Copyright law will cost Net radio

Now that President Clinton has signed into law sweeping protections for digital intellectual property, online radio stations will face new fees for spinning records on the Net.

Those in the industry say the licensing requirement could help sites get their hands on more tunes, but it also will affect their bottom lines--and in some cases--their survival.

The little-known provision in the Digital Millennium Copyright Act, now law, promises to a shake up the Net radio business when the new licensing fees take effect in up to seven months.

Under the provision, Webcasters at relatively nascent Net radio stations will owe a statutory license fee to the record companies--a fee traditional broadcast radio stations don't have to pay.

Previously, Webcasters also were exempt from the fees, because most of their services are non-subscription and because they essentially give record companies free promotion.

Subscription digital music services, on the other hand, do pay the fee now--which amounts to 6.5 percent of their gross revenues. The recording industry, which originally sought 41.5 percent of subscription services' gross revenues, is appealing that percentage.

The new licensing for Webcasters' fees would come in addition to what they already pay to licensing groups such as the American Society of Composers, Authors, and Publishers (ASCAP) and BMI.

The Recording Industry Association of America (RIAA) and the Digital Media Association (DiMA) are the two groups that will work to settle on the fee amount by May. If no agreement is reached, an arbitration panel will be brought in.

Parties on all sides estimate that the fee will be under 5 percent of Net radio stations' gross revenues, but the negotiations have not yet begun.

"It needs to be in the low single digits for this industry to thrive," said Brad Porteus, vice president of marketing for Imagine Radio.

Internet radio stations such as Imagine and Spinner have not paid a license fee to the record companies, but have been paying fees to ASCAP and others. Those fees only covered the performance rights.

The RIAA likely will set up a clearinghouse for music and will collect a fee for the sound recording itself. Webcasters must agree not to play music by a certain artist too often, and not to play in a row numerous songs from a single record, for example. The Net radio stations also will be obligated to publish on their sites the title of the song being played as well as the title of the CD, so that visitors will be able to buy the recording online or in a brick-and-mortar store.

Traditional radio stations escape these requirements when they play songs over the air--but the exemption won't apply to their Web sites.

Imagine Radio lets users personalize their record lists. Because users have a choice and don't get programming like traditional radio station audiences, they may not qualify for a statutory license. In that case, Imagine would have to cut deals with individual record companies, which also could hurt the company.

"It's not that the Net is being targeted more than any other service," said RIAA general counsel Steven Marks. "There is somewhat of a political reality here that broadcasters maintain certain exemptions that are not justified [because of their lobbying power]."

He added, however, that the Net could pose a greater threat to recording copyrights. "The Net is a global medium with tremendous reach, and is not regulated," he said.

DiMA argues that the statutory licensing system actually could help Net radio stations build their businesses.

"Without it, each Webcaster would have had to go to each record company or a clearinghouse and to execute licenses with them," said Seth Greenstein, counsel to DiMA.

"Webcasters would have no control over how much they could be charged in royalties that way," he added. "It's our intention to make this licensing fee reasonable."

Still, having to skim more off their revenues could put a serious strain on Net broadcasters, especially start-up Net radio companies. The DiMA counts among its members technology firms such as a2b Music, Liquid Audio, and RealNetworks, as well as music content site SonicNet and Webcaster Broadcast.com.

"Many companies don't have the technology or flexibility to handle this law, and they are really going to fall thorough the cracks, but we are fine with this bill," said David Samuel, CEO of Spinner, which counts 700,000 unique listeners per month and pays BMI and ASCAP 4 percent of its gross revenues so BMI can pay its artists.

"Assuming the fee structure is not too egregious, we are comfortable endorsing it," he said. "But I do think that there are going to be some companies that fall by the wayside by this law going through--we are confident we can stay above the crowd."