty rates but instead 

allowed small webcasters and copyright owners another opportunity to 

negotiate an agreement on royalty rates for the period beginning October 

28, 1998, through December 31, 2004.14 These negotiated rates were to be 

based on a percentage of revenue or expenses, or a combination of both; 

were to include a minimum fee; and were to apply in lieu of rates set by the 

Librarian of Congress (see table 1). This option was available to any small 

webcaster that met the agreed-upon eligibility requirements. In December 

2002 the U.S. Copyright Office published the resulting agreement under the 

act.15 The agreement contained specific guidance for webcasters to follow 

in determining the specific revenue and expense categories that were to be 

included in the calculation of royalties due to copyright owners. The 

guidance defines revenues and expenses in ways compatible with generally 

accepted accounting principles and income tax reporting.

13Pub. L. No. 107-321, 116 Stat. 2780 (2002).

14Under the Small Webcaster Settlement Act, SoundExchange was permitted to enter into 

agreements on behalf of all copyright owners and performers. The small webcasters were 

represented by Voice of Webcasters, a coalition of small commercial webcasters.

1567 Fed. Reg. 78510 (2002).
Page 10 GAO-04-700 Intellectual Property

Table 1: Summary of the Royalty Rates and Fees for Small Webcasters

Source: GAO.

Note: Small webcasters owe royalties based on a percentage of revenue or expenses or a minimum 

fee, whichever is greater. 

As of October 2003, 35 small webcasters that had elected to follow the 

royalty rates and terms set out in the agreement were in operation. As 

shown in figure 3, these webcasters were located throughout the United 

States, with one in Canada. We interviewed 30 of these webcasters. Rock 

and pop are the types of music they most often delivered to listeners, 

although they also webcast rhythm and blues, jazz, “oldies,” and electronic 

dance music. For 17 of these small webcasters, the targeted audience 

includes both men and women, while the audience for the remaining 11 is 

predominately men. Almost all of these small webcasters target listeners 

between the ages of 25 and 34. 

Time period Revenue rate Expense rate Minimum annual fee

October 28, 1998 – December 31, 1998 8% of gross revenues 5% $500

January 01,1999 – December 31, 2002 8% of gross revenues 5% $2,000

January 01, 2003 – December 31, 2004 10% of the first $250,000 of 

gross revenues and 12% of 

any gross revenues in excess 

of $250,000

7% $2,000 for webcasters with 

gross revenues that were not 

in excess of $50,000 the 

previous or year or expected to 

exceed $50,000 during the 

current license period 

$5,000 for webcasters with 

gross revenues that exceeded 

$50,000 the previous year or 

are expected to exceed 

$50,000 during the current 

license period
Page 11 GAO-04-700 Intellectual Property

Figure 3: Location of Small Webcasters That Signed the Small Webcaster Agreement

Small Webcasters 

Enter into a Variety of 

Economic 

Arrangements with 

Third Parties

Small webcasters have economic arrangements with various third parties, 

including bandwidth providers, advertisers, and merchandise providers. 

Other less commonly reported arrangements with third parties included 

those with companies that help small webcasters manage or obtain 

advertising, such as companies that insert ads either on the Web site or into 

the webcast, and companies that sell advertising based on the aggregate 

audience of multiple webcasters. We determined that the economic 

arrangements of the small webcasters that elected to follow the terms in 

the small webcaster agreement and those that elected not to do so were not 

substantially different. 

Source: GAO.
Page 12 GAO-04-700 Intellectual Property

Arrangements with 

Bandwidth Providers and 

Advertisers are Most 

Common 

Fifty-two, or 91 percent, of the small webcasters that we interviewed 

reported having had arrangements with bandwidth providers during the 

year 2003. In addition, 24 small webcasters said that they had received free 

bandwidth. However, only 16 of them had received free bandwidth in 2003. 

Fifteen small webcasters reported that they had received bandwidth at a 

reduced price at some point, while 14 were receiving it at a reduced price in 

2003. Although bandwidth is the dominant cost component for most 

webcasters, some bandwidth providers offer these incentives as a means to 

gain business for themselves and to promote the small webcaster market in 

general.

Over half of the small webcasters interviewed had attempted to sell 

advertising space, either directly or through advertising firms. Of the 40 

small webcasters that reported having attempted to sell advertising space, 

38 said they were currently running advertising on their stations and 2 

stated that they had run advertising in the past, but were no longer doing 

so. As shown in figure 4, these small webcasters had various methods of 

selling advertising space. Most reported that the owners or employees of 

their stations sold advertising space. Other arrangements to sell advertising 

space, such as through advertising firms or coalitions of webcasters, were 

less common.

Figure 4: Methods of Selling Advertising Space

Note: Thirty-eight of the 40 small webcasters that had sold advertising space responded to this survey 

question. Webcasters could report using more than one method. 

Small webcasters use various types of advertising on their sites. Banner 

ads, which are graphic images that typically appear toward the top of Web 

Coalition of webcasters

Advertising agency

Other methods

Owners or employees 

of parent company

Owners or employees 

of the station

Source: GAO's survey of small webcasters.

