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Why Internet radio may fade

By James TurnerSpecial to The Christian Science Monitor / June 17, 2002



The Librarian of Congress is usually not considered a magnet for controversy.

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But on June 20th, the eyes of Internet broadcasters and music industry insiders will focus on James H. Billington as he decides what royalties Internet radio stations will pay to record labels.

Depending on how the rates are set, some insiders believe the announcement could put some Web broadcasters out of business.

The issue of Internet-radio royalties was first raised when Congress passed the Digital Millennium Copyright Act (DMCA) in 1998. This law, intended to strengthen the copyright protections of digital media such as software and CDs, also required the recording industry to negotiate with Internet broadcasters to determine how much artists should be paid when their music is played on an Internet radio station.

The sides failed to reach an agreement, so Congress directed Mr. Billington to form a panel to set the rates.

Traditional radio stations pay royalties to songs' copyright holders – not necessarily the artists performing the music. The operating philosophy: The promotional value of songs played on the radio outweighs the artists' loss in revenue from royalties.

But the music industry has never been happy about this exemption, and saw the DMCA as an opportunity to prevent the same thing from happening to music broadcast over the Internet.

"Our performance rights in this country are more limited than they are in most other modern countries around the world," says John Simson, executive director of Sound Exchange, which manages the distribution of digital performance royalties for artists and record labels. "We only have digital cable and satellite rights, we don't have terrestrial radio or television rights, unlike most of the other countries. It's an inequity in US law and it's finally been corrected, at least in some small part."

At least on the surface, Internet broadcasters agree.

"We've known that there was going to be some kind of performance royalties," says Kevin Shively of Beethoven.com, an Internet-only classical station.

"We had always assumed that, and had budgeted for it to be somewhere in the range of what the songwriting royalties were – about 3 percent [of gross revenues]," he says.

But in February, the panel chose a pricing model based on a per-song rate – roughly $1.40 per song for every 1,000 listeners, or 70 cents for terrestrial broadcasters simulcasting online.

Web-only broadcasters claimed that the rates would force them to shut down. Hundreds of Internet broadcasters went silent for one day last month in protest. Many listeners, who feared the loss of their stations, flooded Congress with complaints. Perhaps as a result of the outcry, Billington rejected the proposal, leading up to the final resolution of the issue next week.

Had the royalty structure been approved, it would have spelled disaster for Internet broadcasters, according to Kurt Hanson, publisher of RAIN: The Radio and Internet Newsletter.

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