Why Internet radio may fade

"What was surprising about the [panel's] decision is that in the current advertising environment, that's about 200 percent of revenue," says Mr. Hanson. "When you have to pay 200 percent of your revenue to somebody, it kills your business."

But those representing the recording industry argue that this is beside the point. "It's not really our job to figure out their business model, that's their job," says Mr. Simson. "We've just asked that we be paid fair market value for our service."

Simson adds that if the smaller broadcasters believe that the proposed royalties would drive them out of business, it may be because they were poorly represented on the panel. Larger players like MTV and Yahoo! had greater influence on the panel. They favor per-play royalty rates.

"[Small] stations like us couldn't afford to be in it," rebuts Jim Atkinson of Internet broadcaster W3K. "In the end, since it was the participating stations and record companies that had to pay for the judges that presided over that [panel], the number we kept hearing was that every business that participated ended up owing something like $300,000" – a figure that small Internet stations could not afford.

Internet radio stations let computer users connect to a website and listen to music using special software. According to Sven Haarhoff, spokesman for MeasureCast in Portland, Ore., company that tracks Web broadcasters, as many as 10,000 broadcasters operate on the Web. "In the US, some 77 million people have tuned in at some point to an Internet radio station," he says. "It's largely a workplace phenomenon – 76 percent of listening takes place during the traditional workday."

High-speed connections at work makes it easier for workers to tune in to webcasts. But as Internet access becomes more ubiquitous through technologies like wireless devices, Internet radio is likely to become more popular in the home.

Internet radio broadcasters say they fill an important role by playing and promoting music that would never be played on traditional stations. "Today, the Internet is almost a savior for the small artist," says Doug Balogh of alternative station and Internet simulcaster, XOXY.

But Simson says such exposure may not translate into sales for artists. "If someone can turn on a Chicago blues channel on the Internet and listen to great Chicago blues all day long, will they feel a need to go out and buy a great Chicago blues record?"

Classical broadcaster Mr. Shively disagrees. "Last year alone, just from people clicking through our website, we sold over $20,000 worth of CDs, and that doesn't count any CD sales that might have gone directly to the retailer."

Mr. Atkinson of W3K, who says his station would have had to pay 342 percent of its revenue in royalties under the panel's proposal, is hopeful that Billington will either choose a system based on a small percentage of gross revenues, or send the problem back to a new arbitration panel with greater representation of smaller broadcasters.

"Things will work out properly now; artists will finally get paid," he says.

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