Cloudy Issues Surround Internet Radio

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This is Celia Hirschman with On the Beat for KCRW.

The current issue facing Internet radio streaming has heated to unprecedented levels. On June 26, KCRW participated in a "Day of Silence" for listeners to learn about and protest the outrageous royalty rates and fees facing all internet radio stations. The campaign, which ran on many streaming radio stations around the country, urged listeners to speak with their Congressional representatives. A flood of calls and letters poured into Congressional offices across the country, jamming servers and causing outages. Now, the issue is hot. For the next two weeks, I'll be weighing in on the subject.

To fully appreciate the fight at hand, you need to understand the problem. When radio stations stream music online, they must pay two kinds of royalties. One is a traditional publishing royalty to the songwriter and publisher. That royalty was established decades ago, and there's no dispute about it.

There's also a sound recording royalty, to be paid to the artist and the record label. The rate for this royalty has shifted dramatically. The new sound recording royalty rate was determined by three judges of the Copyright Royalty Board in March, appointed by Congress. The Board decreed that all royalties for songs streamed online should be paid to Sound Exchange for royalty distribution. Sound Exchange, is closely linked to the Recording Industry Association of America.

In addition, the Copyright Royalty Board announced that every streaming radio stations is required to pay a minimum of $500 for each stream to Sound Exchange. The monies paid would be used to fund the administration of Sound Exchange, and anything left over, to be paid to the artists & labels.

But the Board failed to recognize the unique nature of some of the most popular digital radio stations. Real, Yahoo, Live 365 and Pandora have thousands if not millions of custom streams. According to the Board's decision, each of these individual streams should be charged the $500 minimum to Sound Exchange. The deadline for paying the 2006 and 2007 royalties is July 15. Any station unable to meet this financial requirement faces sizeable fines.

Based on the new rate schedule, Live 365 would face $10 million in royalty fees. Yahoo, Real and Pandora collectively owe over a billion dollars in royalties. None of these organizations generate a fraction of income from streaming to possibly pay these fees. These and many other stations have banded together to have Congress overturn the copyright judges decision and set fair rates equal to those paid by satellite radio.

Sound Exchange must have realized that an outpouring of consumer protest to Congressmen could be damaging, because they took swift action. They issued a press release on June 29, announcing a voluntary cap on the fee structure. They would cap their administrative fees for streaming radio stations to no more than $2500 per organization. Of course, royalties would be additional.

But what their press release didn't mention, was the quid pro quo nature of their offer. Sound Exchange would reduce their administrative fee, if those organizations agreed to abandon their legislative efforts to protest the royalty rates now and in the future. In addition, the fee reduction would only be good for 18 more months, thereby forcing those organizations to fight all over again in 2009 against the same problem.

Our culture of internet radio is only in its nascent beginnings. With audiences abandoning commercial radio every day, clearly the open minded internet channels offer far more value for music discovery.

One would hope record labels and artists would work together with internet radio to encourage health and stability in this growing sector.

This is Celia Hirschman with On the Beat for KCRW.