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Webcasters Slam into Royal(ty) Pain

At Contemporary-classical.com, Adrian Koren plays music that most folks don't want to hear. But for those who relish exploring the classical works of the past century, Koren's Web radio station is a godsend.

For just the $300 a year he pays Live365.com for bandwidth and music licensing, the Massachusetts software developer can share his beloved music with people around the world.

For more than three years, Koren has led listeners -- a few dozen at a time -- to new discoveries, a process repeated tens of thousands of times on Web stations based in bedrooms, basements and attics. But a new ruling from the U.S. Copyright Royalty Board -- an arm of the Library of Congress charged with determining how much radio stations must pay artists and record labels for songs they play -- threatens to silence many, and perhaps most, webcasters.

"I run this as a hobby," Koren says. "I get virtually no income from this -- just some small fees from my share of CDs sold through links on the site, and that just helps pay for a few CDs. Copyright law should encourage innovation. If it's having the opposite effect, something's wrong."

That's not how the feds or the recording industry sees it.

The Royalty Board's decision to more than double the fees that webcasters pay to play recorded music might seem unfair to mom-and-pop Web radio operators -- and to many of Web radio's 50 million listeners -- but it's about time artists got their share of the money that radio rakes in, says John Simson. He is executive director of SoundExchange, the D.C.-based organization that collects and distributes royalties, half to artists and half to record labels.

The heyday of advertising-free Internet radio might be coming to an end. Simson says small operators who play music and don't try to sell ads "will have a hard time paying the rate" -- a change about which he's not shedding tears.

"The attitude that really has to change is the idea that the people playing this music on the Web are somehow doing artists a favor," Simson says. Artists want their music to be heard, of course, and the industry likes the concept of Web radio, but Simson rejects the popular notion that the only thing small webcasters owe artists is the exposure they get from having their work streamed over the Internet.

Web stations are ringing the alarm about their imperiled future. At LuxuriaMusic -- a California-based webcaster that offers an alluringly original blend of exotica, lounge, Space Age bachelor pad, bossa, Bollywood, Latin jazz and sophisticated rock -- an announcement is running a few times each hour accusing the recording industry of "attempting to shut down all Internet radio stations" unless they cough up "more money than the business could ever possibly make." The station warns that "only the very rich will be able to afford to broadcast on the Internet."

That might not be hugely far from the truth, and the organization that represents artists and their labels acknowledges that it sees merit in culling some of the many thousands of Web stations that sprang to life during the wide-open first years of broadband.

"Is 10,000 stations the right number?" asks Simson of SoundExchange, which sought the higher royalties. "Does having so many Web stations disperse the market so much that it hurts the artist? What's the right number of stations? Is it 5,000? Is it less? Are artists better off having hundreds of listeners on lots of little stations, or thousands of listeners on larger stations?"

But it's not just hobbyists who could be wiped out by the jump in royalty rates. Kurt Hanson, who writes the Radio and Internet Newsletter at Kurthanson.com, also runs AccuRadio, an online provider of 320 streams of music, ranging from Chinese pop to West Coast jazz. Last year Hanson paid $48,000 in music royalties, with 6 percent of his $400,000 in revenues going to ASCAP and BMI, the umbrella groups that collect fees for composers, and 12 percent of his revenue going to performers and record labels through SoundExchange.

Under the new royalties scheme, Hanson says he will owe $600,000 a year, vastly more than his total revenue. "We would literally be bankrupted," the Chicago-based webcaster says.

Hanson has concluded that even some of the most popular webcasters might conclude that there's no profit to be had in Internet radio. Pandora.com, the popular, innovative service that lets each listener create a personal radio station based on a recommendation engine (such as Amazon.com's suggested-reading software), would have to pay $500 for each listener's station -- a cost that would drive the company out of business almost instantly.

Hanson contends that AccuRadio, which reaches as many as about 20,000 listeners at a time during Internet radio's midday prime time (far more people have access to broadband at the office than at home), helps the music industry even without the new royalty rates. His stations, like most on the Web, go out of their way to promote music sales, selling about $40,000 worth of CDs per month via links to Amazon.com, displaying the names and covers of the discs being played, and streaming at a bandwidth low enough for decent listening quality but not high enough to substitute for owning the CD.

