Internet radio can’t catch a break.
And in a few months, unless something dramatic happens, broadcasting on the Web might be broken for good–at least for the little guys.
The first blow came last year when actors demanded more money for commercials airing on the Internet. That caused hundreds of radio stations to stop simulcasting on the Web.
Now comes the Digital Millennium Copyright Act.
In February, a three-member Copyright Arbitration Royalty Panel that was convened to set royalty rates shocked Webcasters by recommending a rate more than 10 times higher than they had expected.
According to one calculation, a small Webcaster that has had an average audience of 1,000 listeners over the last three years would owe more than $500,000 in royalties retroactive to October 1998. Kurt Hanson, publisher of the Radio and Internet Newsletter, estimates that if broadcast stations had to pay the same rate, it would come to more than $3.3 billion a year.
Money isn’t the only issue. Some small operations could be shut down simply by not being able to handle all the paperwork required by the act.
Should the U.S. Copyright Office accept the panel’s decision, experts say, it will mean the end for tens of thousands of Webcasters–including such sites as Live365.com–that won’t be able to afford the royalties.
The Copyright Office must make its recommendation to the Librarian of Congress by May 21. It can accept the panel’s decision, modify it, come up with new terms or call for a new panel. Should any changes be made, the deadline would be pushed back to June 20.
Shortly after the rates were announced, National Association of Broadcasters President and Chief Executive Edward O. Fritts issued a statement saying that “the ruling from the Copyright Arbitration Royalty Panel may have the effect of unintended consequences, in that many radio broadcasters may re-evaluate their streaming strategies. If the powerful record company interests’ goal was to strangle a fledgling new service to radio listeners, it may have succeeded beyond its own expectations.”
But the Recording Industry Association of America–the driving force behind the higher rates–disputes those claims and says Webcasters merely are crying wolf.
In fact, the association had asked for royalties three times higher than what the panel recommended, said Steven Marks, the group’s senior vice president of legal affairs.
“I think it’s a young industry, it’s a maturing industry, but they should pay a fair rate for the music just like they pay for everything else in the business,” Marks said.
But the association agrees that should the rates stand, at least some Internet stations will fold, although “some of the companies that may go out of business would have gone out of business anyway,” Marks said.
Regardless, nearly everyone agrees that this is one of the messiest, most complex issues ever to face the radio industry.
“This is a very, very complicated issue on so many fronts,” said Dan Halyburton, senior vice president and general manager of group operations for Dallas-based Susquehanna Radio Corp. “It goes back to the” the Digital Millennium Copyright Act.
The 1998 act was passed primarily to protect recording artists from what was perceived as the looming threat of perfect digital copies.
To make up for that, the act requires that in addition to royalties they already pay to songwriters, Webcasters also pay royalties to recording artists and labels, with the money to be split evenly among them.
By contrast, broadcast stations pay royalties only to songwriters. Congress ruled about 75 years ago that the artists were compensated enough by the publicity they received from having their songs played on the air and weren’t owed royalties.
But as Halyburton and many others have noted, Webcast transmissions are far from “perfect digital copies.”
The problem, say broadcasters, is that the copyright panel based its decision primarily on a deal between the recording industry association and Yahoo Inc. that allows Yahoo to play songs on the Web.
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The amount of money Yahoo pays has not been made public, but it’s acknowledged that the deal heavily influenced the copyright panel.
The Copyright Office convened the panel last summer after negotiations broke down.