Tuesday, June 18, 2002

Web radio's fate at hand

Fear is higher royalties could silence the music

By Brett Corbin
The Cincinnati Enquirer

        WASHINGTON — One of the few places you can find authentic Hawaiian music outside Hawaii is on the Web.

        Robert Abbett, 48, has run Internet Radio Hawaii out of a tiny, cluttered spare bedroom in his Kailua home for eight years. Listeners from as far away as Japan and South Africa regularly boot up their computers to hear the slack-key guitar and ukulele sounds of island artists such as Auntie Genoa Keawe and The Makaha Sons.

    www.loc.gov/copyright, Library of Congress Copyright Office.

    www.radiojump.com, RadioJUMP! Internet radio search engine.

    www.riaa.com, Recording Industry Association of America.

    www.saveinternetradio.org, Save Internet Radio!

        But a Library of Congress decision coming Thursday on Internet radio royalty rates could silence Internet Radio Hawaii and hundreds of other homegrown Web radio stations across the country within 45 days.

        The Recording Industry Association of America is urging the Library of Congress copyright office to force thousands of Internet radio stations to pay royalties to artists and recording studios.

        Some larger Web radio outlets, such as Microsoft's MSN Music, can afford to stay open if new royalties go into effect. But many smaller Webcasters, who already pay royalties to music publishers, complain any added expense would drive many out of business. Some Internet radio stations rely on listener donations — not advertising dollars — to survive.

        Doug Balogh, owner of WOXY-FM (97.7) in Oxford, said the debate about copyrights and royalties started in 1908 in a dispute over piano music. He said the issue comes up about every 15 years, and technology has always prevailed.

        “For a few large companies to say that "We want to control this' is an assault on the public right,” Mr. Balogh said. “Record companies are saying that "We will determine what we want you to have.' ”

        WOXY does not have a far-reaching radio signal, but on the Internet, it has a global reach. The subject for Mr. Balogh is one that he is following closely.

        “You don't crush new industries before they start,” he said.

        His radio station pays royalties, and he does not have a problem with that. The issue for him is large recording companies trying to send smaller, independent radio stations out of business.

        He said that type of copyright enforcement limits consumer choice, stifles information and hurts diversity of choice.

        “If you look at the five large companies, we are certainly on the side of fair and right,” Mr. Balogh said. He said he is optimistic but not overly confident about thew decision.

        For John Martin, vice president and general manager of Clear Channel Radio Interactive, the ruling Thursday will determine whether his company stays in the Internet music business.

        Clear Channel Radio Interactive, based in Covington, is a division of Clear Channel Communications of San Antonio, Texas, the nation's largest radio station operator.

        “We can only be in the business if we have a chance to make a profit,” Mr. Martin said. “The days of people supporting Internet companies that don't make a profit are behind us.”

        He said he is hoping for “drastic changes” in the current copyright rules because the rules in place now make it unprofitable. The main problems he wants to see fixed are laws regarding reporting and fees for paying royalties.
       For Mr. Abbett, the new royalties would cost $13,000 a year on top of the $22,000 he already pays for the fast Internet pipeline needed to broadcast on the Web and the $11,000 he pays in licensing fees.

        The new fees would break the bank, considering Internet Radio Hawaii received just $27,000 in donations last year.

        “We're basically just in purgatory,” Abbett said.

        The new royalties also would discriminate against Internet radio, Webcasters said. Many on-air radio stations are excused from paying them because their broadcasts give artists such as blonde rapper Eminem and pop star Britney Spears free publicity.


Offering choice

        A few big broadcasters such as Clear Channel dominate on-air radio. Webcasters said this has hurt diversity in radio programming.

        No matter where you go, the same Top 40 rock, country and urban songs are playing on radio, they say.

        But Internet radio allows fans to listen to musical genres the mainstream often overlooks, said Kurt Hanson at the Radio and Internet Newsletter in Chicago.

        Besides native Hawaiian music, Internet radio stations are devoted to “old school” rap from the 1980s, The Lone Ranger and other vintage radio dramas, synthesizer-heavy trance music, bluegrass, and even Broadway show tunes, Mr. Hanson said.

        At the beginning of 2001, the Internet had 5,500 radio sites, many of them regular broadcast stations that also stream over the Web, Arbitron said. However, about 40,000 Webcaster hobbyists run private stations through Internet streaming companies such as Live365.com, Mr. Hanson said.

        Internet radio station owners say the Recording Industry Association of America's effort to get more royalties from them is misplaced aggression. They contend the association is trying to get back some of the money it is losing from rampant music piracy on the Internet.

        But recording association members said they are not out to destroy Internet radio. They just want to ensure artists are compensated for their work. In fact, the recording industry would be willing to negotiate royalty arrangements with some Webcasters to keep them open, association officials said.

        “I think the music industry would like to see Webcasting thrive. It's a brand-new source of revenue, and we're excited about the diversity of music it will address,” said John Simson, executive director of SoundExchange in Washington.

        SoundExchange collects royalties from Internet and satellite broadcasters and distributes them to artists and record companies.


Possible reprieve?

        A copyright arbitration royalty panel appointed by the Library of Congress recommended Webcasters pay artist and recording studio royalty rates of 0.14 cents a song played per listener and 0.07 cents per song played for listeners for broadcast radio stations that also transmit over the Web.

        But in May, Librarian of Congress James Billington threw out the three-member panel's recommendation. Mr. Billington said he would make his own recommendation by Thursday.

        A small Internet radio station that played or streamed 540,000 songs a month would have to pay more than $9,000 a year in new fees if the 0.14-cent royalty rate went into effect, said Paul-Jon McNealy, an analyst with GartnerG2.

        For a larger Webcaster streaming 125 million songs a month, the new royalties could total more than $2 million a year, McNealy said. Many small and even large Webcasters could not afford the extra cost, McNealy wrote in a May.

        “The entire digital audio market is a potential casualty,” he said.

        Billington's rejection of the panel's recommendation raised hope among Webcasters that the Library of Congress may set lower royalty rates, Mr. Hanson said. However, Library of Congress officials declined to comment on whether Mr. Billington would do that.

        “I think the fact they did reject the ... proposal is a positive sign,” said Bill Rose, vice president of Webcast services at Arbitron rating service.

        A grass-roots movement also is growing, with Web sites urging fans to flood Congress with letters and e-mails protesting higher royalties. Lawmakers, including Democratic Reps. Patsy Mink of Hawaii and Rick Boucher of Virginia, have come out in support of Webcasters.

        But even if Billington sets a lower royalty rate, many Webcasters still could go under, analysts said. The slow economy and sluggish advertising sales already have driven many larger Webcasters, including NetRadio and RadioWave out of business in the past year.

        Some Webcasters are bound to have to scramble for money to stay online even if Billington sets a new royalty rate below 0.14 cents, analysts said.

        So the days of listening to songs for free on the Web could be over forever, Rose at Arbitron said.

        Internet radio stations that survive will have to charge fans a fee to listen to songs, he said. Or fans will have to tolerate pop-up ads.

        “I think you're really going to see a mixture,” Rose said. “A lot of evidence is that consumers are willing to pay for content they can't get (on regular radio).”

       Greg Wright, Gannett News Service contributed to this story.


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