ON THE HEART OF THE ONLINE RADIO ISSUE

A ROYALTY MESS

The Wall Street Journal today has one of the best summaries I've seen to date, on the latest threat to emerging online radio services.  Here's the basic gist of the issue from the piece by Jason Fry, in case you've missed it:

"Is Internet radio in trouble?

Last week the Copyright Royalty Board released a ruling proposing new performance royalty rates for online radio stations. An online radio station would pay .08 cent per song per listener for 2006 (the rates are retroactive), .11 cent in 2007, .14 in 2008, .18 cents in 2009 and .19 cents in 2010.

Seems like little enough, but it adds up -- and this small change is a big change for small Webcasters. Under a deal brokered in 2002, small Webcasters had met their royalty obligations by paying artists and record labels 12% of revenue, but the new rules would do away with that exemption."

At first glance, this could be quite onerous for the fledgling online music business.  As the piece goes on to explain:

"Net-radio operators have sounded the alarm. Kurt Hanson, founder of online radio company Accuradio, told my print colleague Sarah McBride that he estimated the new rules would raise Accuradio's royalty payments to about $600,000 -- more than Accuradio's 2006 revenue -- from about $50,000. And he warns others face similarly tough math, arguing that even well-run Net-radio stations would see performance royalties eat up all their annual revenue -- and that's before the need to pay royalties to composers.

(Performance royalties and composer royalties are separate -- the former are paid to artists and record labels, while the latter are paid to songwriters and music publishers.) "Terrestrial" broadcasters who stream radio would also pay more, and public-radio stations would no longer be able to pay a flat fee, as agreed to in a previous deal.

"Left unchanged, these rates will end Internet radio," Pandora.com co-founder Tim Westergren warned on Pandora's blog. 

(Pandora, a combination streaming-audio service and recommendation engine, could be particularly hard hit by the new rules: As a multichannel operator, the service would have to pay $500 per channel that has a certain number of listener hours. Pandora has 6 million users, each of whom can have up to 100 channels. You can see why the company is worried.)"

But the item that grabbed me the most was how the problem started in the first place, the "meaty" part as it were:

"Net-radio fans are angry, but they shouldn't be too hasty in blasting the Copyright Royalty Board. The real problem is a pair of misguided decisions made by Congress in the 1990s.

Tim Hanrahan and I wrote about this issue nearly five years ago, and it's depressing to see how little has changed. A brief recap: The Digital Millennium Copyright Act of 1998, building on 1995's Digital Performance Rights in Sounds Recordings Act, said Net-radio firms had to pay performance royalties on songs played in addition to composer royalties on those songs. Terrestrial radio stations pay composer royalties, but they don't pay performance royalties, under the long-established rationale that record labels benefit from the promotional value of songs played on the radio.

So if a Clear Channel radio station plays that new Fergie song over the air, it doesn't pay a performance royalty -- but if it streams Fergie over the Net (or satellite radio), it does. Make sense to you?

Of course not -- because that makes no sense whatsoever. Treating the two as different is missing the radio forest for the Internet trees; in a sane world, lawmakers would treat radio as radio, regardless of how it's delivered. For the recording industry's disingenuous analysis of the law governing radio and royalties, read our 2002 Real Time, which preserves part of a Recording Industry Association of America FAQ that's been taken down. (The recording industry maintains that Net-radio operators aren't in danger of going under this time either, thanks to steadily increasing advertising revenues.)"

This is another example highlighting the increasing disconnect between how fast technology can make possible better products and services for mainstream consumers, and how slow our regulatory infrastructure remains in being to keep up with these new possibilities, gummed up of course by political incumbencies and imperatives. 

Yet another important fight to fight in the multi-front internet struggle with mainstream media.

Comments

[ashish]

this is very important information as i was planning to start the internet radio from july.