0 5 10 15 20 25 30 35 40

Number of webcasters 

Method

4

6

7

9

35
Page 13 GAO-04-700 Intellectual Property

pages, were the most common type of advertising used by small 

webcasters (see fig. 5). Thirty-three of the small webcasters reported that 

they use banner ads on their sites, and another 2 reported that they used 

banner ads in the past, but no longer do so. Audio ads, which play at the 

beginning or during a small webcaster’s stream, were currently being used 

by 29 of the small webcasters, and another 3 reported having used them in 

the past. Video ads, which are either shown on the computer screen 

whenever the listener tunes to the station or during the stream, were less 

common. Only 9 of the small webcasters reported using video ads, and 

another 4 said they had used them in the past. Some of the small 

webcasters reported using some other type of advertising on their sites.

Figure 5: Types of Advertising Currently Used by Webcasters

Note: Forty small webcasters responded to this survey question. Webcasters could report using more 

than one type.

Advertising is a primary source of revenue for the small webcasters we 

interviewed. Twenty-seven of the 58 small webcasters interviewed reported 

that advertising had provided at least 10 percent of their station’s gross 

revenue in 2003 (see fig. 6). According to industry analysts and 

representatives, advertising sales have remained low, in part due to the 

collapse of the high technology business sector since 2000 and because of 

the relative novelty of the Internet as an advertising medium. Twelve of the 

small webcasters interviewed reported that they had received free or 

reduced-price advertising since 1998. In addition to advertising, other 

sources of revenue for the small webcasters included donations and 

merchandise sales.

Audio

Banner

Video

Other

Source: GAO's survey of small webcasters.

0 5 10 15 20 25 30 35 40

Number of webcasters 

Type of advertising

11

29

9

33
Page 14 GAO-04-700 Intellectual Property

Figure 6: Sources Providing at Least 10 Percent of Webcasting Revenue

Note: Fifty-six webcasters responded to this survey question.

Arrangements with 

Merchandisers and Other 

Third Parties Are Less 

Prevalent 

Small webcasters generally did not have arrangements with other third 

parties, such as merchandisers and ad insertion companies. Twenty-five, or 

44 percent, of the small webcasters that we interviewed reported that they 

had economic arrangements with suppliers of merchandise, such as 

T-shirts or coffee mugs in 2003 (see fig. 7). This represented an increase of 

4 percent from the 1998 through 2002 time period. In addition to selling 

merchandise on their sites, 15 small webcasters reported that they had 

received merchandise, such as compact discs and T-shirts, for free or at a 

reduced price. 

Thirteen, or 23 percent, of the small webcasters reported that they had 

economic arrangements in 2003 with ad insertion companies, which sell 

either the technology for inserting ads into a webcaster’s audio stream or 

the service of inserting the ads. This technology can help small webcasters 

target their advertisements to the profiles of their listening audiences as 

well as provide links to their advertisers’ Web sites. Other types of 

economic arrangements that were even less common involved coalitions of 

webcasters and arrangements with aggregators. Twelve, or 21 percent, of 

the small webcasters reported that they had economic arrangements in 

2003 with a coalition of webcasters. Such coalitions have formed to help 

webcasters market themselves to advertisers. Seven percent of the small 

webcasters reported that in 2003 they had economic arrangements with 

companies that sell advertising based on the aggregate audience of multiple 

webcasters. When an advertiser purchases advertising space from a 

webcaster, the advertiser is purchasing the chance to present a message to 

Merchandise sales

Cash donations

Other

Noncash donations

Advertising

Source: GAO's survey of small webcasters.

0 5 10 15 20 25 30 35 40

Number of webcasters 

Source of revenues

4

18

9

9

27
Page 15 GAO-04-700 Intellectual Property

as many listeners as possible. While some webcasters are small and may 

not have enough listeners to attract advertisers on their own, they have 

entered into arrangements with companies that sell advertising space 

based on an aggregate audience of multiple webcasters. Other 

arrangements included those with parent and sister companies and with 

corporate sponsors. 

Figure 7: Types of Economic Arrangements with Third Parties

Note: Forty-seven of the 48 small webcasters that were operating between December 28, 1998, and 

December 31, 2002, responded to this survey question for both time periods. Ten additional small 

webcasters that began operating in 2003 responded to this survey question for 2003. 

7

13 15

11

51

43

19 21 21 23

9

21 23

17

34 33

44

40

91

94

0

20

40

60

80

100

Source: GAO's survey of small webcasters.

October 28, 1998, to December 31, 2002

Percentage of webcasters

Economic arrangements

2003

Music content 

provider

Audience 

aggregator

Others

Ad insertion 

company

Advertising 

agency

Corporate 

sponsor

Suppliers of 

merchandise

Bandwidth 

providers

Parent or sister 

company

Coalition of 

webcasters
Page 16 GAO-04-700 Intellectual Property

Available Data Suggest 

the Effects of 

Economic 

Relationships between 

Small Webcasters and 

Third Parties on 

Royalties Have Been 

Minimal to Date

Data obtained from small webcasters that agreed to the terms of the small 

webcaster agreement suggest that to date the overall effect of their 

economic arrangements with third parties on royalties owed to copyright 

owners has been minimal. Most of these small webcasters owed the 

minimum royalty fee for either or both of the time periods for which 

payments were to be made. Because royalty obligations for these 

webcasters are based on a percentage of their revenues or expenses, or a 

minimum fee, whichever is greater, accurate reporting is essential to 

ensure the appropriate payment of royalties. We found only limited 

evidence to suggest small webcasters might not be doing so.

