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Digital Dilemma

Mike Gorman

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 WarpRadio.com, 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 RadioValve.com, 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."

"This is a fledgling industry," adds Howard Michalski of radio.wazee (at www.wazee.org), 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."

 

To RadioValve's Fodel, this contention is "absolutely insane. On our site, if you hear a song you like, you can click and purchase it that minute -- so we're providing a high-value promotional vehicle to labels for free. They should be paying us."

Fat chance. After the passage of the DMCA, the U.S. Copyright Office asked record companies and streamers to settle on a fair royalty rate, but that proved difficult. According to RAIN's chronology of events, record companies suggested a number equal to around 15 percent of revenues, while Webcasters proposed 3 percent, or about what they were already paying for publishing royalties.

When this gap didn't narrow appreciably, the copyright office created CARP, which heard testimony during the summer and fall of 2001 from representatives of such music-industry powerhouses as the Recording Industry Association of America (RIAA). Representing the other side were folks with the Digital Music Association (DiMA), a group dominated by representatives of large Webcasting concerns such as AOL Time Warner, owner of mammoth MTVradio.com and fast-rising Spinner.com, and Clear Channel, nearly all of whose hundreds of broadcast stations simulcast on the Internet. The little guy's voice was seldom heard. "We filed with the copyright office to participate," says WarpRadio's Sutton, "but we were never contacted."

Finally, on February 20, CARP announced its decision -- and to the horror of smaller Webcasters in particular, the panel rejected a fee determined by a slice of revenue in favor of a royalty rate of .14 cents per song, per listener for Internet-only stations; .07 cents for standard radio simulcasts; and .02 cents for noncommercial radio simulcasts, with a minimum annual charge of $500 for non-commercial types. The fees would then be split, with 50 percent going to copyright holders (in most cases, record companies), 45 percent to the artist to whom the song is credited, and 5 percent to any background musicians or vocalists.

On the surface, these amounts may not sound terribly onerous, but they could add up quickly. For instance, if 1,000 people listened to fifteen songs an hour for 24 hours on an Internet-only station, the fee would be over $500 for that day alone. AFTRA's Chaitovitz thinks such examples are misleading, because "people don't listen to radio stations 24 hours a day," she says. But they do listen while they're at work: WarpRadio's data shows that peak listening hours are between 8 a.m. and 5 p.m. So if those same 1,000 people left their computers on an Internet station for three eight-hour shifts, $500 in charges would ring up.

Since radio.wazee's Michalski only pays around $800 in publishing royalties for an entire year, this amount would be the equivalent of a regressive tax. "Little ol' radio.wazee will be paying the same amount for each song that AOL will," he says.

To complicate matters further, stations will be required to keep extensive records dictated by the fees. Originally, RIAA wanted outlets to maintain a "listener log" that RAIN's Maloney says would have included "seven pieces of information for each listener who was listening to each song: their country of origin, when they logged on, when they logged off, the type of connection they had, the bit rate they were listening at, the time zone they were in, and more." After an outcry over an array of concerns, including user privacy, RIAA dropped the request and now is even considering reducing fees and other requirements for Web radio "hobbyists." But it's sticking with required information about each song: eighteen categories of data ranging from the song's name to the appropriate universal price code.

RadioValve's Fodel says finding the latter for each song his station plays would be impossible, because many of them are underground discs with white labels -- and getting the other information for every tune incorporated in, say, a DJ mix tape would be just as difficult. Additionally, the sheer amount of time required to enter all this data would be breathtaking, especially since the fees, and the required record keeping, are retroactive to the 1998 passage of the DMCA.

"We may have to add a new person just to manage this database and keep it up to date," says Jeremiah Hayes, outgoing music director for KVDU, the Internet station that serves the University of Denver. "And we might also have to limit the DJs to the music we've already got in the studio. We allow DJs to bring in their own music to personalize their shows, but if we have to have information on every single song, we'd have to put an end to that if we wanted to keep everything manageable."

 

KVDU doesn't have many listeners these days, which is why Hayes thinks the extra fees alone won't cause the station to pull its plug. But if the audience grows, the royalties could become overwhelming, creating a catch-22 situation that Joseph Heller could appreciate. "Getting more popular would be good and bad," Hayes says.

