Pulling the online plug

'In less than 60 days, the Internet will be silent ... forever." So reads the doomsday pronouncement atop shoutcast.com, an Internet radio clearinghouse. Indeed, between now and May 20, the U.S. Copyright Office will decide whether to implement proposed royalties on web broadcasters, fees that many say will decimate the infant industry.

Though webcasters offer a variety of music not available on the largely corporate FM dial -- including underground rock, emo, jazz, classical, electronica and pretty much every other genre you can think of -- its proprietors rarely profit. Larger companies such as Yahoo! and Microsoft have invested in Internet radio, but mostly to stay on top of what might be the next big thing. Right now, the listeners aren't there to draw big bucks.

If the recording industry gets its way, they might never be. "Web-only folks are talking of closing down the day those license fees come into effect," Suzanne Glass of indie-music.com writes in an e-mail.

This spring, the battle between the Recording Industry Association of America (RIAA) and webcasters that began with the 1998 Digital Millennium Copyright Act is coming to a head. At stake are untold thousands of dollars in retroactive royalties, and tight restrictions on what webcasters -- and radio stations that streamcast -- can play.

Already, university and community radio stations across the country are pulling the online plug. Rollins College's WPRK, which went offline last fall after its streaming partner left, won't return anytime soon. If it did, it could face fees as high as $10,000, general manager Dan Seeger says.

"We can't get a stronger `broadcast` signal," he says of the low-watt station. "`The Internet` gives us a tremendous opportunity to reach out to parts of the community at large that can't tune us in."

Radioparadise.com owner Bill Goldsmith concurs. The new fees, he says, would total at least 150 percent of his revenue. "It's being billed `by the record companies` as if I'm raking in," he says.

If the recommendations pass, not all Internet radio will die. Deep-pocketed companies such as Yahoo! and America Online will keep on -- but they answer to shareholders in the same way as Clear Channel Communications, the media conglomerate that dominates broadcast radio. Just as corporate mergers homogenized FM radio, the copyright office is poised to kill Internet radio's independent spirit and spoil listeners' ability to find different music.

"I have to say for now, it looks pretty bleak," Glass writes. "I haven't heard a single small broadcaster say they can pay the bill." And while the big corporations have fought the recording industry, she adds, "they can't help but benefit from the situation if their competition goes out of business."

For years, record companies have regarded themselves as exploited by radio. While stations pay publishers and songwriters for the music they play, the labels and performers don't get a cut. It's what RIAA vice-president Steve Marks calls a "historical anomaly," since it's an arrangement unique to the United States.

In 1995, Congress codified that anomaly in the Digital Performance Right in Sound Recordings Act. The act grandfathered an exemption for traditional radio and aimed at the proliferating cable and satellite subscription-music business, giving artists and labels rights to money for digital music. It didn't address the Internet.

Congress awarded performance royalties for Internet music with the 1998 law, which (at the recording industry's bidding) also included restrictions on what Internet radio stations can play. While radio is seen as a promotional tool for record labels -- they pay thousands of dollars to middlemen to get "hits" on the radio -- the Internet offers music lovers and computer geeks alike the chance to steal songs and entire records, the industry claims.

All that's left now is setting a royalty rate and dishing out webcasting licenses (which will have built-in programming restrictions). The recording industry and the Digital Media Association (DiMA), which represents major webcasters, couldn't reach an agreement, so the copyright office tapped an arbitration panel to set royalty rates from 1998 to 2002. Since webcasters haven't paid anything so far, the rates are retroactive to 1998.

The recording industry sought an astronomical rate -- 40 percent of a penny per listener per song. Webcasters asked for one-tenth of that. Last month, the arbitration panel recommended a compromise, 14 percent for both publishing and royalty rates.

For a station of 1,000 listeners that plays 15 songs an hour, that's $504 a day. Or $183,960 a year.

Educational and community stations get a reduced rate -- five percent -- but even they won't be able to keep up with the massive reporting requirements. For each song that's played, webcasters have to report not only artist, song and album titles, but also how many people tuned in (to the second) and where they were from. Moreover, webcasters have to report the UPC code and numeric identification of the CD they're playing (presumably, to make sure it's not a bootleg, which are of course banned).

Then there's restrictions on what can be played: Webcasters can't use more than three songs in a row from any given album, or more than four songs from an artist in four hours. While DJs can tease songs, they can't tell when they're going to play them.

With broadcast radio, the fees and restrictions aren't nearly as severe. WPRK pays about $500 every six months to the three major publishing groups, Seeger says. But when a radio station chooses to simulcast, the Internet rules will prevail.

Shortly after the 1998 law passed, the National Association of Broadcasters sued to void the copyright office's decision as it regarded simulcasters. The broadcasters lost, but the decision is being appealed.

Webcasters have asked the copyright office to rethink the rules about reporting. "It's so onerous that nobody could begin to comply," says Russ Hauth, senior vice-president for Salem Communications and chairman of the National Religious Broadcasters Music Licensing Committee. Salem owns 85 evangelical radio stations in the U.S.

Already, both the recording industry and webcasters have challenged the arbitration panel's recommendation. While the copyright office is no longer accepting comments from the general public, companies that participated in the arbitration can still argue. And, as Washington, D.C. attorney David Oxenford wrote to the Radio and Internet Newsletter, it's not unheard of for the Librarian of Congress to overrule an arbitration panel.

Later this year, a second arbitration panel will be convened to set royalties for 2003 and 2004. So, if nothing else, webcasters can take another crack at them then. Also, there's a push to amend the 1998 law -- one congressman already has proposed a law that would amend some parts of it. It has been stalled in a judiciary subcommittee since September.

"The thing you have to remember is that this is a new industry," RIAA's Marks says. "`Webcasters are` probably paying a lot of people 150 percent of their revenue. The webcasting industry is built on the exploitation of sound recordings. Everybody knew this was going to be retroactive. They could have been using music for three years without paying anybody. It's like a free loan."

Talk of stations going out of business, he says, is "convenient rhetoric."

Webcasters can negotiate independently with the recording industry, and since 1998, about 26 have, including Yahoo! and National Public Radio. Yahoo's deal expired at the end of last year, however. The Corporation for Public Radio pays NPR's bill.

While Marks doesn't give details, he does say most of those arrangements were better for labels and artists than the arbitration panel's proposal. To webcasters who can't pay the hefty fees, Marks suggests calling the RIAA to work something out.

"There's no way in hell I want to do that," radioparadise.com's Goldsmith says. An independent deal would mean hiring lawyers he can't afford. "There really needs to be something easy. What I would really love, if the RIAA would step up and say, 'Independent webcasters, here's a deal for you.'"

If the arbitration panel's decision stands, the recording industry will have a win-win situation: Why negotiate a lower rate for smaller webcasters when you don't have to? And if they go offline, like Napster, the industry has less worry about music thievery online.

Once the royalties and restrictions are finalized, the copyright office will begin issuing its mandatory webcasting licenses.

If the soon-to-be implemented policies had been in place when Internet radio started, it would never have taken off, webcasters say. Under the new rules, only the profit-making stations will remain, and that means the most commercially profitable music will rule cyberspace.

But the situation could be temporary. "My long-term prediction is more positive," Glass writes. "The more radio mergers, the more record-label piracy hysteria, the lack of artist development and good music ... the more dissatisfied the listeners and artists will be with the corporate machine."

Even if she's right, the meantime will find Internet radio becoming as dull and predictable as FM. Eclectic or underground artists will take the hardest hit -- they'll have no way to expose themselves to a larger audience. In Goldsmith's words, "It's catastrophic."

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