Royalties for Most Small 

Webcasters Equal the 

Minimum Fee 

The majority of small webcasters we interviewed that had agreed to the 

royalty terms in the small webcaster agreement owed royalties equal to the 

minimum fee because they did not generate revenue or incur expenses 

sufficient to exceed the thresholds for owing royalties above the minimum 

fee. Nineteen, or 70 percent, of the 27 small webcasters that provided us 

with financial information reported revenue and expense estimates that 

were below the levels that would result in royalty payments above the 

minimum fee for one or both of the time periods for which payments were 

to be made—the historical period, which began on October 28, 1998, and 

ended on December 31, 2002, and 2003 (see table 2). The specific revenue 

and expense thresholds vary, in part, depending on when the webcaster 

began operating. The revenue threshold ranged from $25,000 for those that 

began operating in 2002 to more than $100,000 for those that began in 1998, 

while the expense threshold ranged from $40,000 to $170,000. For the 

period 2003 to 2004, the revenue threshold varied in relation to anticipated 

revenue, with the threshold at $20,000 for those earning less than $50,000 

and at $50,000 for those earning more. During the same time period, the 

expense threshold was $28,571 for those earning less than $50,000 and 

$71,429 for those earning more. Most small webcasters reported revenues 

or expenses that were less than half the thresholds required for royalty 

payments to exceed the minimum fee. 
Page 17 GAO-04-700 Intellectual Property

Table 2: Basis for Royalty Obligations for Two Time Periods 

Source: GAO’s survey of small webcasters. 

Note: Three of the 30 small webcasters that agreed to the terms of the small webcaster agreement did 

not provide us with financial information. 

Eight small webcasters owed royalties that were based on either revenues 

or expenses and exceeded the minimum fee. Five owed $3,000 or less 

above the minimum fee and one owed $5,000 above the minimum fee. The 

remaining two small webcasters owed more than three times the amount of 

the minimum fee. These two owed royalties based on their revenues in 

both time periods. One webcaster attributed much of its revenue to a 

relationship with an online retailer, while the other received revenue from 

an Internet service provider that offered its customers the option of 

including the webcast as an additional service. The specific minimum fee 

applicable to any individual small webcaster varied in the first period in 

relation to when it began transmitting, ranging from a low of $500 for a 

webcaster that operated only in 1998 to $8,500 for one that was operating 

for all or part of each year from October 28, 1998, through December 2002. 

The minimum fee for the period 2003 to 2004 varied in relation to 

anticipated revenue and was $2,000 for small webcasters earning $50,000 or 

less and $5,000 for those earning more.

Reporting revenue and expenses in accordance with the small webcaster 

agreement is important to help ensure the proper payment of royalties. 

Under the agreement, all money earned and all expenses incurred, with 

certain exceptions, are to be reported for purposes of calculating royalties. 

For example, small webcasters may exclude revenues from the sale of 

recordings or assets such as land or buildings and such expenses as 

royalties paid, the cost of recordings used in the webcast, and the value of 

residential space used in the operation of the webcasting service.

Transactions that do not involve the exchange of money but result in the 

webcaster receiving something of value are to be included in statements of 

revenues or expenses. The value of the goods or services received is to be 

Basis 

Number of small 

webcasters

Owed the minimum fee for one or both time periods 19

Owed royalties based on revenues for one or both time periods 5

Owed royalties based on expenses for both time periods 3

Total 27
Page 18 GAO-04-700 Intellectual Property

included in the small webcaster’s revenue, and any goods or services the 

small webcaster offered in exchange are to be reported as expenses. For 

example, if a small webcaster received free bandwidth, the value of that 

service should be included as revenue. In some cases, small webcasters 

contract with an advertising firm that forwards a portion of the advertising 

sales to the small webcaster and retains a portion as commission. In these 

cases, the small webcaster is to report the money it received as revenue 

and the portion retained by the advertising firm as an expense. 

Although the extent to which small webcasters comply with the 

agreed-upon guidance for reporting revenues and expenses could not be 

determined without a detailed review of their financial records, small 

webcasters that elect to follow the terms of the small webcaster agreement 

subsequently certify that the figures they report to copyright owners are 

accurate under penalty of law. Copyright owners have the right to initiate a 

detailed review of financial records to verify the accuracy of the reported 

figures. However, an attorney representing copyright owners said that, to 

his knowledge, no such reviews have been conducted. 

We found limited evidence to suggest that small webcasters might not be 

reporting revenues and expenses as agreed. Specifically, while 13 of the 

small webcasters interviewed said they had received goods or services at 

no charge, 2 reported having no revenue, although they had received free 

bandwidth. In each case, however, these small webcasters reported 

revenue and expense estimates that were well below the revenue and 

expense threshold, and both were subject to the minimum fee for both the 

period from 1998 to 2002 and for 2003. 

