recently introduced legislation could save the future of Internet radio

Last Tuesday, tens of thousands of Internet radio providers shut off their broadcasts in protest of a recent decision by the Copyright Royalty Board to drastically increase fees levied on all Web-casters, from prominent sites like Yahoo Music down to mom and pop providers working out of their basements. 

The protest, dubbed the “Day of Silence,” was spearheaded by the SaveNetRadio Coalition, an organization of Internet radio providers dedicated to raising awareness about the threat the new rates pose to online broadcasts. The CRB’s March 2 decision puts Web-casters under a huge financial burden, increasing their fees for media distribution by an average of 300 to 400 percent, retroactive to 2006 and increasing in coming years. Currently, most Internet radio providers pay around 11 percent of their yearly revenues in performance fees, but under the proposed algorithm set out by the CRB, the fees will be calculated on a “per performance” basis determined by how many listeners tune in to a particular song, with a minimum charge of $500 per channel. Come 2010, it will cost 19 hundredths of a penny to stream one song to one listener. It looks small on paper, but those pennies eventually add up, and the results could be devastating for Internet radio.

Dan McSwain, an editor for the Radio and Internet Newsletter and music director for AccuRadio, has already calculated what AccuRadio will owe for 2006 alone. “We’ll have to pay $600,000, 150 percent of our revenue—a pretty hefty bill,” McSwain said. “No company can continue like that. This would just kill Internet radio. That’s the bottom line.” The solution, McSwain hopes, is the Internet Radio Equality Act.

SaveNetRadio has managed to introduce new legislation into Congress with the help of more than 120 co-sponsors, and has been following its progress since mid-April. If passed, the proposed legislation will set performance rates for all Web-casters at 7.5 percent of yearly revenue, which McSwain says is still slightly higher than what satellite radio providers like Sirius and XM are being charged.

What spurred the CRB’s decision to effectively eliminate Internet radio?

“Expert testimony was presented by all concerned parties, people spoke from large Web-casters like Microsoft and Yahoo, and from smaller individual Web-casters, and from the recording industry,” said Richard Strasser, senior attorney from the Copyright Royalty Board, who declined to offer a personal opinion.

McSwain doesn’t know for sure what provoked the increased fees, but he puts most of the blame on the recording industry’s lobbying power. “It seems like the recording industry is just running out of revenue streams,” he said. “They’re buoying the companies while they rework the business model to better fit a community that wants its music digitally. My opinion is that the recording industry has lobbied really hard since the beginnings of Internet radio to have a very firm grip on laws that govern it, and imposing these new rates is one way to do it. They seem to think they’ve connected declining CD sales to Internet radio, and we think that’s bogus. Artists use Internet radio just like any other radio—for promotion.”

If this is true, then why don’t FM radio stations pay a cent in performance fees? Again, McSwain has a theory.

In the 1920s, McSwain says, copyright law ruled that AM and FM stations did not have to pay performance fees because they function as promotional tools for artists. Most top-selling artists tend to get lots of radio play. The stations still pay a songwriter fee, which gives a small royalty to the composer each time a song is played, but no performance fees. But like any other Web-caster, radio stations do pay a fee to stream their music online. Under the new rate changes, stations will still have to pay considerable fees if they want to continue streaming their broadcasts.

Portsmouth Community Radio’s development director Rick Dirck says that he’s not too worried about the fees—yet. “We would still stay around $500 a year, but as far as future growth goes, if we ever went for full power in terms of listenership, it would end up being a big problem for us. Right now we’re mostly just unsure of how to deal with the retroactive costs of the rates.” Like McSwain, Dirck believes the push to increase fees is a result of the recording industry’s initiative and of corporations like Time Warner that want to make the Internet a thoroughly “pay to play” service. Dirck says he’ll keep placing calls to Congress, as SaveNetRadio advises, so he can try to avoid the impending streaming crisis.

Currently, SaveNetRadio’s primary interest is to make sure Web-casters nationwide receive some kind of extension on the due date for the 2006 fees. “There will be 17 months of fees due on July 15. It’s basically like D-Day for Web-casters,” said Jake Ward, spokesperson for the SaveNetRadio Coalition. “With the proposed emergency stay, they wouldn’t pay until after the Equality Act legislation has been evaluated.” For now, listeners and providers alike can only wait for Congress’s decision and continue lobbying their state representatives to keep the music alive.