Digital Dilemma

Will new royalty fees kill Web radio?

Traditional radio is an extremely exclusive club and, for the most part, it's not taking new members. The Federal Communications Commission, which oversees the airwaves, has created limited (arguably far too limited) opportunities for independent broadcasters to legally launch low-power stations in areas where the dial still has remaining space ("Frequency Free-for-All," October 11, 2001). But in virtually every big city in the country, including Denver, there's no room at the inn, leaving most outlets in the grasp of corporations that have learned how to turn caution and conformity into tidy profits.

Web radio, in contrast, is a great democratizer, largely because wannabe streamers can launch their dream projects without worrying that they might interfere with someone else's signal. As long as they're able to cover the cost of equipment and bandwidth, they can share their concepts with the computer-using public -- and many folks are doing so at this very moment. Denise Sutton, president and CEO of, a Denver-based network, says her company works directly with "a couple hundred" Internet outlets and maintains a directory of more than 12,000 other content providers. Of course, the majority of these stations don't make a dime; Sutton guesses that only 5 percent are in the black, and she's probably being generous. But for music lovers, having such an enormous variety of tunes available at the click of a mouse is priceless.

A few weeks from now, however, this playlist could start shrinking -- and fast. Earlier this year, three arbitrators, known collectively as the Copyright Arbitration Royalty Panel, or CARP, recommended to the U.S. Copyright Office that Webcasters be required to pay royalty fees on a per-song, per-listener basis rather than as a percentage of revenue. If Librarian of Congress James Billington blesses this proposal on May 21, when his ruling is expected, the fallout could force hundreds, if not thousands, of Internet radio purveyors to sign off for good. Says David Fodel, station manager of, a Boulder-based portal that's devoted to electronic music in its many forms, "I think the potential is there for the existing fee schedule to basically put us out of business."

Mike Gorman

"This is a fledgling industry," adds Howard Michalski of radio.wazee (at, a rock-oriented Internet station in Denver. "You would think the recording industry would want to help it grow, especially since we're all up for paying some kind of performance fee. But they're never going to get the fees the way they've set them up, because none of us will be left."

Ann Chaitovitz, national director of sound recordings for the American Federation of Television and Radio Artists (AFTRA), doubts that the fallout will be so disastrous. She portrays the fees as modest and dismisses the apocalyptic predictions as scare tactics. "The big Webcasters and broadcasters who can easily afford these rates and who participated actively in CARP are trying to spin and misinform small Webcasters," she says.

Hardly, counters Paul Maloney, editor of Radio and Internet Newsletter, nicknamed RAIN, which opposes the fees as they're presently envisioned. In his view, the size of the levies and the wide array of documentation that Webcasters would be required to keep would silence most independent Internet stations and have the potential to turn a freewheeling medium into something every bit as restrictive and stultifying as old-school broadcasting.

"The record industry is looking to control Internet radio," Maloney says. "This could be their way of monopolizing a new revenue source."

The current crisis has been brewing since October 1998, when Congress passed the Digital Millennium Copyright Act (DMCA), a law that included a provision earmarking performance royalties for music companies (and, by extension, musicians) when copyrighted pieces were played over either Internet or satellite radio. This clause broke new ground in the U.S., where publishers receive compensation for regular or Internet radio broadcasts via fees collected by organizations like the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc. (BMI) -- but performers get jack.

"For years, Frank Sinatra complained that when 'My Way' was on the radio, Paul Anka [the song's composer] was making all the money," notes John Simson, executive director of SoundExchange, a nonprofit music-industry organization created to collect digital performance royalties. "So this is the first time in history the recording artists will receive what they should."

Not from terrestrial radio, they won't. Congress has shown no interest in forcing broadcast stations to fork over similar royalties, despite the fact that such enterprises are, on average, far more profitable than their Internet cousins and would be able to pay up without endangering their existence. One reason lawmakers treated digital media differently was the concern that Internet users could someday make perfect digital copies of songs streamed online (right now, the quality of such recordings might be on par with a tape made from FM radio). But they also concluded that performers receive a promotional benefit from conventional airplay that offsets the lack of royalties, whereas they don't get any bang for the buck from streaming. As AFTRA's Chaitovitz puts it, "CARP didn't find any evidence of a marketing or advertising effect with Webcasting."

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