Effect of Economic 

Arrangements May Change 

As Industry Evolves

Although the majority of small webcasters that we interviewed reported 

revenues and expenses that were substantially below the levels required to 

pay a royalty above the minimum fee, this may change as the industry 

matures.16Revenues and expenses of small webcasters might increase as 

they attract more listeners, and advertising opportunities and rates may 

also increase as the webcasting industry matures and advertisers rely more 

on the Internet as part of their advertising efforts. Two trends that may 

affect the amount of royalties that small webcasters may have to pay in the 

16The current agreement between copyright owners and small webcasters expires at the end 

of 2004. It is not clear whether small webcasters will continue to have an option to pay 

royalties as a percentage of their revenue or expenses.
Page 19 GAO-04-700 Intellectual Property

future include growth in audience size and growth in advertising. The 

number of Americans listening to Internet transmissions nearly tripled 

between 2000 and 2003, and about 40 percent of Americans have listened to 

webcasts, including Internet transmissions of over-the-air radio 

programming, at least once, according to recent reports by an international 

media and marketing research firm.17 Industry analysts expect this growth 

to continue. Small webcasters that we interviewed also reported growth in 

the sizes of their audiences. Thirty-six, or 76 percent, of the small 

webcasters that we interviewed that started webcasting before January 

2002 said their audience size had increased, although they could not 

quantify the extent of the increase (see fig. 8).

Figure 8: Change in Audience Size among Webcasters

Note: Forty-seven of the 48 small webcasters that were in operation on or before January 2002 

responded to this survey question.

As mentioned earlier, the small webcasters that we interviewed indicated 

that they depend upon advertising as a primary source of revenue.

According to an estimate from one of the reports cited above, if the 

aggregate webcast audience could be “sold” to advertisers as if it were an 

over-the-air radio network, it could generate up to $54 million per year in 

17Arbitron/Edison Media Research, 2003. “Internet and Multimedia 11: New Media Enters the 

Mainstream” and “Internet and Multimedia 10: The Emerging Digital Consumer.”

Source: GAO's survey of small webcasters.

36

7

4

Decreased

Same

Increased
Page 20 GAO-04-700 Intellectual Property

advertising revenue. However, according to industry analysts, webcasters 

have the potential to increase their advertising revenues over current 

levels, in part because they have the ability to provide demographic 

information about their listeners, which allows advertisers to more 

accurately target advertisements to potential consumers. 

We will send copies of this report to the appropriate House and Senate 

committees; interested Members of Congress; the Librarian of Congress; 

and to the Director, Office of Management and Budget. We will also make 

copies available to others upon request. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov. 

If you have any questions about this report, please contact me at (202) 

512-3841. Other major contributors to this report are listed in appendix III.

Anu K. Mittal

Director, Natural Resources 

 and Environment
Page 21 GAO-04-700 Intellectual Property

Appendix I

Scope and Methodology ApApenednxidexiIs

As required by the Small Webcaster Settlement Act of 2002, we conducted a 

study in consultation with officials from the U.S. Copyright Office in the 

Library of Congress to determine (1) the economic arrangements between 

small commercial webcasters and third parties1

 and (2) how those 

arrangements affect royalties due to copyright owners and performers. We 

consulted officials from the U.S. Copyright Office throughout the course of 

our work and incorporated the suggestions and comments we obtained 

into our report as appropriate.

To respond to the objectives set out in the act, we met with officials from 

the U.S. Copyright Office, the Library of Congress, and representatives of 

organizations that represent copyright owners. In addition, we interviewed 

staff from businesses that provide advertising and other services to small 

webcasters and industry analysts. We also reviewed relevant copyright 

laws, regulations, and articles. 

To obtain information from small webcasters, we developed a structured 

interview. We pretested the content and format of this interview with 6 

webcasters. During these pretests we asked the small webcasters to assess 

whether the questions were clear and unbiased and whether the terms 

were accurate and precise. We made changes to the interview protocol 

based on pretest results. We conducted the interview via telephone with 58 

small webcasters located throughout the country—30 who had agreed to 

the terms of the agreement reached by copyright owners and small 

webcasters under the Small Webcaster Settlement Act and 28 who had not.2

The U.S. Copyright Office is not required to and does not maintain a list of 

small webcasters. As a result, to identify the universe of small webcasters, 

we obtained a list from SoundExchange of 35 small webcasters that had 

elected to follow the terms of the small webcaster agreement.3

 We 

1

Third parties are entities that have economic arrangements, such as contracts or 

agreements, to provide such goods or services to small webcasters as bandwidth, 

advertising, corporate sponsorship, or musical content. 

2

In this report we refer to this agreement as the small webcaster agreement.

3

Small webcasters that elected to follow the terms of the agreement were required to submit 

election forms and financial data to SoundExchange, the organization designated by the 

Librarian of Congress at the request of both copyright owners and webcasters to receive 

royalty payments from webcasters and distribute them to copyright owners. The U.S. 

Copyright Office has no responsibility for administering the rates and terms of the small 

webcaster agreement. 
Appendix I

Scope and Methodology

Page 22 GAO-04-700 Intellectual Property

subsequently learned that one of the webcasters had determined that it was 

not eligible to follow the terms of the agreement because the station made 

too much revenue, and a second webcaster operated only as a subscription 

service. A third webcaster informed us that it had ceased operating in 

December 2000. SoundExchange later sent us an updated list that included 

3 additional small webcasters. Thus, the number of eligible small 

webcasters that were operating as of October 2003 and had agreed to 

follow the terms of the agreement was 35. We completed interviews with 30 

of these small webcasters for a response rate of 85.7 percent. 