Simson isn't buying that. He says artists deserve to get their money straight up. "The music is why people come to these stations," he says. "Web radio is growing exponentially. These little stations develop a popular URL and then flip it and sell it for big money and the artists get nothing."

But there's no big money in a Web station such as Streamingsoundtracks.com, Eric Thornton's hobby. Thornton, a scientist for a pharmaceutical company in Richmond, has played movie soundtracks on the Web for five years, reaching about 200 listeners at a time. He struggles to break even, relying on listener donations to pay his bills for bandwidth and royalties. Thornton says he's "all for making artists as much money as possible," but the only choices he sees under the new rate structure are to base his station overseas or shut it down.

Message boards throughout the music-loving Web have been buzzing with protests and petitions against the new royalties, and Hanson believes that through an appeal, direct negotiations with the recording industry or congressional action, webcasters will win a reprieve from onerous royalties.

Simson pours water on those embers of hope. "This is the process the stations chose," he says. "It may be unfortunate, but they chose to litigate with this process."

Where webcasters and the recording industry do agree is on the unfairness of making tiny Web stations pay for performance rights while huge radio companies pay nothing. Congress decided that Web stations must pay royalties to the composers of each song and to the performers and record labels, even as traditional AM and FM broadcasters continue paying only the composers -- a quirk in the law that gives broadcast radio a huge advantage.

Simson agrees that "there's really no justification for broadcast radio not paying, and we're going to try to address that."

Making over-the-air broadcasters pay more wouldn't do much for Web stations that might be priced out of existence. "Internet radio is one of the few bright spots for the music industry," Hanson says. "Artists love Internet radio. Record companies are coming up with promotions for us. It's the trade association lawyers who are playing hardball."

Web radio was threatened with a big boost in royalties once before, in 2002. That time, Congress worked out a compromise that saved some stations, while others went dark. Will Congress step in again? The campaign for that to happen is already underway -- on Web radio.

By Marc Fisher |  March 17, 2007; 10:34 PM ET
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Comments

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I'd love to hear how some of our presidential candidates feel about this -- but how many of them would have the cojones to say something that might alienate potential corporate contributors from the recording industry?

Posted by: Vincent | March 18, 2007 1:06 AM

So much for competition and free markets. Not only do over-the-air radio stations not pay royalties, but every time you hear a commercial they MAKE money. Internet radio has few or no ads during streaming, that's why people love to listen. Some stations with websites, like Streamingsoundtracks.com, don't even have that many advertisements on their site. It brings music fans together in communities that you could NEVER get with FM.
http://www.savenetradio.org/

Posted by: BuyerQueen | March 18, 2007 2:22 AM

The internet is the only way that deep niche formats can be heard nowadays. Where else can you find a service that streams 60 types of classical music, or services with easy listening, or Cajun, or polkas as example? What assurance is there that the royalties will go to the composers, performers, etc of this kind of music rather than just going to those listed on the Billboard Top 100?

This CRT ruling will probably wipe out most of the intrnet "stations" except for those formats most in demand (AKA Lowest Common Denominator). Soon the internet will merely be a simulcast of the homogenized garbage now on broadcast via FM radio. This trend is even noticable on satellite. I have subscribed to the Ku-Band DMX Music service for over 10 years and have seen niche formats fall by the way to make room for new channels that sound much like existing ones, and more like what's on FM. Back when DMX was more nichey, I used to buy lots of CDs played there -- having found artists I never heard on conventional media -- very much less the case now. Reckon the same will end up happening if XM and Sirius merge and ends up being the less niche & shallower playlists of Sirius.

Posted by: Spruceman | March 18, 2007 10:15 AM

Fisher writes: "Last year Hanson paid $48,000 in music royalties, with 6 percent of his $400,000 in revenues going to ASCAP and BMI, the umbrella groups that collect fees for composers, and 12 percent of his revenue going to performers and record labels through SoundExchange."

18% of $400,000 is $72,000 in royalties: $24,000 to ASCAP/BMI and $48,000 to SoundExchange!

Posted by: tjcw | March 18, 2007 10:21 AM

why is governement setting prices at all?
does government decide patent royalties?

(government should get out of the copyright and patent area anyway.)

