Trouble for Net Radio

I’ve been half following with some interest the ruling of the (US) Copyright Royalty Board last week that dramatically (and retroactively) upped the royalties to be paid on performances (ie plays) of songs on web radio. I found this Wall Street Journal article by Jason Fry on the subject particularly helpful. In short, net radio operators are worried:

Kurt Hanson, founder of online radio company Accuradio, told my print colleague Sarah McBride that he estimated the new rules would raise Accuradio’s royalty payments to about $600,000 — more than Accuradio’s 2006 revenue — from about $50,000. And he warns others face similarly tough math, arguing that even well-run Net-radio stations would see performance royalties eat up all their annual revenue — and that’s before the need to pay royalties to composers. [...]

“Left unchanged, these rates will end Internet radio,” co-founder Tim Westergren warned on Pandora’s blog.

Some speculation I read suggested that this will be the death of (US based) Pandora and the heyday of, which is based in England, but another article quoted Martin Stiksel, co-founder of expressing concern at what it might mean for their ability to stream in the American market. Says Fry:

it makes more sense to view what’s happening now as hardball negotiating than as an endgame. Besides the possibility of striking a deal, Webcasters can appeal, and Internet-radio fans are signing petitions and writing letters to their representatives.

And then he goes into a delicous rant about the real problem:

A brief recap: The Digital Millennium Copyright Act of 1998, building on 1995’s Digital Performance Rights in Sounds Recordings Act, said Net-radio firms had to pay performance royalties on songs played in addition to composer royalties on those songs. Terrestrial radio stations pay composer royalties, but they don’t pay performance royalties, under the long-established rationale that record labels benefit from the promotional value of songs played on the radio.

So if a Clear Channel radio station plays that new Fergie song over the air, it doesn’t pay a performance royalty — but if it streams Fergie over the Net (or satellite radio), it does. Make sense to you?

Of course not — because that makes no sense whatsoever. Treating the two as different is missing the radio forest for the Internet trees; in a sane world, lawmakers would treat radio as radio, regardless of how it’s delivered. [...] Yes, there are technological differences between terrestrial radio and Net radio, notably the ability to guide what’s played, skip songs and keep track of what I like. But those differences seem to work to the advantage of artists and record labels: With Net radio, I’m more likely to hear songs I like, bookmark them and buy them. One listener’s experiences aren’t necessarily grounds for extrapolation, but this bargain seems like a pretty good deal for the recording industry, one it ought to be careful about altering.

To suggest that web radio is not doing as much to promote artists as terrestrial radio is just silly. In the future people will look back and laugh that there ever was a terrestrial/web distinction made (and they may even laugh at the concept of “record companies”). But in the meantime, if you’re an American fan of web radio, this might be a good time to call your congressperson.

(And tell them to end this war while you’re at it.)

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