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Tracey E.Schelmetic

[July 17, 2002]

Dot Com Commerce

By Tracey E. Schelmetic
Managing Editor, CUSTOMER INTER@CTION Solutions

Killing Web Radio For Fun And Profit

To anyone who reads this column regularly, it can be no secret that I find the Recording Industry Association of America's business practices even less palatable than I find protection rackets, guacamole or Britney Spears' last CD (wellall her CDs, really). So, once again, I turn to painting the RIAA the evil monster. The ironic part is this column has nothing to do with Napster, Kazaa or any other peer-to-peer file sharing concept.

It's about the impending death rattle of Web radio.

If you haven't been following the roller coaster ride of Web radio in the last couple of years, I'll fill you in. Broadband Internet access makes it possible to stream audio from a radio station anywhere in the world. I can listen to Radio Moscow, if I want, BBC 4 or a radio station in a distant state. Many traditional FM stations broadcast both traditionally and via the Internet. (Most of these stations are the few contemporary music radio stations in the U.S. that aren't owned by that purveyor of musical generica, Clear Channel Communications. If the station in your town plays the same five Rolling Stones, Beatles and Led Zeppelin songs ad nauseum, you've got yourself a station owned by Clear Channel, whose motto ought to be "Broadcasting For The Lowest Common Denominator of Musical Taste.")

In recent years, many exclusively online radio stations have popped up all over the world. The reason: it's very, very easy to set up and can be run by a single person with a modest amount of equipment. In the past, Web broadcasters were asked to pay only ASCAP, BMI and SESAC fees (like anyone who commercially broadcasts someone else's music). These fees were designed to compensate the writers of a particular song, and still do (traditional FM radio stations pay these fees, as well). The amount of money is negligible and affordable, even for a small Web radio operation. Historically, FM radio stations do not pay royalties to record companies, since the air play of songs is perceived to be a boon to the companies in the form of free publicity.

Problem is, there isn't room for the record companies' big, greedy fingers in that small royalty pie made by Web radio.

What does the recording industry do when someone threatens to listen to a song that isn't in their Top 50 pop cash generator machine? They invoke the holy Digital Millennium Copyright Act (DMCA), of course.

The DMCA, passed by Congress in 1998, ensures that record companies receive money whenever songs that are under their copyright umbrellas are played in a digital medium. Why are digital media so picked on? Because the record companies are nervous about digital deliverythe perception being that anything digital is a "perfect copy" of a song. If you have a perfect copy of a song with no degradation in quality, you'll never want to buy the CD, right?

Yeah, sure. In the same way movie executives were convinced, in the 1970s, that if people had VCRs, they would never go to the movies again.

Though the DMCA guaranteed automatic licenses to Web radio operators, it did specify that some level of royalty would need to be paid for broadcasting those "perfect copies" (though Webcasters point out, to no avail, that the compressed format of the music during streaming produces something of a lesser quality than a perfect digital copy of a CD). Webcasters were prepared to pay 3 percent of their revenues to the record companies (the same percentage songwriters get); the recording industry wanted 15 percent (they need the money to pay their way out of contracts with the next generation of shoe-throwing Super Divas with under-performing albums).

In order to negotiate the discrepancy, the U.S. Copyright Office called for the formation of a Copyright Arbitration Royalty Panel (CARP) to determine a fair rate. The ruling, in February of this year, settled on 14 cents per song, per listener, retroactive to October 1998 (the date of the passing of the DMCA).

To keep us from having to do all that math, Rusty Hodge, general manager of popular Webcaster SomaFM, in an interview with Salon.com, estimated the cost to a Web radio provider at $350,000 per year. That figure doesn't even take into consideration the retroactive fees due. By calculating the rate per song, rather than a percentage of Webcasters' revenue, the ruling is guaranteed (and was probably designed) to put most Web radio operators out of business. (Right about now, I'm not sure if most U.S. Fortune 500 companies could afford an extra $350K going out the door per year, let alone Joe Schmoe's Alternative Folk-Rock Web Radio Station or Gert's Goth And Grunge Garage Webcast.)

A few stations have vowed to stay in business by Webcasting music from unknown, unsigned bands (which theoretically steps on no one's toes). If I may be cynical, though, I can imagine that the RIAA will try to find a way to pull the plug on this practice, as well. After all, if you're spending your time listening to an unsigned band, the record companies aren't making any money, are they? (Dammit, why aren't you listening to our pre-packaged drippy pop dreck? We paid good money for focus group research that guaranteed you should like this stuff!)

If you're interested in a little online activism, the group Save Internet Radio tracks the updates on Internet radio's progress through the mire of legitimate copyright law, red tape and record company greed.

The upside to this is that the harder the recording industry jams its thumb down on alternative delivery systems of music, the more creative, real music (which is nowhere in evidence among the big commercial recording companies' lists) will ooze out around the edges, available for free or low cost via Webcast, satellite radio and yes, peer-to-peer file sharing. Perhaps some year in the future we can look forward to wide-scale distribution of new and creative musical acts, without needing the recording industry at all.

It pleases me that this is the very thought that keeps record company executives and board members awake through the long hours of the night. Perhaps they can listen to a little Backstreet Boys to lull themselves to sleep.

The author may be contacted at tschelmetic@tmcnet.com.

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