As relentless, multi-faceted and scare-mongering as the War on Terror,
the music industry's War on Technology rages on, and the latest battlefield
is Internet radio.
In recent years, the proliferation of broadband
Internet connections allowing for real-time streaming audio has prompted an
explosion of online radio stations augmenting what the industry calls
"terrestrial radio" -- that is, the old-fashioned AM/FM airwaves. In many
cases, Internet radio stations simply duplicate their bigger corporate-radio
parents: In Chicago, you can listen to B96 on your car stereo at 96.3-FM, or
you can stream it anywhere you can hook up your computer at B96.com.
Either way, you get the same CBS/Infinity Broadcasting mix of dance-pop,
hip-hop, DJ chatter and advertising.
In other cases, online radio stations provide content that is thoroughly
unique: There are stations devoted entirely to Czech polka music, for
example, or classical pieces played on oboe. Among the many Internet-only
radio stations based in Chicago, BassDrive.com specializes in one
very specific underground dance genre, describing itself as "a 24/7
drum-and-bass radio station," while DJ Lloyd Dev's station under the
365.com Internet radio umbrella is devoted entirely to house music, with
"mixes from Frankie Knuckles, Lil Louis, Gene Hunt, Steve Silk Hurley and
These small online stations would seem to have little in common with the
bigger players, which also include names such as Yahoo, AOL and RealNetworks.
But a recent ruling by the Copyright Royalty Board, the three-member panel
that regulates Internet radio royalties under the aegis of the Library of
Congress, substantially increases the amount Webcasters must pay to play
music, and many say it will dramatically curtail the number Internet radio
stations that can afford to continue broadcasting.
Here's how royalties work for conventional radio: When a station plays a
song, a royalty is collected by one of the three big rights organizations --
ASCAP, BMI or SESAC -- which eventually pays the songwriter and the music
publisher. The actual performer isn't paid, only the songwriter is: Bob
Dylan is paid whenever an AM or FM station airs the Jimi Hendrix recording
of "All Along the Watchtower," but the Hendrix estate is not. Seventy-five
other countries pay the performer as well as the songwriter, but the United
States doesn't, and terrestrial radio stations have long lobbied to maintain
this exemption by insisting the performer benefits from exposure and album
When royalties for Internet radio were first set in 1995, that argument
wasn't taken into account. The system required online broadcasters to pay
the traditional songwriter and publisher royalty to ASCAP, BMI and SESAC, in
addition to a digital performance royalty split between the performers and
the owners of the recording (usually the record label), with fees collected
by an organization called SoundExchange.
Until the end of 2005, when the first agreement lapsed, online
broadcasters could pay SoundExchange based on either the number of songs
they played or the number of hours listeners tuned in, with smaller
broadcasters having the option of paying 12 percent of their total revenue
-- which could be very little, if the broadcasts were free of advertising.
"Congress apparently made a determination for an interim specified period
of time to assist a nascent industry, and that period of time has passed,"
Chief Copyright Royalty Judge James S. Sledge has said.
Under the new ruling, Sledge and his fellow judges will require
Webcasters to pay every time a listener hears a song, at a rate that starts
at .08 cent per tune (stretching back retroactively to the start of 2006)
and rises to .19 cent in 2010. On top of that, Webcasters have to pay a $500
minimum for every Web channel they operate. (A home broadcaster probably has
just one, but companies such as RealNetworks and Pandora have hundreds.)
The effect is a harsh penalizing of Internet radio. By way of comparison,
the online news site BetaNews.com noted that on a per-listener scale,
broadcast radio stations paid an average of about $1.56 in royalties per
listener during 2006. Internet radio sites will be paying $8.91 per listener
retroactive to the start of 2006, and that figure will increase to $15.59
per listener by 2008. Webcasters were quick to object to the inequity.
"We would have to provide less choice and less diverse programming,"
Robert Kimball, senior vice president for business and legal affairs at
RealNetworks, told the New York Times. Meanwhile, in an interview with the
Los Angeles Times, KCRW-FM general manager Ruth Seymour called the ruling
"draconian," adding that her station would already owe more than $350,000
and will be faced with curtailing its popular Webcasts if it is forced to
pay. The opposition is making for strange bedfellows: Among the
organizations appealing the ruling are the commercial radio megalith Clear
Channel Communications and non-commercial National Public Radio, which also
announced it would turn to the U.S. Court of Appeals.
The fundamental problem seems to be that, as with file-sharing, the
old-school music industry doesn't understand the new medium -- at one point
in the proceedings, one of the members of the Copyright Royalty Board asked
if the term "albums" could refer to CDs as well as vinyl records, according
to the transcripts -- and as a result, Webcasting is viewed as a threat
rather than a potential asset. If a listener hears a song on Internet radio
and likes it, isn't he or she just as likely to buy it as they'd be if they
heard it on terrestrial radio?
"I don't know whether Webcasters are replacing sales or enhancing sales,"
Bruce Iglauer, founder of Chicago's independent blues label Alligator
Records, told me last Monday. "Do I think Webcasting sells CDs? I don't know
if anything sells CDs now. A lot of articles are saying that CDs are dead,
and they're never going to sell again."
Iglauer was one of several music industry experts who testified before
the Copyright Royalty Board in favor of the new, higher digital royalty
rates -- though he admits he isn't sure whether these are fair or not. "I
don't know if we're overcharging digital broadcasters. The last time the
rates were set [in 1995], everybody doing Webcasting said, 'This is going to
sink us.' Nobody sank; they all continued. Now they're saying, 'This is
going to sink us.' Do I think some Webcasters will become discouraged? Yes,
it's probable some will."
Although Nielsen SoundScan and other monitors show online sales
increasingly dramatically in the last few years, Iglauer says that for
Alligator, sales of music via downloads haven't been enough to offset the
decrease in sales of CDs.
"Absolutely we're seeing an increase in digital sales -- they went up
about 40 percent last year -- but at the rate they're presently going, it
will take us 10 years to get back to where we were in 1999. Both financially
and in terms of personnel, our company is two-thirds the size it was in
But is this the fault of new technology, or is it just one of the
inevitable twists and turns in the ever-volatile music industry? And if it's
the latter, should Webcasters be the ones who are paying?
"What I testified about was the economics of the independent record
business, not what would be a fair rate for Webcasters," Iglauer says. "If
you ask me what a fair rate would be, I have to say that I don't know."