We also interviewed small webcasters that did not elect to follow the terms 

of the small webcaster agreement. We obtained a list of 121 names of small 

webcasters from BRS Media (a private firm that maintains a list of Internet 

broadcasting firms). To the best of our knowledge, this encompassed all 

small webcasters operating in the United States. Of these 121 webcasters, 

28 were no longer operating or did not appear to meet the definition of an 

eligible small commercial webcaster, and 4 had signed the small webcaster 

agreement (and thus were on the list of “signers”). We attempted to reach 

the remaining 89 small webcasters. Forty-two small webcasters were 

contacted. Interviews were completed with 28 that met the criteria of 

“small webcaster.” Fourteen webcasters refused to be interviewed. We 

were not able to contact the remaining 47 webcasters, although we made 

repeated attempts and left messages when we could. We did not calculate 

the response rate for the group of small webcasters that did not sign the 

agreement because we did not know how many of those not interviewed 

were eligible small webcasters, and we did not have enough information to 

reasonably estimate the percentage that might be eligible.

To protect the confidentiality of the small webcasters we interviewed, we 

randomly assigned each an identification number and documented their 

responses to our interview questions with the identification number. 

During the interviews, we asked the 58 small webcasters about economic 

arrangements they had with third parties, whether they were currently 

receiving or had previously received any free or reduced-price goods or 

services, and requested estimates of their revenues, expenses, and third 

party revenues. For those small webcasters that had signed the election 

form to follow the terms of the small webcaster agreement, we asked for 

their reasons for doing so. For those that had not signed the election form, 

we asked for their reasons for not doing so. For many of the questions, we 

asked small webcasters to provide separate responses for two different 

periods to correspond with the reporting periods contained in the 

agreement—the historical period, which began on October 28, 1998, and 
Appendix I

Scope and Methodology

Page 23 GAO-04-700 Intellectual Property

ended on December 31, 2002, and 2003 to 2004. We asked small webcasters 

to provide information through the date of our interviews, which were 

conducted in November and December 2003.

We also asked each of the 30 small webcasters we interviewed who had 

elected to follow the terms of the small webcaster agreement to sign a 

release form allowing us to obtain access to the financial records they had 

submitted to SoundExchange. We obtained signed release forms from 25 of 

the 30 (83.3 percent) small webcasters. A representative of SoundExchange 

subsequently informed us that it had no financial information for 9 of these 

25 small webcasters. We reviewed the information the 16 remaining small 

webcasters had provided to SoundExchange to determine whether it was 

comparable to the information they had provided to us. 

To assess the effect that economic arrangements between small 

webcasters and third parties have on the royalties due to copyright owners 

and performers, we used financial information obtained during our 

interviews with 27 of the 30 small webcasters that elected to follow the 

terms of the agreement. Three of the 30 small webcasters declined to 

provide any financial information. We calculated the threshold revenue 

amounts that each of the 27 small webcasters would have had to exceed to 

owe more than the minimum royalty fee. These revenue amounts were 

calculated for both time periods—October 28, 1998 through December 31, 

2002, and for 2003—and were based on the length of time the small 

webcaster had been in operation. We then estimated the amount that each 

small webcaster owed in royalties for each of the two time periods based 

on the revenue and expense data that they provided to us. For small 

webcasters that did not report revenue or expense estimates for the entire 

year, we used their average monthly revenues to project their yearly gross 

revenue and/or expenses. These estimated values were compared to the 

threshold amounts and allowed us to determine whether the small 

webcasters were subject to royalty payments above the minimum fee. 
Page 24 GAO-04-700 Intellectual Property

Appendix II

Results of GAO’s Survey of Small Webcasters ApendxiI

Q1: Number of Webcasters Who Began Operating Current Nonsubscription Webcasting 

Service in Years 1997 to 2003 

Year

Signed small webcaster 

agreement 

(N=30)

Did not sign small 

webcaster 

agreement 

(N=24)

All respondents 

(N=58)a

1997 1 0 3

1998 3 2 5

1999 4 3 7

2000 4 11 17

2001 4 3 7

2002 7 2 9

2003 7 3 10

a

Fifty-eight webcasters completed our interview. Four webcasters could not be reliably 

classified as having signed or not signed the small webcaster agreement . They were included in 

the analyses of all respondents, but not in the analyses of those who had signed or not signed the 

agreement. Not all respondents answered all questions. 
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 25 GAO-04-700 Intellectual Property

Q2: Percentage of Webcasters Playing Different Types of Music 

Type of music 

Signed small 

webcaster 

agreement 

(N=30)

Did not sign 

small webcaster 

agreement 

(N=24)

All respondents

(N=58)

African 16.67 8.33 15.52 

Bluegrass 33.33 12.50 24.14 

Broadway or show tunes 16.67 4.17 10.34 

Classical 26.67 16.67 24.14 

Country 30.00 16.67 25.86 

Easy listening 36.67 4.17 20.69 

Electronic dance music 46.67 16.67 32.76 

Folk 36.67 20.83 31.03 

Indie-alternative 53.33 33.33 44.83 

Jazz 50.00 16.67 36.21 

Latin 33.33 16.67 25.86 

Oldies 40.00 25.00 37.93 

Pop 56.67 12.50 39.66 

Rap 46.67 16.67 34.48 

Reggae 50.00 12.50 34.48 

Religious 23.33 25.00 24.14 

Rhythm & blues 43.33 33.33 41.38 

Rock 73.33 62.50 70.69 

Other 36.67 66.67 50.00 
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 26 GAO-04-700 Intellectual Property

