The clock is ticking for Internet radio, from public broadcasting streams from stations like KCRW to Internet-only streaming services like Pandora. The Copyright Royalties Board recently approved new rates and restrictions that would increase costs for streamers by three to twelve times their previous rate. This month, the CRB rejected an appeal by broadcasters to reconsider the rates. As a result, by May 15 streamers will have to not only begin paying the 2007 rate but also back-dated royalties going back to the beginning of 2006. Without changes to the rules, many stations will simply shutter on the 15th of May. (That won’t be limited to US-based radio stations, either; any station broadcasting in the US — theoretically, any station at all — is subject to US liability.)

The new rules are wrong on three counts:

The rules would devastate internet streams, while other media pay little or nothing. Terrestrial (AM/FM) radio pays nothing. Satellite radio pays about 3-7% of income. And yet online radio will be charged per listener, per song and will be subjected to fees regardless of proportionate income. There’s even a poorly-defined minimum fee that slaps everyone. Small stations won’t be able to afford it. Struggling public radio in the US will have to shutter streams and lose income from people pledging online and pay back fees at a time they’re strapped for cash. Internet-only services will have to shutter to protect investors from liability. And big stations and big services will have to give up, as well; even with the money to support the fees, they may be unable to justify their profit model. (One service speaking out against the new rules, for example: Yahoo! Music.)

The rules would hurt artists’ revenues. Let’s put aside promotion for a moment: the Internet has the potential to become a vital revenue stream. Internet radio should pay a reasonable rate for using music. If those rates are set so high that the streams have to shut down, though, we’re back to FM and satellite radio, which pay little or nothing and play far less of our music; in the case of FM, to a smaller audience (since that college radio station that just got international distribution now has none).

The rules would hurt musical audiences and the artists working to connect with them. Losing revenues, even the small revenues from radio, hurts. Losing promotion hurts artists even more. How many artists have you discovered because you heard them on the radio? How many more have you discovered via internet streams, or discovery-focused services like Last.fm and Pandora? Compare satellite radio and the FM stations you can tune in locally, and the situation is dismal in terms of variety. This situation is destructive to listeners and artists alike. And, ironically, that means it hurts labels. Streaming songs impacts music stores, online and off, because it’s a mechanism for discovering music. (Ironically, even many online stores stream whole tracks because it helps them sell them.) Letting internet radio operate for free isn’t even under discussion; at the heart of this debate is setting fare rates and allowing Internet radio to survive.

US Legislation Offers a Solution

We’ve seen various efforts to “boycott” the RIAA, an organization of member labels that backs the collection agency in this case (SoundExchange) and has lobbied on the behalf of the new rules. But that ignores the fact that the RIAA is already working against the best interests of its members — and trying to inflict damage on the member labels’ record sales is unlikely to either change their membership status in the RIAA or the RIAA’s lobbying position, however misguided.

With time running out, a better solution is to support legislation that would intervene in the new rules. Members of Congress often don’t hear anything from constituents on this issue. As groups like Savenetradio.org flooded the Congressional switchboard with phone calls, two Members took action. The bipartisan bill, H.R. 2060, the “Internet Radio Equality Act”, sponsored by Representatives Jay Inslee (D-WA) and Donald Manzullo (R-IL), promises to set the rates at a more reasonable level related to income (7.5% of revenue, or 33 cents per hour per listener). The new legislation is backed by streamers and artists alike.

If you want to support the new legislation and you live in the United States, you can find numbers for your Representatives via Savenetradio.org’s site:
H.R. 2060 Action Alert

You won’t be alone. Pandora reports over 200,000 of their listeners have called their Congresspeople, and sent so many faxes they shut down Capitol Hill’s fax infrastructure. Pandora delivered boxes of faxes by hand. (Source: IP Democracy.)

Previously:
If Streaming Rates Stand, “We’ll Have to Shutter”, Says Pandora Founder
Pandora’s Founder on Decoding Taste and Promoting Indie Music

For more background on the issue, see the Save Internet Radio blog. Found other good discussion or information? Do share in comments.

  • dead_red_eyes

    Jeez, this is highly depressing. It's complete bullshit that internet radio peeps have to pay more than FM or Satellite radio. Where's the freaking logic in that?

  • bliss

    Big media are trying to close up all of the channels of free and independent expression. That's what this is all about––silencing innovation and difference through financial and legal maneuvering. I just posted in the forums how the US Postal Service is ready to pass a measure that would charge higher postal rates to small magazine publishers than it would to giant publishers such as Time Warner. Time Warner are in fact the authors of the proposal! "Postal rates for smaller periodicals could increase by as much as 30%, while some of the largest circulation magazines will face hikes of less than 10%."(See for more information: http://www.democracynow.org/article.pl?sid=07/04/…. It really is disgusting what is happening in this country.