Posted by: ee hayek | March 18, 2007 12:39 PM

Based on Mr. Simson's comment about webcasters being forced into selling ads in order to pay the higher royalty charges, to me this much less about giving the artists more money and more about giving corporations access to this huge untapped arena of consumers.

From a sales/marketing perspective, there is a major issue with the current set-up in internet radio and that is, virtually anyone can do it and tens of thousands have. Most won't make any money since it is viewed as a hobby. They want to share their passion for music with others like them, and without advertising because honestly, if you had a choice to listen with or without ads which would you choose? I know I would go ad-free.

Currently, with so many choices out there, there is no way to effectively market to a single large group of people. if this succeeds they are taking away the small webcaster's ability to broadcast ad-free streams while paying the artists a realistic royalty by charging incredibly high royalties and forcing them out of business or to pay ads if they are to be successful. They have trimmed the business and captured the listening market. Just like sports, music will have to be sponsored. We will soon be listening to Generic Corporation Internet Radio station, brought to you today by "this product you can't live without". And we already have that, its called FM radio.

Posted by: Saffron | March 18, 2007 3:17 PM

ee hayek sez, "government should get out of the copyright and patent area anyway."

We have patents and copyrights only because government makes rules allowing such property rights to exist (see US Constitution, Article I, section 8, "Congress shall have power . . . to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."). The only way to protect your intellectual property in a Darwinistic system would be through secrecy or contract, but who's gonna enforce the contracts? Some damn guv'mint court? In the real world, it's foolish to think the government would ever get out of the field because there is too much money involved, not to mention national security and economic well-being issues.

Posted by: BuddyK | March 18, 2007 3:53 PM

If the stations have bought the CDs, the labels & artists have received their royalties. This is a form of double taxation and that is against the constitution.

Posted by: Peaches | March 18, 2007 6:07 PM

If these internet billionaires don't want to pay the musicians for their music then they should write, record, and play their own music! It's as simple as that! If their business model is such that they can't survive then guess what? Their business model is FLAWED.

Posted by: MyDC | March 18, 2007 7:00 PM

If the stations have bought the CDs, the labels & artists have received their royalties. This is a form of double taxation and that is against the constitution.
---------

Double taxation is not against the constitution, duh! You pay tax on your earnings and then pay sales tax, Einstein.

Posted by: Anonymous | March 18, 2007 7:01 PM

Royalties are how the recording artists make their money. It is their JOB. If you go to work and write a report for which you get paid, should your boss not have to pay you for rewriting the report? After all, he paid you once for it.

Posted by: ep | March 18, 2007 7:15 PM

Simsons claim that artists having their music played on too many small stations is somehow detrimental to them is so absurd its beyond belief. My small art and progressive rock station on Live365 gets email from listeners on a regular basis thanking me for introducing them to artists theyd never have heard otherwise, directly resulting in album sales and concert ticket sales. I get email every week from artists themselves asking me to play them. Most webcasters serve niche genres that are never played on terrestrial radio or corporate streams. Theres obviously a huge disconnect here. This is about money alright, but it has nothing to do with compensating artists. This is purely about corporate greed and advertising revenue. What a disingenuous slimeball this Simson guy is! By attempting to silence internet radio, SoundExchange is causing great harm to artists, not protecting them. The CRB ruling is a joke. When internet radio is gone who will play these artists? Clear Channel? Yeah, right. Enjoy the major label top 40, people. Pretty soon thats all youll get to hear.

Posted by: Chip | March 18, 2007 8:15 PM

Marc -- So what is the royalty rate, current and proposed? I can't believe you would leave that piece of information out. It seems a little important, no?

Posted by: Anonymous | March 18, 2007 9:01 PM

"If these internet billionaires don't want to pay the musicians for their music then they should write, record, and play their own music! It's as simple as that! If their business model is such that they can't survive then guess what? Their business model is FLAWED."

