The royalty fees that will soon have to be paid by radio stations and others that stream music have already knocked a number of broadcasters off the Internet. But KPIG(FM) Freedom, Calif., the first commercial broadcaster to be heard on the Internet in 1995, is using Real Network's just introduced RealOne Radio Pass as a way to bring the music back to listeners.
"About a month ago, we made the hard decision that we could not afford the free stream due to the imposition of copyright fees by the U.S. copyright office," said "Wild Bill" Goldsmith, KPIG disk jockey at RealNetworks' press event introducing the new service.
That led to the station's making the difficult decision to stop free streaming. However, said Goldsmith, "we had an outpouring of complaints and started looking for ways to bring it back online."
Enter RealNetworks' latest product, Radio Pass, which debuted last week. Listeners can pay $5.95 a month for an à la carte service that offers 50 commercial-free, genre-specific channels as well as access to streams from what RealNetworks calls "premium stations." RealOne SuperPass subscribers can access it as part of a monthly $9.95 package that includes video and downloads.
KPIG is the first of what could be a quickly growing list. Royalties of 0.07 cents per song per listener have many Internet radio stations and traditional radio stations that stream wondering how they'll survive the financial burden. Laura Hopper, KPIG program and music director, says that the royalties for the station would have been upwards of $4,000 a month. If a station faces similar fees that are grandfathered back to 1998, those costs could be upwards of $120,000.
"RealNetworks is going to handle all the fees for us, include ASCAP and BMI, so that's very cool for us," says Hopper.
RealNetworks CEO Rob Glaser is optimistic that a large number of other radio stations could soon follow KPIG's lead. He won't give specifics, but discussions with the company make it clear that he expects it to be very popular with radio stations.
RealNetworks President Larry Jacobson believes Radio Pass will spark interest among the large radio-station groups. The radio partners, like RealNetworks video partners, will be paid under a model similar to the way content providers are paid by cable operators. "Someone like CBS has never been a big investor in new-media delivery as a group," he says, "but now, with subscription potential, there may be renewed interest from the groups."
Subscription royalties have yet to be ironed out, but Jacobson says RealNetworks will plan accordingly once they have been.
The negotiations for subscription-related royalties have yet to enter the nitty-gritty phase, but a number of companies will be involved. RealNetworks, MusicMatch, Yahoo, Full Audio and Listen.com most likely will eventually negotiate together with the RIAA.
"Royalties will be paid," says RealNetworks Vice President, Public Policy, Alex Alben, "and it's probably more likely that any royalty would be a percentage of revenue. That makes more sense for a subscription."
A percentage of revenue isn't totally uncharted territory. Three years ago, cable music providers like Music Choice had to figure out similar royalty issues. That agreement was 6.5% of revenues.
Paul Maloney, an editor with Radio and Internet Newsletter
(RAIN), says the Internet Radio Fairness Act, which would give an exemption to small Webcasters with revenues less than $6 million per year, will help keep stations on the Net, if it's passed.
Maloney expects hundreds of stations to go off the air as of Oct. 20, primarily because of the retroactive fees. But both he and Jacobson believe the fees could and should be changed.
"I hope the other rates will be revisited simply because the public-policy intent is very different from what has happened," says Jacobson. "And if Congress recognizes that and cares about diversity of viewpoints, music and information, the Internet is a place to do that."