Things looked bleak for the companies when a little-known amendment was added to the Digital Millennium Copyright Act that requires Webcasters to pay additional license fees to record companies. Firms such as Imagine Radio and Spinner, which program genre-based music channels and stream the music online to listeners, were not widely known at the time and faced daunting opposition by record labels and other mainstream media companies.
Because the percentage of these companies' gross revenues that will go toward the fee has not been determined, the then-fledgling Net radio companies faced an uncertain future at best.
Negotiations over the fee are still going on, but in the months since the copyright law was enacted in October 1998, mainstream music and media companies have begun to embrace Net radio and other Webcasters--and in some cases the turnaround has resulted in multimillion-dollar investments in or outright acquisitions of Net radio companies.
Rumors about Yahoo being in talks to acquire Webcaster Broadcast.com--in which it already holds a minority stake--sent Broadcast.com's stock flying last week. Analysts applauded the potential deal, saying it would give Yahoo a strongly branded Web property and a traffic boost, as well as represent a step forward in the firm's strategy on high-speed Net access.
Imagine Radio was acquired by Viacom last month as part of a big online push by the media giant. Viacom is planning to launch a music hub site in the fall that will include its MTV and VH1 properties along with an array of other features, including Net radio. Tunes.com, the music hub launched this month by JamTV and the Rolling Stone Network, includes Rolling Stone Radio. Just yesterday, Rolling Stone Radio added a music channel programmed and "DJ"ed by David Bowie.
Spinner closed a $12 million round of financing last month, with investors including the likes of Intel and Sony Music Entertainment. Spinner has its eye on an initial public offering, according to executives--but others have speculated that with all the demand for Net radio these days, it could be a takeover target. Spinner was in talks with MTV regarding a possible buyout before the Imagine Radio deal, but sources told CNET News.com that the parties failed to agree on a price.
Spinner is also taking a cue from traditional radio stations by offering record labels promotional packages that bring in revenue and give the labels' artists exposure. In exchange for a fee, Spinner offers strategic placement of the artists' music, measurement of the audiences' response to the music, and other promotions that "can lead to a sale," Josh Felser, president of Spinner, told News.com in an earlier interview.
And music industry bible Billboard also got into the Net radio game this week, offering Billboard Radio on Broadcast.com--what it says is "the first on-demand Internet program featuring the countdown of the Billboard Hot 100, the definitive weekly chart of the most popular songs in the U.S."
As previously reported by CNET News.com, under the amendment added to the copyright act, Webcasters owe a so-called statutory license fee to record companies that they didn't owe before. The fee covers the sound recording itself and is separate from what Webcasters already pay to license organizations such as ASCAP and BMI, which represent composers, publishers, and authors.
The new fee is attached to the record companies' contributions to the final product--that is, the work put in by the artists, the recording itself, the manufacturing of CDs, and the like.
The Digital Media Association (DiMA), the trade group that represents Web firms focused on e-commerce and Webcasting of audio and video, represented Webcasters in the writing of the amendment, which was done with lawmakers and the Recording Industry Association of America, the group that represents U.S. record labels. The trade groups were given six months to negotiate the fee, beginning in November 1998.
DiMA and the RIAA have only met once so far to discuss the license fee, according to Jonathan Potter, director of DiMA. Potter said "no numbers have been discussed yet" for the fee, although the negotiation period ends in May.
If no agreement is reached by the deadline, the groups can jointly petition for an extension or the process will move to an arbitration.