Q3: Percentage of Webcasters Streaming One or More Channels 

Number of channels streamed 

Signed small 

webcaster 

agreement 

(N=30)

Did not sign 

small webcaster 

agreement 

(N=24)

All 

respondents 

(N=58)

1 66.67 87.50 74.14 

2 10.00 4.17 10.34 

4 3.33 4.17 3.45 

6 0.00 4.17 1.72 

9 3.33 0.00 1.72 

14 3.33 0.00 1.72 

18 3.33 0.00 1.72 

19 3.33 0.00 1.72 

50 3.33 0.00 1.72 

138 3.33 0.00 1.72 

Q4: Percentage of Webcasters Who Target Different Age Groups 

Age range 

Signed small 

webcaster 

agreement 

(N=29)

Did not sign 

small webcaster 

agreement 

(N=23)

All 

respondents 

(N=54)

17 and younger 41.38 30.43 35.71 

18 – 24 79.31 69.57 76.79 

25 – 34 96.55 82.61 91.07 

35 – 54 79.31 78.26 80.36 

55 and over 31.03 47.83 39.29 
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 27 GAO-04-700 Intellectual Property

Q5: Percentage of Webcasters Indicating That Listeners are Mostly Males, Mostly 

Females, or Both Males and Females 

Sex of listeners 

Signed small 

webcaster 

agreement 

(N=28)

Did not sign 

small webcaster 

agreement 

(N=23)

All 

respondents 

(N=55)

Mostly males 39.29 43.48 40.00

Mostly females 0.00 0.00 0.00

Both 60.71 56.52 60.00 

Q6: Percentage of Webcasters Who Track Size of Audience 

Signed small 

webcaster agreement 

(N=30)

Did not sign small 

webcaster agreement 

(N=24)

All respondents 

(N=55)

76.67 70.83 75.86 

Q7: Size of audience. Data are not reported due to unreliability.

Q8: Percentage of Webcasters Reporting Increase or Decrease in Size of Audience Since 

January 2002 

Size of audience 

Signed small 

webcaster 

agreement 

(N=29)

Did not sign 

small webcaster 

agreement 

(N=24)

All 

respondents 

(N=54)

Increased 79.31 70.83 77.19 

Decreased 3.45 12.50 7.02 

Stayed the same 17.24 16.67 15.79 
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 28 GAO-04-700 Intellectual Property

Q9: Percentage of Webcasters Currently Offering a Subscription 

Service 

Signed small 

webcaster agreement 

(N=29)

Did not sign small 

webcaster agreement 

(N=23)

All respondents 

(N=58)

16.67 12.50 13.79 

Q10: Percentage of Webcasters Using Advertising on Web Site 

Use of advertising 

Signed small 

webcaster 

agreement 

(N=29)

Did not sign 

small 

webcaster 

agreement 

(N=24)

All 

respondents 

(N=57)

Currently use 68.97 62.50 66.67 

Don’t use now, but 

did in the past 

3.45 4.17 3.51

Don’t use now and 

have never used 

27.59 33.33 29.82
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 29 GAO-04-700 Intellectual Property

Q11: Percentage of Webcasters Using Different Types of Advertisingb

Type of advertising Currently use 

Used in past 

but don’t use 

now 

Have never 

used

Have never 

used but 

intend to use 

in the future* 

Signed small webcaster agreement 

(N=21)

Banner ads 90.48 0.00 9.52 50.00

Audio ads 66.67 4.76 19.05 50.00

Video ads 33.33 4.76 61.90 15.38 

Other types of ads 33.33 4.76 61.90 0.00 

Did not sign small webcaster agreement 

(N=16)

Banner ads 75.00 12.50 12.50 0.00 

Audio ads 81.25 6.25 12.50 50.00 

Video ads 6.25 18.75 75.00 41.67 

Other types of ads 18.75 0.00 81.25 0.00 

All respondents 

(N=40)

Banner ads 82.50 5.00 12.50 33.33 

Audio ads 72.50 7.50 15.00 42.86 

Video ads 22.50 10.00 67.50 29.63 

Other types of ads 27.50 2.50 70.00 100.00 

*This question was asked only of those respondents who answered that they “had 

never used” that type of advertising. 

b

Questions 11 and 12 were answered only by webcasters who answered (Question 10) that they 

currently use advertising or used advertising in the past. 
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 30 GAO-04-700 Intellectual Property

Q12: Percentage of Webcasters Using Different Ways to Sell Ads

Ways advertising could 

be sold Currently use 

Intend to in 

the future 

Don’t do 

and don’t 

intend to 

in future 

Not 

applicable 

Signed small webcaster agreement 

(N=20)

Sold by an advertising 

agency

20.00 45.00 35.00 0.00

Sold by owners or 

employees of the 

station 

95.00 5.00 0.00 0.00 

Sold by owners or 

employees of parent 

company

10.00 0.00 30.00 60.00 

Sold through a 

coalition of webcasters 20.00 45.00 35.00 0.00 

Other ways 20.00 0.00 80.00 0.00 

Did not sign small webcaster agreement 

(N=16)

