Internet Radio Suffers a Major Setback

by Barry Levine
newsfactor.com
Tue Apr 17, 1:36 PM ET

It might be curtains for Web-based radio, following the Copyright Royalty Board's decision Monday to uphold its earlier judgment about royalty rates for musicians and record companies.

On March 2, the CRB set the performance royalty rates that Internet radio stations would need to pay for the years 2006 to 2010. A coalition of Internet radio stations appealed the decision. But yesterday's ruling by the CRB upheld its earlier decision. The CRB also refused webcasters' request to stay implementation of the new royalty rates until legal appeals were conducted.

The CRB did allow webcasters to use estimated tune-in hours to calculate fees in 2006 and 2007, but only until they have time to implement systems to track the music played.

A previous set of agreements had expired at the end of 2005. Under those agreements, small Internet radio stations paid 12 percent of revenues, rather than the per-song, per-listener fee required by the new rules.

Starting May 15

Payment for the new rates would begin May 15. If a traditional radio station streams its programming over the Internet, it would have to pay the online rates in addition to its normal payments for over-the-air broadcasting.

One small Net radio station, SomaFM in San Francisco, said that it had paid about $22,000 in royalties in 2006, but that, under the new ruling, it would have to pay about $600,000 annually. It said its total annual revenue, from listener contributions, was about $200,000.

SoundExchange, a nonprofit trade organization that collects and distributes royalty fees from digital transmissions, called the decision a victory. Executive Director John Simson said that artists and labels "look forward to working with the Internet Radio industry."

The American Federation of Television and Radio Artists similarly applauded the decision, saying its members "deserve to be paid fairly."

Webcasters' Coalition

A broad coalition of small and large Internet radio broadcasters, including mom-and-pop outfits as well as Yahoo, National Public Radio, and AOL, has objected to the new royalties. The broadcasters contend that the new royalty structure will force many of them either to go out of business or to cut back services.

"The CRB's ill informed decision to increase royalty fees to this unjustifiable level," said Jake Ward, a spokesperson for the SaveNetRadio campaign, "will quite simply bankrupt most webcasters and destroy Internet radio."

"Particularly for independent artists," he said, "Internet radio has the ability to reach millions of fans across the country who would otherwise never hear their music." SaveNetRadio said that Internet radio had 70 million listeners, and that it plays nearly four times as much independent music as terrestrial FM radio.

David Oxenford, a lawyer who represents several of the webcasters, said the broadcasters expect to file an appeal to the U.S. Court of Appeals or the District of Columbia Circuit, which could take a year or more. Some Internet radio stations are encouraging their listeners to write Congress.

David Card, an analyst with Jupiter Research, said that it looked like "we can say farewell to Internet radio." He suggested that only companies that see Internet radio as a "loss-leader" to promote other endeavors would likely remain in business. He said the Internet probably won't include pure-play radio stations.