  • MHotel

    Why do people think that terrestrial radio stations pay nothing in license fees to broadcast music? They pay nothing to SoundExchange. They pay LOTS to ASCAP, BMI, and SESAC.

    The new streaming audio rules are poorly designed and are conducive to awful people regulating what gets played in this manner, but terrestrial radio is not a free operation. The comparison is a bad one to make and the facts are enough of an outrage to stand alone without the "terrestrial radio is free" argument.

  • http://www.createdigitalmusic.com Peter Kirn

    Well, no, that's correct; I should have qualified. Terrestrial radio is not free. It IS free in relation to this type of license — the statutory license. I think it is more fair to look at the comparison of overhead in terrestrial radio to webcasters under the new rules.

    And it's not fair to say radio pays "lots" to performance rights organizations. I'm looking at ASCAP's site at the moment, and the rates are actually pretty small. The blanket license for up to 50,000 listeners is US$450. For up to 150,000 listeners (that's a pretty large station), you still pay only $1800. ASCAP alone, but still. And that's per listener, whereas webcasters are paying statutory licenses per *listened song* in statutory rates *on top of* the webcasters' performance rights blanket license — while the terrestrial radio stations pay only the performance license. ASCAP also has special rate structures for per-program licenses (e.g., news and chat that doesn't have much music) and noncommercial stations. There's no such equivalent on the statutory side. (BMI, SESAC I believe are similar.)

    That's comparing apples to oranges in that they're two different types of licenses. But terrestrial is responsible for only one license, whereas webcasters are responsible for two. And when you look at something sensible like the performing rights blanket license, that only emphasizes how unrealistic the CRB's new restrictions are on the statutory side.

    I certainly don't want to aid in the spreading of misinformation, but — as you say — there's still an awfully huge inequity here.

  • MHotel

    Realistically, though, streamed audio should fall under the performance rights license arrangement and not the statutory. Statutory licenses typically cover sales of a physical (or, probably in the future, kept) product, which a low quality hunk of streamed audio clearly is not.

    It is just so easy to see the RIAA folks wringing their hands and curling their mustaches over this deal, but this scenario mostly stems from a wrongheaded and panicked attitude toward digital distribution.

    This is a community of musicians, so it seems fair to ask: if the income from licensing and stores like eMusic is pithy, what does work? Digital tip jars? A Jane Siberry style honor jar? Or does the label system still have validity and can it still find a place?

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  • http://magpieindustries.org Niall

    Does this mean there will be an increase in Creative Commons licenced music? With net radio stations dropping like flies, won't the demand for high quality, royalty free music simply skyrocket? I'd love to see a big two fingers to commercial music in general, and this seems to be a brilliant step forward in that regard.

  • http://www.createdigitalmusic.com Peter Kirn

    Well, let's be realistic about CC. The vast, vast majority of music is traditionally copyrighted. (Not even fair to call it commercial — but there just isn't that much music with a CC license.) And it's restricted that way by default, whereas CC requires an explicit license. So you're assuming stations are ready to completely change their programming. And even if they do, no matter how good anyone feels about CC music, it means you're cutting off an enormous amount of variety. Finally, "demand" is a function of audiences, and my sense is that most audiences aren't going to stick around if the music they know just disappears.

    Of course, you could argue that people will simply go to illegal services, and I expect that's true. But that hurts CC, too, because CC doesn't work if people don't respect the wishes of artists. If they give up and go to illegal services, they're essentially saying the wishes of creators don't matter.

    That's nothing against CC music, but I think CC benefits when large audiences are listening to the Internet. Then you have this great additional case to make with CC of, hey, pass my music around, remix it, sample it, use it. This is the opposite situations: providers and audiences abandoning legal media on the Internet.

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  • robin parry

    this is bullshit, musicians are already not being paid to the point where all the "pop stars' I know are looking for rent, not makin music, and the problem people not paying for music, if you have a computer and software does NOT make you a musician/producer, you have to communicate an emotion too someone for that. an doesnot give you he right too STEAL other peoples music,something that this race of dumbfuckistani's does not undersrtand!

    i am a dunbfuckistani but at least i'm workin on it!

    by the way i've been makin music for 34 years from top of the pops to the winter music conference, to workshopping with Boulez and Stockhausen, and i'm still out at cruddy gigs trying to do what u should do Communicate our injustice's

    drkimono

  • http://www.myspace.com/jshow j-chot

    we don't need their shit.

    let's make our own godamn music.

    http://www.memoryformat.com for my latest EP (free!)

  • Dan Lumley

    Dear Sir Well if these greedy judges get their way, You internet radio should quietly go to foreign to do your radio. If These Judges will go after countries overwelmed if the media destoys the move. Bless you US internet radio

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