Sold by an advertising 

agency

25.00 31.25 37.50 6.25 

Sold by owners or 

employees of the 

station 

81.25 6.25 0.00 12.50 

Sold by owners or 

employees of parent 

company

12.50 0.00 18.75 68.75 

Sold through a 

coalition of webcasters 18.75 37.50 31.25 12.50 

Other ways 12.50 6.25 75.00 6.25 

All respondents 

(N=39)

Sold by an advertising 

agency

23.08 41.03 33.33 2.56 

Sold by owners or 

employees of the 

station 

89.74 5.13 0.00 5.13 

Sold by owners or 

employees of parent 

company

10.26 0.00 23.08 66.67 

Sold through a 

coalition of webcasters 17.95 43.59 33.33 5.13 

Other ways 15.38 2.56 79.49 2.56 
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 31 GAO-04-700 Intellectual Property

Q13: Percentage of Webcasters Who Had Economic Transactions With Different Types 

of Businesses 

Signed small 

webcaster 

agreement 

Did not sign 

small webcaster 

agreement 

All 

respondents 

10/28/1998 – 12/31/2002 

Type of business (N=22) (N=21) (N=47) 

Ad insertion company 9.09 28.57 17.02 

Advertising agency 31.82 14.29 23.40 

Audience aggregator for 

advertisers 22.73 4.76 12.77 

Bandwidth provider (i.e., an 

ISP) 86.36 100.00 93.62 

A music content provider 13.64 14.29 14.89 

A corporate sponsor 27.27 19.05 21.28 

A coalition of webcasters 0.00 19.05 8.51 

A parent or sister company 45.45 23.81 34.04 

Suppliers of merchandise (e.g., 

T-shirts) 40.91 33.33 40.43 

Other types of businesses 50.00 38.10 42.55 

1/01/2003-presentc

Type of business (N=29) (N=24) (N=57) 

Ad insertion company 17.24 29.17 22.81 

Advertising agency 17.24 25.00 21.05 

Audience aggregator for 

advertisers 6.90 4.17 7.02 

Bandwidth provider (i.e., an 

ISP) 89.66 95.83 91.23 

A music content provider 10.34 8.33 10.53 

A corporate sponsor 24.14 16.67 19.30 

A coalition of webcasters 10.34 33.33 21.05 

A parent or sister company 44.83 20.83 33.33 

Suppliers of merchandise (e.g., 

T-shirts) 41.38 45.83 43.86 

Other types of businesses 55.17 45.83 50.88 c

We conducted interviews with small webcasters in November and December 2003. “Present” 

refers to the date of the interview.
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 32 GAO-04-700 Intellectual Property

Q14: Percentage of Webcasters Using Different Methods to Pay for Goods and Services 

Signed small 

webcaster 

agreement 

Did not sign 

small webcaster 

agreement 

All 

respondents 

10/28/1998 – 12/31/2002 

Method of payment (N=22) (N=21) (N=47) 

Direct payment, that is, with 

cash or a check 100.00 100.00 100.00 

Commissions 36.36 28.57 31.91 

Revenue or profit sharing 18.18 4.76 12.77 

Barter or other noncash 

exchange 45.45 52.38 51.06 

Other ways 4.55 0.00 2.13 

1/01/2003-presentd

Method of payment (N=29) (N=24) (N=57) 

Direct payment, that is, with 

cash or a check 100.00 100.00 100.00 

Commissions 41.38 29.17 35.09 

Revenue or profit sharing 17.24 8.33 15.79 

Barter or other noncash 

exchange 31.03 41.67 38.60 

Other ways 3.45 4.17 3.51 d

We conducted interviews with small webcasters in November and December 2003. “Present” 

refers to the date of the interview. 
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 33 GAO-04-700 Intellectual Property

Q15: Percentage of Webcasters Who Reported Receiving Different Types of Goods and 

Services 

Signed small 

webcaster 

agreement 

Did not sign 

small webcaster 

agreement 

All 

respondents 

10/28/1998 – 12/31/2002 

Goods and services (N=22) (N=21) (N=47) 

Free bandwidth 31.82 52.38 44.68 

Reduced-price bandwidth 22.73 38.10 29.79 

Free or reduced-price 

advertising for your webcasting 

service 

18.18 23.81 21.28 

Other goods 27.27 19.05 23.40 

1/01/2003-presente

Goods and services (N=28) (N=24) (N=56) 

Free bandwidth 21.43 33.33 28.57 

Reduced-price bandwidth 14.29 37.50 25.00 

Free or reduced-price 

advertising for your webcasting 

service 

10.71 20.83 16.07 

Other goods 25.00 25.00 25.00 

Q16: Percentage of Webcasters Reporting That Different Goods and Services Provide at 

Least 10% of Their Gross Revenue 

Signed small 

webcaster 

agreement 

Did not sign 

small webcaster 

agreement 

All 

respondents 

10/28/1998 – 12/31/2002 

Goods and services (N=21) (N=21) (N=46) 

Advertising 57.14 38.10 45.65 

Cash donations 23.81 28.57 26.09 

Noncash donations 0.00 4.76 6.52 

Merchandise sales 14.29 4.76 13.04 

Other sources 28.57 4.76 15.22 

1/01/2003-presente

Goods and services (N=28) (N=24) (N=56) 

