New fees a concern for radio via Web

Small stations face royalties obstacle

March 20, 2007|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Some mom-and-pop and public Internet radio stations are worried that new royalty fees could put them out of business or hinder the amount of music content they can afford to broadcast.

A decision this month by the Copyright Royalty Board, a three-member panel of judges under the Library of Congress, would significantly increase what radio companies pay to air music over the Internet.

The added fees, which are paid to both performers and their labels, could fundamentally change the burgeoning Internet radio industry. Some of the Internet offerings provide audio choices that likely would not be heard over the traditional airwaves because of niche demand. For example, there are Internet radio stations that offer folk music to indie rock to classical.

The Internet stations - many of which provide Web sites to augment their traditional radio broadcasts - argue that their businesses do not bring in enough revenue to cover the new costs. And several have vowed to fight the increased fees.

National Public Radio, which represents more than 800 stations, filed a motion yesterday for the case to be heard again. A spokeswoman said the radio company would also file an appeal of the royalty board's decision with the U.S. Court of Appeals in Washington.

"We're committed to taking a strong stance and getting this reversed," NPR spokeswoman Andi Sporkin said.

The Digital Media Association, whose members include America Online, Apple and Napster, also filed for a rehearing yesterday. And David D. Oxenford, an attorney with Washington firm Davis Wright Tremaine, also filed a motion for a rehearing on behalf of several small Internet radio broadcasters.

Supporters of the royalties say radio stations should pay for content that is being used to make money.

"They're using recordings to build a business and therefore they should pay for them," said John Simson, executive director of SoundExchange, which collects royalties from online radio stations and disseminates them to record labels and their artists.

"You pay for all components of the business," Simson said. "It's crazy that the biggest component of the business, which is the sound recording, wouldn't be paid for."

The ruling by the royalty board, which set rates that are retroactive, states that an Internet radio station would pay 8 cents for every 100 times a song was played last year. Rates for each 100 times a song is played would rise annually to 11 cents this year, 14 cents in 2008, 18 cents in 2009 and 19 cents in 2010.

A station that had 500 customers listening to 20 songs an hour would pay $11 an hour under this year's rate. For the year, the station would pay more than $96,000 for that song if it was played that many times an hour.

The ruling also set up a separate $500 charge for each Web channel a station has. The first payments for the new rates are due May 15.

Both online and over-the-air stations pay royalties to songwriters. But the broadcast industry has fended off royalties to performers for years, arguing that the publicity from radio play helped musicians' careers. That changed in 1995 when laws were passed requiring Internet, satellite and cable radio stations to pay performers as well as songwriters. The money goes to the performer and the label, which usually owns the song.

Before the March 2 ruling by the royalty board, Internet radio stations paid 10 percent of their revenue in royalty fees under a deal negotiated in 2002, Oxenford said.

"I don't think they're opposed to paying royalties if they're reasonable royalties," Oxenford said. "These are not reasonable royalties. Virtually every one of these folks have computed their royalties under the new rates to exceed 100 percent of their revenues."

Public radio stations said they play a role in showcasing musicians on the Internet who don't get airtime on mainstream radio. They argue there will be less money to do this under the new rules. The stations also said they believe they are being held to the same standards as large mainstream stations with more revenue.

"We're analyzing the statistics now," said Steve Yasko, station manager for Towson University's WTMD-FM, which has an Internet station. "We're not sure what it will amount to, but we are nervous and concerned it could mean the end of streaming WTMD on the Internet."

University of Pennsylvania's WXPN said it will find a way to stay in business even with the fees. It expects to pay $1 million in the first year.

"It's not a good thing for the culture," said Bruce Warren, WXPN program director. "Artists have a hard time getting their music played on [mainstream stations]. All these Internet companies offer opportunities to those artists who wouldn't normally get the airplay they deserve."

Larger broadcasters also say the royalties could hurt the growth of the Internet radio industry. Broadcasters are still trying to figure out how to make money from the Internet. The advertising model used in traditional radio hasn't yet been lucrative for radio companies.

"If this stands, it has the potential to cripple an infant technology," said Dennis Wharton, a spokesman for the National Association of Broadcasters.

andrea.walker@baltsun.com

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