Fees threaten to silence Web radio

Some shut down music as a battle forms over new royalty rates that could drive out small operators

People who listened to the Sunday jazz and blues webcast from Mississippi's 91.1 WMSV woke up to silence on March 24. A few days earlier, the community station, based at Mississippi State University, decided new royalty rates for playing music on the Web were too high for them to continue.

It's a scenario playing out across the United States, as many small webcasters are realizing they could be on the hook for future and back royalties that run into the thousands of dollars, in some cases half or more of their revenue.

Some stations have stopped their webcasts, and others are asking legislators for help with the proposed rates, which were announced at the end of February as part of the 1998 Digital Millennium Copyright Act (DMCA).

With the recording industry standing its ground and the webcasters lobbying for a reprieve, the battle is shaping up to be one that could determine whether online radio winds up in the hands of the many or the few. "This is a very important issue in terms of who gets to say what we listen to on the Internet," says Jessica Litman, author of the book "Digital Copyright" and a law professor at Wayne State University in Detroit.

The US Copyright Office has until May 21 to consider the proposed rates set earlier this year by a panel it appointed, or to suggest alternatives. It won't consider petitions from the public, but webcasters are encouraging listeners to write to members of Congress and to read up on the issue at sites like www.saveinternetradio.org and www.ruf.rice.edu/~willr/cb//sos/.

It's the listeners and musicians who will suffer the most if current rates stand, critics say. Internet radio offers an outlet for non-Top 40 genres and voices at a time when consolidation has put ownership of traditional radio stations in the hands of a few companies.

Part of the draw of the Internet is that radio sites are cheap and easy to maintain – no transmitter or tower is needed for an enthusiast to stream Cajun music to Japan, or community news across town.

When the DMCA was passed, it was understood that webcasters could broadcast without paying royalties until they were determined, and then they would be retroactive to the time they started webcasting. The recording industry argued for even higher rates than those proposed, which vary according to the status of the station. webcasters also have to file extensive monthly reports and observe restrictions on how music is programmed – requirements they say are as overwhelming as the royalties. Professor Litman calls the requirements "truly onerous," adding, "It doesn't seem to me that there is much justification for that unless you are trying to drive them out of business."

Webcasters understand they need to pay, but many don't have pockets as deep as those of big players like Yahoo. "All we want is a fair royalty to be set," says John Jeffrey, executive vice president of Live365.com, which offers 47,000 radio sites. "We call this a bankruptcy rate."

Particularly hard hit are college and community stations, which are more likely to be ending webcasts or considering it. Some say there should be exceptions for stations with different goals than commercial broadcasters have. "Stations like ours run very close to the margin financially," says Steve Provizer, general manager of Allston-Brighton Free Radio, a community station in Boston. "Rather than negotiate how much we have to pay these people, I'm saying: Why do we have to pay at all?"

Noncommercial stations are charged a lower rate, and might qualify for a hobbyist license if they are willing to negotiate independently, say some in the recording industry. But the primary position of the industry and artists' unions is that the product at the heart of online radio warrants full payment, especially when webcasters are paying for bandwidth and staffing.

"Why should the record companies and the artists be last in line? Why is it that they go to everybody else and pay them the fair rate, but then they come to us asking for a subsidy?" asks Steven Marks, senior vice president for business and legal affairs at the Recording Industry Association of America.

Complicating matters is that the recording industry and the artists are asking to be paid for something that traditional stations in the US do not pay for – sound recording. For example, each time Patsy Cline's "Crazy" is played on the radio, Willie Nelson receives a royalty as the songwriter, but Ms. Cline's estate receives nothing. This will mark the first time that recording artists are paid royalties directly.

The industry and artists say their intent is not to force anyone out of business, and they dismiss some concerns as hype. But webcasters see it differently. "I think it's nothing but greed," says Steve Ellis, general manager at Mississippi's WMSV, which still offers Web newscasts.

Mr. Jeffrey of Live365 would like a rate based on revenue, rather than the proposed one based on the number of times a song is played. If current rates stand, in one month his site might pay 183 percent of its gross revenue to the recording industry, compared with 4 percent to songwriters.

Alluding to recent problems with song-swapping site Napster, Litman says, "This is not the place for the recording industry to collect all the money that it believes it is losing on CD sales because of peer-to-peer file sharing."

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