Advertising 53.57 41.67 48.21 

Cash donations 28.57 37.50 32.14 

Noncash donations 0.00 8.33 7.14 

Merchandise sales 14.29 12.50 16.07 

Other sources 25.00 4.17 16.07 e

We conducted interviews with small webcasters in November and December 2003. “Present” 

refers to the date of the interview.
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 34 GAO-04-700 Intellectual Property

Q17: Webcasters’ Estimates of Their Gross Revenue 

Signed small 

webcaster 

agreement 

Did not sign 

small webcaster 

agreement 

All 

respondents 

10/28/1998 – 12/31/2002 

(N=20) (N=19) (N=41) 

Mean 42,839 4,750 23,099

Minimum 0 0 0

Maximum 300,000 79,000 300,000

1/01/2003-presentf

(N=27) (N=22) (N=51) 

Mean 32,394 4,024 18,886

Minimum 0 0 0

Maximum 300,000 72,000 300,000 f

We conducted interviews with small webcasters in November and December 2003. “Present” 

refers to the date of the interview.
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 35 GAO-04-700 Intellectual Property

Q18: Webcasters’ Estimates of Their Expenses 

Signed small 

webcaster 

agreement 

Did not sign 

small webcaster 

agreement 

All 

respondents 

10/28/1998 – 12/31/2002 

(N=20) (N=18) (N=40) 

Mean 81,549 28,700 60,189

Minimum 499 300 300

Maximum 300,000 222,000 300,000

1/01/2003-presentg

(N=27) (N=21) (N=50) 

Mean 36,607 42,496 42,156

Minimum 500 110 110

Maximum 250,000 500,000 500,000 g

We conducted interviews with small webcasters in November and December 2003. “Present” 

refers to the date of the interview.

Q.19: Percentage of Webcasters Who Participated in the Negotiations 

That Led to the Small Webcaster Settlement Act 

Signed small 

webcaster agreement 

(N=28)

Did not sign small 

webcaster agreement 

(N=24)

All respondents 

(N=56)

28.57 12.50 23.21 

Q20: Percentage of Webcasters Who Elected to Pay Royalties to 

Performers Under the Terms of the Small Webcaster Agreement 

Signed small 

webcaster agreement 

(N=28)

Did not sign small 

webcaster agreement 

(N=23)

All respondents 

(N=55)

92.86 0 54.55 

Q21: Month and Year Election Forms Submitted to 

SoundExchange. Data are not reported due to 

unreliability.
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 36 GAO-04-700 Intellectual Property

Q22: Reasons Webcasters Elected to Pay Royalties under the 

Terms of the Small Webcaster Agreement 

(N=26)*

Reasons for electing to pay royalties Percent

The royalty rates for performers under 

the small webcaster agreement seemed 

reasonable. 

26.67

Thought there was no choice but to sign 

the election form. 86.67

The implementation of your business 

plan required the certainty of knowing 

performer royalty obligations. 

63.33

Wanted to take advantage of the “delay of 

obligation” option, which allows a small 

webcaster to delay performer royalty 

payments. 

26.67

Other reasons 66.67

*

This question was answered only by those respondents who 

elected to pay royalties under the agreement. 

Q23: Reasons Webcasters Elected to Not Pay Royalties Under 

the Terms of the Small Webcaster Agreement 

(N=23)*

Reasons for electing to not pay royalties Percent

The performer royalties under the 

agreement seemed too high. 73.91

Arranged a private agreement with 

performers. 17.39

Not familiar with the process and did not 

know this was an option. 43.48

Waiting to see if the rate would change. 47.83 

Only stream music by independent artists 

and labels. 21.74

Terms and conditions set by the Library 

of Congress were more favorable. 8.70

Other reasons 73.91

*

This question was answered only by those respondents who 

elected to not pay royalties under the agreement. 
Appendix II

Results of GAO’s Survey of Small Webcasters

Page 37 GAO-04-700 Intellectual Property

Q24: Webcasters’ Estimates of Revenues Earned by Third Parties 

Signed small 

webcaster 

agreement 

Did not sign 

small webcaster 

agreement 

All 

respondents 

10/28/1998 – 12/31/2002 

(N=10) (N=13) (N=27) 

Mean 300 81 150

Minimum 0 0 0

Maximum 2,000 500 2,000

1/01/2003-presenth

(N=15) (N=15) (N=34) 

Mean 140 143 125

Minimum 0 0 0

Maximum 2,000 1,000 2,000 h

We conducted interviews with small webcasters in November and December 2003. “Present” 

refers to the date of the interview.

Q25: Percentage of Webcasters Who Believe Webcaster or Recipient of Revenue Should 

be Responsible for Paying Royalties on Third Party Revenue

Signed small 

webcaster 

agreement 

(N=29)

Did not sign 

small webcaster 

agreement 

(N=23)

All 

respondents 

(N=53)

The webcaster 11.54 21.74 15.09 

The person or company that 

received the revenue 61.54 60.87 64.15 

Other 26.92 17.39 20.75 
Page 38 GAO-04-700 Intellectual Property

Appendix III

GAO Contacts and Staff Acknowledgments AAppenednxidxeiIs

GAO Contacts Anu K. Mittal, (202) 512-3841

Cheryl Williams, (404) 679-1991

Acknowledgments Stephen M. Brown, Jason Jackson, Jonathan McMurray, Lynn Musser, 

Deborah Ortega, Janice Turner, and Mindi Weisenbloom made key 

contributions to this report.

(360346)
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