Posted by: MyDC | March 18, 2007 07:00 PM

You're referring to the RIAA & the Labels right? LOL

Posted by: Pearhead | March 18, 2007 9:26 PM

The ruling raises the royalty rates by as much as 1000%, retroactive to the beginning of 2006, though the full rate doesn't take effect until 2008. Congress stepped in in 2002 and created the Small Webcasters
Settlement Act which allowed small commercial webcasters to pay a blanket fee if their revenues were below a certain amount. That act has been scuttled, and it voids contracts that webcasters signed in good faith with SoundExchange for 2006 and 2007 that SoundExchange offered on its own website. This will not only silence small webcasters, it will force many of them into bankruptcy for the crime of paying out of their own pockets to promote artists for no personal gain beyond sharing the music they love, legally. This isn't about *internet billionaires* not wanting to pay their dues as a previous poster so cluelessly put it. We've been paying royalties and playing by the rules all along. This is all about the RIAA wanting to control internet radio now that small innovative companies like Live365 and Pandora, and thousands of hobbyists have turned it into a such thriving medium, while they were asleep at the wheel.

Posted by: Chip | March 18, 2007 10:03 PM

This is NOT about to pay or not to pay artist for their works, as an internet broadcaster, we DO pay and would continue to do so. What this IS about is big business pricing the little guy out of the market to eliminate competition. You all know that big corps will never pay these rates. They just want total control of what you hear.

Posted by: Rock | March 18, 2007 10:03 PM

I have other interests vested in this issue. Sure I'm an internet broadcaster. There are other benefits that can be attributed to internet radio, which subsequently will disappear along with the independent broadcasters. For example the newly launched internet radio amber alert system. This service depends on internet broadcasters. No corporate internet stations use this service. It is made up of independent internet stations. This service has seen success in it's early existence in spotting an abductor with a call to police to report it. No internet stations, no alert system. Independent internet stations have offered their services to our military personnel as form of getting a taste of home, including requesting and dedicating songs to their loved ones, or vice versa, that can be listened to and the dedication viewed online. Internet Radio isn't just about the money. We try to give back to the community. Who would deny these things to our children, parents, and military personnel? The artists? The labels? The government? I'd certainly like to hear Mr. Simson answer those questions. I'm sure it would be something to the degree that he/they don't care we don't need it. Tell that to the parents that lost a child. Tell that to mother wife and kids that didn't get to send that last message or that special song before that soldier lost his life.


Posted by: Radio Amber | March 18, 2007 10:05 PM

* The top executives of SoundExchange make over $200,000 per year
* The RIAA pays thousands of dollars each year for Washington lobbyists, attorneys, and even loaned SoundExchange over 7 million to get started. THAT IS A CONFLICT OF INTEREST--SoundExchange is going after the internet broadcasters, when the RIAA is supporting them? Doesn't that sound a little unethical, if not illegal?
* Artists, historically (and still on AM/FM radio) make their royalties through album/CD sales and other things like T-shirts, posters, etc.
* internet broadcasters have been paying royalties when AM/FM have never paid artist royalties
* Shutting down internet radio is the first step to 1) start collecting artist royalties from AM & FM stations 2)to get the Independent artists off the internet and make way for the hundreds of big label subsidiaries and their mainstream artists to have their own internet stations--they are eliminating the competition, and squashing the Independent Artist revolution. They have sold a bill of goods to some Independent Artists, by getting them to sign up with SoundExchange--for what? Pennies. Not thousands of dollars.
* SoundExchange gets most of the money for themselves, for administrative and legal costs. In other words, a group of men have designed another bureaucracy to get the money from citizens, who happen to be internet broadcasters.
* I can't believe the Wall Street Journal can give a voice to someone as arrogant as Simson, when they are clearly destroying an entire industry with political maneuvering.
* This is a complete violation of free trade laws. I wish someone would talk about that, as it relates to the Sherman Act.
* QUESTION: DO THE MAJOR LABELS ADVERTISE OR OTHERWISE PATRONIZE THE WALL STREET JOURNAL OR ANY OF IT'S 'PARTNERS'? It sounds like the Wall Street Journal is looking at this through 'tainted' lenses. The phrasing, when they quoted Simson was as if he was the authority, here, and internet broadcasters are the bad guys. Internet broadcasters are the only ones who will play thousands of these Independent artists' material. WE promote THEM. Not the other way around.
* Anyone who posts in favor of Simson, in this comment area, is probably either not done their homework, or they work for SoundExchange.
* This is the best chronology of the situation that I have found, so far. PLEASE READ THIS:
http://kurthanson.com/archive/news/031607/index.shtml

Posted by: CommonSense | March 19, 2007 1:01 AM

I would like to see Mr. Simson's numbers on how many webcast site URLs have been sold in the last five years and just how big these deals if any exist were. I'd hate to see webcasters who play very specific music genres or a variety thereof disappear and all we have is the Top 40. We're America, give us our choices! Say no to corporate greed!