The industry's response to such worries is growing more nuanced with each passing day. RIAA's effort to characterize digital royalties as a fairness-and-justice issue has been seriously undermined by opponents who describe the association as a pimp for its notoriously greedy and money-hungry clients. (Although the music business is mired in a terrible slump, it's tough to feel sympathy when CDs retail for around $20 a pop, whereas blank discs purchased in packs of a hundred cost as little as 29 cents each.) Sounding gun-shy, RIAA spokesman Jonathan Lamy declined to comment for this column beyond noting that "some of the debate has not reflected the whole story."

To his credit, Simson, whose Sound-Exchange firm is essentially a branch of RIAA, isn't afraid to talk at length about the fees, which he thinks will help struggling independent artists. But he doesn't get misty at the thought of struggling stations going under after they've been saddled with royalty payments. "I'd love to see a lot of small Webcasters thriving, but if they can't commercially succeed as a true Webcaster, I don't know that there's anything we can do about it," he says.

"These rates had absolutely nothing to do with the stations that failed," echoes AFTRA's Chaitovitz. "And the stations that are left pay for their bandwidth; they pay for their employees; they pay their electric bill. But the most important part of their business -- the music -- they don't want to pay for."

Still, such a bill may not come due immediately even if the fee structure is approved as proposed. Web sites like www.saveinternetradio.org are calling on legislators to get involved, and last week, twenty members of Congress signed a letter asking librarian Billington to choose "a balanced approach for royalties" that won't "stifle an inchoate industry and force hundreds of small Webcasters out of business."

But without a miracle, RadioValve's Fodel believes the worst-case scenario will come to pass. "And if it does," he says, "everyone loses."

Efficiency, Denver Newspaper Agency-style: In a column a couple of months back, I synopsized a several-months-long battle to straighten out my home subscription to the Denver Post, as well as concurrent troubles with a Rocky Mountain News subscription at the school where my wife works. At the time of the piece's publication ("Caught in the Middle," March 7), everything had apparently been resolved, and Jim Nolan, spokesman for the Denver Newspaper Agency, assured me that these difficulties were "isolated incidents." But in the past week or so, I've received plenty of evidence to the contrary.

First came a call from a reader who described a predicament practically identical to mine: She paid for her paper, but it stopped coming, and the DNA's attempts to resolve the situation were regularly foiled by ineptitude. I suggested that she call Nolan, whose efforts on my behalf seemed helpful, and went on my merry way. Then, the following Monday, the Post failed to hit my driveway at the appointed time, and when I called to find out why, I was told that delivery had been stopped because the subscription had lapsed in January because of non-payment. Actually, my wife had renewed the subscription the previous November, and with extra weeks promised us due to prior gaffes, we were paid through winter 2003. But the receptionist wouldn't authorize delivery without a canceled check, which the DNA had lost twice before.

Fortunately, my wife had saved the number of the circulation supervisor at the Post, and her anger made such an impression on this manager that she said she'd restart the subscription immediately. Too bad the next day's paper didn't show up, either.

Meanwhile, back at the office, I received a letter from Colorado Springs resident Gene Edwards, a former News employee who'd taken an early-retirement offer in the wake of the joint operating agreement linking the Denver dailies. As it turns out, he was having problems of his own with the agency. "Since semi-retiring, I've made way over a hundred calls to Denver -- not to mention trips there -- to try to straighten out the unholy mess the DNA has made of my benefits," he wrote. "I have yet to receive anything close to a correct bill and accounting of my pension, Kaiser, and Cobra dental payments, and it took until April to get a 1099 with the right Social Security number on it. The DNA has only returned approximately one call out of four lo these many months. Yes, the buyout was fair -- but the organization remains totally disorganized."

 

Oh, yeah: When I called Edwards to ask for permission to quote from his letter, he told me that his position at the News had been in the customer-service department.

Afterward, I couldn't help wondering if there was any way to win in such a circumstance. But shortly thereafter, an e-mail arrived offering me, and all of us, a little hope. The author of the note, a friend of mine who shall remain nameless, reports that he'd been sent a bill to renew his Post subscription at $101.25 for 48 weeks. Knowing that new subscribers get a better deal, he called and tried to negotiate but was told to "pay up or get cut off."

He had a better idea: He phoned the DNA and started a new subscription ($73.80 for a full year) in the name of his dog. "I saved about forty bucks," he writes. "I figure by the time my wife, kids, dog and alligator all get subscriptions, I should get a fair price for the next six or seven years and then can start using my name again. Also, I'll soon find out how many times those assholes sell my personal information, since anything addressed to my dog will have come through their subscriber-information sales and sharing."

In other words, the DNA is going to the dogs -- and thank goodness. Fetch!


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