The Sound of Silence
A new ruling by the Library of Congress may make web radio too expensive to survive
By Dean Kuipers
Just a month ago, Santa Monica's innovative NPR radio station, KCRW-FM, known for its leading-edge music programming, announced that it had received a major grant for the development of its webcasting capabilities. The $600,000, three-year award from the Annenberg Foundation was an acknowledgement of the station's popular free online music streaming site, which is de rigeur in homes and offices across Southern California and has loyal listeners all over the world, and was meant to help find a sustainable model for the future of public digital media.
Then, on March 6, the other shoe dropped. On that day, the obscure Copyright Royalty Board at the Library of Congress made public a long-awaited ruling instituting a tenfold increase in performance royalties that must be paid for streaming songs on the web - and, more important, made those payments the same for commercial and non-commercial sites alike. The ruling is retroactive for 2006. In one fell swoop, the entire idea of Internet radio was pushed to the brink of collapse.
Webcasters big and small reacted with outrage, many of them saying they have no choice but to go out of business. In a last-ditch effort, a group of online music services banded together to challenge the ruling, filing a motion by the March 19 deadline for the royalty board to reconsider its decision.
"My real beef is: You have to make a distinction between commercial and non-commercial. And it's absolutely unacceptable if you don't," says Ruth Seymour, KCRW's longtime general manager. "There wouldn't be any Public Broadcasting System if you didn't. That difference is sorta ingrained on the federal level - except with these guys! Who are purists, and believe that a song is a song. But a song isn't a song. You cannot divorce the medium from the message, if you will. And that's, in effect, what they've done."
Up until March 6, webcasters figured their royalty payments as an affordable percentage of total revenues. In the case of KCRW, that was a negligible number for Seymour, since the entire NPR network had negotiated a flat fee and it was paid by the Corporation for Public Broadcasting. Maybe not anymore. Under the new system, which requires that Internet broadcasters pay per performance - meaning each time one person listens to one song - her new bill for 2006 went from essentially zero to about $350,000. And it's going up. For each of the next four years, the rate goes up at least 30 percent every year.
"This is ridiculous," she adds. "You're getting an automatic increase, but then, if you get more listeners - which, of course, you hope you do - you're paying more, too. If you can figure out how much you're paying - that'll probably be a full-time job!"
Of course, the situation is just as grave for small for-profit companies like AccuRadio, a site that offers 300 streaming channels of audio programming paid for by a couple of radio ads placed each hour. If this royalty regime stands, the site's operators say they will now have to shut down.
"We were paying about 12 percent of our revenues, so that came out to be about $48,000 on $400,000 in revenues," says Paul Maloney, editor of RAIN: Radio and Internet Newsletter, and VP of music programming at Chicago-based Internet radio service, AccuRadio. "This decision has us paying per performance, so, for 2006, that is going to increase our royalty obligation to about $600,000. That is 150 percent of our revenues."
The only hope for AccuRadio, or for KCRW's online effort, is another legislative settlement like the one they've been working under for the last five years called the Small Webcasters Settlement Act of 2002, or SWSA. That bill was signed into law by President George W. Bush in 2002 in order to dodge this same situation. AccuRadio is one of the companies that filed the motion for reconsideration, and they're hoping for another last-minute deal. But the recording industry is insisting it has waited long enough for higher royalties.
"I think that the copyright royalty judges reasoned that, if you're a non-commercial webcaster and your listenership gets beyond a certain point, then you're really competing with the commercial webcasters," says Willem Dicke, communications director for SoundExchange, the non-profit organization set up to collect and distribute royalties.
"Certainly, the value of the music doesn't change from commercial to non-commercial. The value of that music remains constant."
Webcasters are incredulous when they hear this kind of reasoning. KCRW, for instance, is one of the key radio stations in the world for breaking new talent. That audio stream is drilling straight into the offices of film companies, advertising agencies, music supervisors, tour packagers, and journalists all over Los Angeles. Bands need to be on that stream. If KCRW cuts off its online streaming because it can't afford a $350,000 hit, these bands risk losing exponentially more money and exposure than they could possibly recoup from royalties. And that's just one station.
The reasoning, many critics say, is similar to that used by the Recording Industry Association of America, which now routinely sues students for trading digital song files without paying for them, and is just as faulty. In attacking music fans, they are, in effect, punishing those who would generate significant buzz among the public who buy CDs or downloads, pay for concert tickets, or buy merchandise.
"Now, what you hear the SoundExchange people saying is, 'Oh, studies show that the Internet radio industry made $500 million last year in advertising.' And I'm here to guarantee you that that's absolutely not true. It's not even close to being true," says Maloney. He also points out there's no hidden money anywhere, as stations they have to submit their financials to SoundExchange.
The new rates do make an exception for very small operators, Dicke explains. For those who do not exceed a certain number of "listening hours" per month - meaning a set number of listeners tuning in for limited number of hours per month - the flat fee is $500. Seymour says KCRW surpasses that limit in just four days. For other pure webcasting sites, whose entire business is playing music over the internet, even small stations quickly blow past that limit.
"This is a fair rate that was set in a fair and impartial proceeding," counters Dicke. "After 18 months of testimony and live hearings, the judges reached this decision as to what exactly appropriate compensation the artists and labels should receive."
"We are not opposed to making a fair deal," says Seymour. "We would like to make a fair deal, and we hope that the music industry is open to negotiation."
Should the motion for reconsideration fail, webcasters may appeal the decision to the U.S. Court of Appeals in Washington D.C. It's not certain whether they'll have to begin paying the new fees while the appeal moves forward.
Published: 03/22/2007
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