Posted by: FoxMcLeod | March 19, 2007 1:55 AM

Marc, check out www.radioparadise.com

Maybe you're familiar with it, but it's another station that's got a huge following out there, and its proprietors (Bill and Rebecca Goldsmith) are doing all they can to fight this and spread the word about the good fight!

Posted by: IMGoph | March 19, 2007 10:23 AM

Peaches' post "If the stations have bought the CDs, the labels & artists have received their royalties. This is a form of double taxation and that is against the constitution." is not entirely accurate.

When you purchase a CD you are authorized personal use, not distribution to a wide audience.

That being said, I disagree with the path that is being taken. I have used these web sites for years and they have music that can't be found elsewhere - too far one way or the other for the advertisers.

After watching the movie "V is for Vendetta" over the weekend (kinda weird and kinda scary at the same time) I see similiarities between the movie and the article.

Hopefully I am wrong. Time will tell.

Posted by: SoMD | March 19, 2007 12:00 PM

The founders of Youtube got $1.65 billion for their website. How much did they share with the artists who made them rich? That is what this is about, don't twist the argument.

Posted by: whatev | March 19, 2007 3:42 PM

Whatev, that's not at all what it's about. Don't YOU twist the argument. Small webcasters have been paying royalties in accordance with the law all along. If YouTube was being assessed retroactive fees that amounted to 200% or more of all the profit they'd made since the beginning of 2006, then you'd have a valid comparison. Then again YouTube has absolutely nothing to do with internet radio and is governed by an entirely different part of copyright law. Educate yourself so you're not talking out of your backside if you want to be taken seriously.

Posted by: Chip | March 20, 2007 3:18 PM

Don't be a tool of the Consumer Electronics Association and their disinformation campaign. How much money did NAPSTER share with the bands, then? If a radio station can't survive then they should write radio dramas, broadcast sports, or news or something other than music.

Posted by: whatev | March 20, 2007 3:49 PM

I'm an independent broadcaster who's been serving a niche market for several years, exposing niche artists to new fans who buy their CDs and tickets to their concerts. I receive email on a weekly basis from artists asking me to play their music, including those already receiving critical acclaim and financial success in addition to young independent artists. In the past week alone I've heard from people representing Rush who are promoting a new single from their forthcoming album, The Last Town Chorus who was recently featured on Gray's Anatomy and reviewed in Spin, a progressive rock band from Italy named Court who are releasing their third album and promoting a US tour, and another young artist just starting out. I'm a tool of no one. I do this to promote music I love because I think people deserve to hear it and terrestrial radio isn't doing it, and I work within the law. You, on the other hand, must be a tool of the RIAA as you seem incapable of seeing beyond your own narrow and ill-informed rhetoric. If you think the RIAA is interested in doing right by the artists they represent rather than servicing their own greed you're a fool.

Posted by: Chip | March 20, 2007 6:06 PM

**Quote**I can't believe the Wall Street Journal can give a voice to someone as arrogant as Simson, when they are clearly destroying an entire industry with political maneuvering.**

I meant to say the Washington Post. Not the WSJ...what was I thinking?

As far as how this piece is written, sometimes you can slant an article in someone's favor by HOW you write it, not necessarily WHAT you write. I see that in the Washington Post article here.

Posted by: CommonSense | March 21, 2007 4:28 AM

I know many artists personally, what they say in interviews to appear cool and with-it and what they say privately about paying for health insurance on meager tour money are two different things - note the recent benefits the Black Cat did for Cal Robbins, the son of a producer with a life-threatening disease. Why are artists suggesting I speak out on this for them? Because the programmers will slam down on them like Metallica if they try to defend themselves. The RIAA are a proxy of the artists, just like the smiling star whose bodyguard pushes you away, never forget that the RIAA works for the musicians.

Posted by: Whatev | March 21, 2007 3:10 PM

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