Regulators leave personalized Web radio question up in the air

In responses that highlighted the legal haze surrounding this market, the Recording Industry Association of America (RIAA) and the Webcasting trade association each welcomed the nonruling as a victory. The Copyright Office said Friday that the amount of personalization approved should be decided for each case separately.

Webcasters, which include companies such as America Online's Spinner, Launch and Echo.com, had asked regulators to support their rights to allow listeners a limited ability to customize music streams by doing such things as skipping songs or rating artists so that they turned up more often in playlists.

The question goes to the heart of how online radio can expand beyond the traditional formats of broadcast radio. Webcasters want to provide as much personalization as possible, short of allowing listeners to choose individual songs. But they have to respect copyright laws that block "interactivity" unless the record companies and other copyright holders give direct permission.

The RIAA pointed to the Copyright Office's decision to avoid the issue as a win for its side. A spokesman said regulators had correctly decided that customization should be determined on a case-by-case basis.

"There is clearly no decision on the merits here," said Steven Marks, the RIAA's senior vice president of business affairs. "There's clearly no rule that comes out of (this)."

But in the nonruling, regulators pointed to legislative history, saying lawmakers had intended to allow limited personalization. The Digital Music Association (DiMA) saw this as good news for their members.

"This is a huge benefit for the millions of consumers who listen to personalized radio," said Jon Potter, DiMA's executive director.

The upshot? Legally, the status quo remains--and that means possible lawsuits for Webcasters that venture too deep into the gray area of personalization. But nobody knows where that limit is.

The RIAA would "absolutely" consider lawsuits, although it has yet to sue any online radio company, Marks said.

"At some point, the marketplace will get distorted if companies are operating unlicensed," he added.

A moving target
The rulings Friday spotlighted the tenuous position that Webcasters occupy in the online marketplace, both from legal and business standpoints.

Companies such as Spinner or Launch long ago won the ability to stream music online without asking the record companies first. But they are still waiting to figure out how much they must pay record companies and copyright holders for the privilege.

The Copyright Office also ruled Friday that it would consolidate two different arbitration proceedings meant to set this price. Early next year, Webcasters and the record companies will meet to hash out figures that will govern the period stretching from October 1998 to October 2000.

But the marketplace has changed as the industry waits for clearer rules. Some leading companies, most notably CMGI's iCast, have gone out of business in the newly hostile market climate.

New technologies are also emerging that threaten to push the online radio world closer to a Napster model. Start-up Friskit, for example, lets listeners search Webcast streams for a particular artist playing at that moment.

The Webcasting industry, uncharacteristically siding with the record companies, did win one smaller victory Friday on an issue involving traditional radio stations, represented by the National Association of Broadcasters.

The Copyright Office ruled that radio stations must pay additional fees when they stream radio programming online, putting them in the same category as Webcasters. Broadcasters had argued that they are exempt from Webcasting license fees since their primary business is traditional radio, which operates under a different set of rules.

The ruling could force traditional radio stations to pay substantial extra sums to record companies to put music online. Analysts say the decision could persuade some stations to pull their streams offline.