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Feds Agree To Rethink Internet Radio Royalties

By Martin H. Bosworth
ConsumerAffairs.com

March 22, 2007

• Consumer Groups Urge FCC to Reject XM-Sirius Merger • States Raise Questions about XM-Sirius Merger • XM-Sirius Merger Gets Antitrust OK • Senate, FCC Chairman Spar Over Media Consolidation • Wisconsin Seeks To Block Satellite Radio Merger • XM/Sirius Merger Gets a Boost • Webcasters, Music Industry Reach Accord On Royalties • Karmazin "Clarifies" XM-Sirius Merger Plans • Last Minute Stay Of Execution For Web Radio • Dead Air Ahead: Court Denies Webcasters' Appeal • Notes From The Future Of Radio • Senators Throw Support Behind Internet Radio • Internet Radio Gets a Reprieve • Web Broadcasters Lose Music License Appeal • Feds Agree To Rethink Internet Radio Royalties • Reception Poor at Senate Sirius-XM Hearing • XM-Sirius Merger May Encounter Technical Difficulties • The End Of Internet Radio As We Know It • XM-Sirius Merger Encounters Serious Opposition • XM, Sirius Agree to Merge • Record Companies, Congress Take On Satellite Radio • Satellite Radio Looks Wobbly --- Consumer Comments • Sirius • XM Radio

In response to protests against expensive new royalties for Internet radio broadcasts, the U.S. Copyright Review Board (CRB) has agreed to hear requests for a new hearing on the issue.

The new payment structure was recently implemented by the CRB and created by SoundExchange, the royalty collections arm of the Recording Industry Association of America (RIAA). Under the new royalty structure, Internet-based radio stations and public radio channels would face hefty new payments that would increase each year, as well as mandatory minimum payments of $500.

Critics of the plan have said the new royalty system would put independent Internet broadcasters out of business, as their royalty costs would far outpace any revenue they earn from their stations.

SoundExchange claimed that the growth in online advertising would cover the costs of royalties for Internet broadcasters, saying that advertising for online music stations reached $500 million in 2006.

Chief Copyright Royalty Judge James Scott Sledge asked for position statements from interested parties to be filed by April 2nd. Among the challengers to the CRB's ruling was National Public Radio (NPR), which stated that the new royalty structure unfairly penalizes public radio stations as well as Internet radio.

NPR's communications vice president Andi Sporkin said that "the Board's decision to dramatically raise public radio stations' rates was based on inaccurate assumptions and lack of understanding of the issues."

"The new rates inexplicably break with the longstanding tradition of recognizing public radio's non-commercial, non-profit role, while the procedures we're being asked to now undertake for measurement are non-existent, arbitrary and costly," Sporkin said in a statement accompanying the motion.

NPR has also stated it plans to appeal the ruling to the U.S. Court of Appeals in the District of Columbia Circuit.

NPR has found itself allied with interests ranging from radio station behemoth Clear Channel to Web-based radio services like Pandora. Pandora founder Tim Westergren called the CRB decision "an utterly ridiculous ruling that renders any form of internet radio non-economic."

Discussing the issue on the Pandora site's blog, Westergren called on listeners to sign online petitions and spread the word, because "the webcasting community does not have an entrenched and powerful lobbying presence in DC, grassroots legislative pressure...is clearly our biggest ally."

The growth of Internet radio has been hailed as a watershed for the music industry, as it enables listeners to create their own music stations and expose other fans to wider varieties of music genres than typical broadcast stations play, and to share new music discoveries much more easily. Online radio play benefits musicians in more ways than just royalties, as the exposure leads to more ticket sales for live performances, purchases of merchandise, and so on.

The fight over Internet radio royalties comes at an especially grim time for the music industry, which continues to report steady declines in sales of CDs. The Wall Street Journal reported that the music industry saw sales for the first three months of 2007 drop 20 percent from their previous level in 2006.

Although digital downloading and selling of individual songs continued to register healthy growth, it wasn't enough to offset the losses from slumping CD sales.

The RIAA has claimed that the new royalty plan is designed to ensure artists get their fair share of monies from radio play, no matter the medium. But the organization has been criticized for its often heavy-handed tactics in extracting "settlements" from users of peer-to-peer download services, and trying to compel universities to help it find and prosecute students downloading music illegally, in order to keep revenue coming in.

Smaller independent artists also won't find much profit in the new royalty rates, as the shuttering of Internet stations means fewer plays for their music, which means less money. Writing for Salon.com, guitarist Stephanie Casey said that "unless you are Fall Out Boy or Björk or Sheryl Crow, that .04 cents per play or whatever on Internet radio isn't gonna add up to much more than buying you a latte once a week."

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