Webcasters Slam into Royal(ty) Pain
At Contemporary-classical.com, Adrian Koren plays music that most folks don't want to hear. But for those who relish exploring the classical works of the past century, Koren's Web radio station is a godsend.
For just the $300 a year he pays Live365.com for bandwidth and music licensing, the Massachusetts software developer can share his beloved music with people around the world.
For more than three years, Koren has led listeners -- a few dozen at a time -- to new discoveries, a process repeated tens of thousands of times on Web stations based in bedrooms, basements and attics. But a new ruling from the U.S. Copyright Royalty Board -- an arm of the Library of Congress charged with determining how much radio stations must pay artists and record labels for songs they play -- threatens to silence many, and perhaps most, webcasters.
"I run this as a hobby," Koren says. "I get virtually no income from this -- just some small fees from my share of CDs sold through links on the site, and that just helps pay for a few CDs. Copyright law should encourage innovation. If it's having the opposite effect, something's wrong."
That's not how the feds or the recording industry sees it.
The Royalty Board's decision to more than double the fees that webcasters pay to play recorded music might seem unfair to mom-and-pop Web radio operators -- and to many of Web radio's 50 million listeners -- but it's about time artists got their share of the money that radio rakes in, says John Simson. He is executive director of SoundExchange, the D.C.-based organization that collects and distributes royalties, half to artists and half to record labels.
The heyday of advertising-free Internet radio might be coming to an end. Simson says small operators who play music and don't try to sell ads "will have a hard time paying the rate" -- a change about which he's not shedding tears.
"The attitude that really has to change is the idea that the people playing this music on the Web are somehow doing artists a favor," Simson says. Artists want their music to be heard, of course, and the industry likes the concept of Web radio, but Simson rejects the popular notion that the only thing small webcasters owe artists is the exposure they get from having their work streamed over the Internet.
Web stations are ringing the alarm about their imperiled future. At LuxuriaMusic -- a California-based webcaster that offers an alluringly original blend of exotica, lounge, Space Age bachelor pad, bossa, Bollywood, Latin jazz and sophisticated rock -- an announcement is running a few times each hour accusing the recording industry of "attempting to shut down all Internet radio stations" unless they cough up "more money than the business could ever possibly make." The station warns that "only the very rich will be able to afford to broadcast on the Internet."
That might not be hugely far from the truth, and the organization that represents artists and their labels acknowledges that it sees merit in culling some of the many thousands of Web stations that sprang to life during the wide-open first years of broadband.
"Is 10,000 stations the right number?" asks Simson of SoundExchange, which sought the higher royalties. "Does having so many Web stations disperse the market so much that it hurts the artist? What's the right number of stations? Is it 5,000? Is it less? Are artists better off having hundreds of listeners on lots of little stations, or thousands of listeners on larger stations?"
But it's not just hobbyists who could be wiped out by the jump in royalty rates. Kurt Hanson, who writes the Radio and Internet Newsletter at Kurthanson.com, also runs AccuRadio, an online provider of 320 streams of music, ranging from Chinese pop to West Coast jazz. Last year Hanson paid $48,000 in music royalties, with 6 percent of his $400,000 in revenues going to ASCAP and BMI, the umbrella groups that collect fees for composers, and 12 percent of his revenue going to performers and record labels through SoundExchange.
Under the new royalties scheme, Hanson says he will owe $600,000 a year, vastly more than his total revenue. "We would literally be bankrupted," the Chicago-based webcaster says.
Hanson has concluded that even some of the most popular webcasters might conclude that there's no profit to be had in Internet radio. Pandora.com, the popular, innovative service that lets each listener create a personal radio station based on a recommendation engine (such as Amazon.com's suggested-reading software), would have to pay $500 for each listener's station -- a cost that would drive the company out of business almost instantly.
Hanson contends that AccuRadio, which reaches as many as about 20,000 listeners at a time during Internet radio's midday prime time (far more people have access to broadband at the office than at home), helps the music industry even without the new royalty rates. His stations, like most on the Web, go out of their way to promote music sales, selling about $40,000 worth of CDs per month via links to Amazon.com, displaying the names and covers of the discs being played, and streaming at a bandwidth low enough for decent listening quality but not high enough to substitute for owning the CD.
Simson isn't buying that. He says artists deserve to get their money straight up. "The music is why people come to these stations," he says. "Web radio is growing exponentially. These little stations develop a popular URL and then flip it and sell it for big money and the artists get nothing."
But there's no big money in a Web station such as Streamingsoundtracks.com, Eric Thornton's hobby. Thornton, a scientist for a pharmaceutical company in Richmond, has played movie soundtracks on the Web for five years, reaching about 200 listeners at a time. He struggles to break even, relying on listener donations to pay his bills for bandwidth and royalties. Thornton says he's "all for making artists as much money as possible," but the only choices he sees under the new rate structure are to base his station overseas or shut it down.
Message boards throughout the music-loving Web have been buzzing with protests and petitions against the new royalties, and Hanson believes that through an appeal, direct negotiations with the recording industry or congressional action, webcasters will win a reprieve from onerous royalties.
Simson pours water on those embers of hope. "This is the process the stations chose," he says. "It may be unfortunate, but they chose to litigate with this process."
Where webcasters and the recording industry do agree is on the unfairness of making tiny Web stations pay for performance rights while huge radio companies pay nothing. Congress decided that Web stations must pay royalties to the composers of each song and to the performers and record labels, even as traditional AM and FM broadcasters continue paying only the composers -- a quirk in the law that gives broadcast radio a huge advantage.
Simson agrees that "there's really no justification for broadcast radio not paying, and we're going to try to address that."
Making over-the-air broadcasters pay more wouldn't do much for Web stations that might be priced out of existence. "Internet radio is one of the few bright spots for the music industry," Hanson says. "Artists love Internet radio. Record companies are coming up with promotions for us. It's the trade association lawyers who are playing hardball."
Web radio was threatened with a big boost in royalties once before, in 2002. That time, Congress worked out a compromise that saved some stations, while others went dark. Will Congress step in again? The campaign for that to happen is already underway -- on Web radio.
By Marc Fisher |
March 17, 2007; 10:34 PM ET
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