Small Webcasters campaign for survival

As big Webcasters and major record labels each try to turn proposed royalty fees for Net radio broadcasts to their advantage, small online stations are uniting in a battle just to stay alive.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
6 min read
From his garage in the shadow of California's Sierra Nevada mountains, Bill Goldsmith mixes an eclectic stream of music for about 70,000 people a month--at least for now.

Goldsmith is the DJ and owner of RadioParadise, as well as a longtime staffer for KPIG, one of the first radio stations on the Internet. He's one of the earliest figures in an independent Web radio scene that's thriving despite the failure of many ambitious corporate Webcasting ventures.

But Goldsmith and others like him warn that they're about to be put out of business by a new government proposal that would finally force them to pay royalty fees to play music online. Big companies such as AOL Time Warner or Clear Channel might be able to afford the fees. Goldsmith says he can't.

"We'll be turning over the entire Internet radio space to the people who are doing such a wonderful job running (regular) radio," Goldsmith says. "We'll be left with a bunch of carefully crafted corporate sludge."

Goldsmith and his peers are objecting to a compromise proposal for royalty rates produced by a federal arbitration panel, under which Webcasters would have to pay record companies about a penny for every 14 songs they stream to a single person. Goldsmith says that would be about double his actual revenue. The rates would also be retroactive, putting Webcasters on the hook for payments covering the last three years of operations.

These royalty fees, slated to be split between artists and record companies, are new to the business of radio. Ordinary, over-the-airwaves stations pay small royalties to songwriters and music publishers, but they have successfully lobbied over the years to avoid the new fees. Then in 1998, after a fierce political struggle between record labels and Internet companies, Congress dictated that online radio would be subject to the fees.

Negotiations over the actual rates for the new royalties proved bitter, ultimately winding up in front of the U.S. Copyright Office's arbitration panel. Record labels proposed a per-song rate that was about 100 times what the big Webcasters' trade association--led by companies such as America Online, MTV and RealNetworks--said was feasible. The arbitration panels' proposed rates split that difference.

Both sides are now contesting the proposal released last month, seeking rates closer to their original suggestions. They each made final petitions last week, and the Copyright Office will rule by May 21.

Who's listening?
Meanwhile, a new, unified voice from smaller Webcasters such as Goldsmith is beginning to be heard for the first time. Most of them have known that they'd be on the hook for royalty payments eventually. Adding up actual dollar figures has galvanized them into action, with many afraid that they're about to be driven out of business en masse.

Most small Webcasters didn't participate in the original Copyright Office arbitration, which means they're locked out of the process now. Instead, the group is taking their "Save Internet Radio" campaign to Congress, hoping to bring pressure to bear from the outside. Most aren't looking for the royalty rates to be dropped altogether--they know Congress has already ruled on that, and isn't likely to change its mind overnight.

What they want are rules that let them survive, they say.

The Web radio universe is a fractured one, split between a few big corporations with scores of stations, a sprinkling of regular over-the-air stations that have put their music online, a mid-level strata of ambitious but struggling dot-com companies, and thousands of stations created by individual music lovers.

These individual stations have turned Internet radio into a free-for-all, giving the medium eclecticism far beyond what ordinary radio can provide. Some stations are familiar, playing the same classic rock or boy bands heard on the FM dial. Others specialize in Gregorian Chant or bluegrass. SomaFM, a popular underground station in San Francisco offers "Groove Salad" electronica and "Secret Agent," a wholly uncommercial mix of lounge, jazz and dance tunes.

Critics of ordinary radio have pointed to this inchoate mix of personal stations as a good balance to the FM airwaves, which are increasingly dominated by a few giant corporations with near-identical playlists.

These stations aren't going unheard. Many independents, such as RadioParadise, the United Kingdom's Ministry of Sound, or Radioio.com, have tens or even hundreds of thousands of listeners a month, even if they average only a few thousand people at a time. Many are considerably smaller, catching only a few simultaneous ears at peak hours.

These figures add up, however. The latest report from Arbitron, which tracks radio and Webcast audiences, found that the network of independent stations that runs through Live365, an aggregation point for small Webcasters, drew more than 6 million listening hours in February, or double the audience of giant Clear Channel's online network of stations.

Finding a political voice
Despite such strong numbers, small Webcasters have long presented a scattered voice. After Congress imposed radio royalties in 1998, a long process began of negotiation between Webcasters and record companies and of arbitration by a government-appointed panel.

The U.S. Copyright Office reached a compromise based largely on the input of big Webcasters, radio stations and major record labels. Webcasters should pay 0.14 cents per song per person, while over-the-air stations that simply put their broadcasts online should pay 0.07 cents per song per person, the panel of arbitrators ruled.

The level was determined largely by looking at what Yahoo agreed to pay the Recording Industry Association of America (RIAA) for its online broadcasts. The RIAA also struck 25 agreements with smaller companies at higher rates, and still says those represent the market rate. The arbitrators discounted these, however, suggesting that the RIAA deliberately set high rates to influence the panel's decision.

The fees, once passed, will add a large new expense to Webcasters' bottom line. To date, they've only had to pay the same songwriters' fees that regular radio stations pay--about 4 percent of their revenues.

Large Webcasters with deep corporate pockets may be able to swallow the additional fees. Small Webcasters aren't so sure. Live365, which participated in the original arbitration process, told the Copyright Office last week that the new rules would simply put most small Webcasters out of business.

The smaller stations also are approaching Congress. They're trying to convince lawmakers, and ultimately the Copyright Office, that Congress never meant to put a majority of Web broadcasters out of business. If that's the case, then lower rates are in order, they say.

A few big guns are jumping into the fight on their side. Arbitron sent an urgent letter to Congress, arguing that it would be impossible for the Webcasting business to thrive using the proposed fees.

The company did the math and told Congress that a Webcaster that reached as many people as a big radio station in New York would have to pay more than $30 million a year in royalties alone. That would make it almost impossible to survive, Arbitron said.

Tiny stations would also see their bills skyrocket beyond their means. Goldsmith takes in about $3,500 a month. Reaching his audience of about 70,000 people would put him on the hook for about $7,000 a month, he says.

"If the proposed fees are enacted, we foresee that very few companies if any would be able to pay the cost," wrote Arbitron Vice President Bill Rose. "The proposed fees are likely to create a business/regulatory environment that will limit competition, stifle innovation, reduce consumer choices and diminish diversity by concentrating the distribution of music to a handful of sources."

The RIAA discounts these arguments. If the companies can pay for bandwidth, computers and the other equipment needed to create a Web radio station, they shouldn't expect to get the music for free, the group notes.

"If they can pay fair market value for those things, then it seems they should pay fair market value for those sound recordings," said Steven Marks, senior vice president of business and legal affairs for the RIAA.

To counter such arguments, the "Save Internet Radio" campaign is trying to persuade small Webcasters and listeners to talk to their local representatives in Congress. They've already persuaded Reps. Rick Boucher, D-Va., and Chris Cannon, R-Utah, to send a letter to the Copyright Office expressing concern over the rates.

At this point, the chorus is growing every day, and more listeners and stations are sending the message to Washington.

"We consider ourselves the pioneers of this medium. We're growing it," said Mike Roe, who runs Radioio.com from Jacksonville, Fla. "If this goes down (as is), 99 percent of all Webcasting will be gone."