Royalties could pull plug on Internet radio stations

Music: A plan for payment of rights fees threatens to wipe out many fledgling Web broadcasters.

April 28, 2002|By Michael Stroh | Michael Stroh,SUN STAFF

Nobody would ever mistake Gregor Markowitz for a music mogul, but the balding former Baltimore shipwright has pull in the industry just the same.

Each week, hundreds of listeners from around the world tune into his Internet radio station, Hober.com, run from a home-built studio in the Washington suburb of Takoma Park. Hober broadcasts all folk, all the time - enough back-porch banjo and fiddle, he says, to turn listeners "green with bluegrass."

It's not the kind of music found much on the airwaves these days. And for that reason, Markowitz regularly gets courted by small folk labels and hungry musicians eager to have their promotional CDs heard. Occasionally, some of the folk world's top draws, and even former members of the Grateful Dead, drop by to jam.

Yet despite the growing popularity of Internet radio, Hober, like many other fledgling Web broadcasters, may not be around much longer.

In the next weeks the U.S. Copyright Office must decide whether stations such as Hober should pay a newly proposed royalty on the music they play. The royalty, required under a 1998 copyright law, could cost some Web broadcasters thousands of dollars. Worried that they may be unable to foot the bill, some small online stations have started pulling the plug on their broadcasts.

At a time when stations playing classical, blues and folk are fast disappearing from the radio dial, the Internet has become a refuge for much of this non-Top 40 fare. In addition to traditional radio stations that broadcast online, thousands of Internet-only broadcasters have sprung up in the past few years, from Beethoven.com to Tundra Trash Radio. If these start to disappear, "it silences another set of diverse voices," says Eric Funk, a 35-year-old engineer who runs the station Cafe Eclectic from a spare bedroom of his home in Annapolis. His broadcasts attract listeners from as far as Japan.

Compared with traditional radio, the audience for Internet broadcasts remains small. More than 95 percent of Americans listen to the radio at least once a week, according to market researcher Arbitron, while just 9 percent listen to Internet radio in that same period. Still, that adds up to millions of online listeners. And as Internet radio gradually breaks free of the computer - Philips sells a bookshelf stereo with a built-in Internet radio tuner - audiences are expected to swell.

All radio stations pay royalties to composers through agencies such as ASCAP and BMI, fees that typically account for only a small percentage of a station's annual budget. At Hober.com, the fees are maybe a few hundred dollars a year, Markowitz says.

In 1998, though, the Digital Millennium Copyright Act required Web broadcasters to pay additional royalties to recording artists, fees that traditional radio stations haven't paid because they've successfully argued that airplay helps labels sell records.

Web broadcasters were given three years to work out the royalty rate with record labels. But when the two sides failed to agree, the Copyright Office appointed an arbitration panel to decide.

In February, the panel proposed that commercial Web broadcasters pay recording artists 0.14 cents per listener per song. Traditional radio stations that also broadcast online would pay half that rate. The Copyright Office must decide by May 21 whether to accept the royalty proposal.

While a fraction of a penny may not sound like much, "it can add up," says Bill Rose of Arbitron. In a recent letter sent to Congress opposing the proposed royalty, Arbitron calculated that if it were applied to one of New York City's top radio stations, the bill would come to roughly $15 million a year. In Hober's case, Markowitz estimates his annual royalty payments would exceed $18,000, or nearly a quarter of his annual expenses.

"Every time you get a new listener, it's a bigger loss," says Markowitz, 45, who restored skipjacks and built wooden canoes in Fells Point before getting into Internet broadcasting.

The royalty has left many Web broadcasters feeling cheated, especially because traditional radio stations have never had to pay them. Also, they argue that they help promote artists as much as traditional radio stations do.

The recording industry doesn't see it that way, however. "We weren't going to let the inequities of the past influence how we dealt with the digital world," says John Simson, executive director of SoundExchange, the organization created by the industry to distribute royalties collected from Web broadcasters.

Simson, a former musician who has also managed artists such as Mary Chapin Carpenter, says that if Web broadcasters don't like the new royalty, they're free to cut deals with music labels directly for the rights to songs. National Public Radio, he says, has done this.

Like others in the recording industry, Simson dismisses claims made by some Web broadcasters that the new royalty will bankrupt them. "They were going out of business long before they had to pay us anything," he says.

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