Web radio rate set

Stations, Webcasters must pay, but some may not play

Radio stations' signals may no longer be available over the Internet after a ruling last week that requires stations and Webcasters to pay record companies new royalty fees for each streamed work they play.

"The ruling may have the effect of unintended consequences in that many radio broadcasters may reevaluate their streaming strategies," said Eddie Fritts, president of the National Association of Broadcasters. "If the powerful record-company interests' goal was to strangle a fledgling new service to radio listeners, it may have succeeded beyond its own expectations."

Says Steven Newberry, president and CEO of Commonwealth Broadcasting in Glasgow, Ky., "It is going to make it very difficult, particularly in my size markets, to find any way that the economic model will make sense." Commonwealth owns 24 radio stations in rural Kentucky.

Many larger radio conglomerates, such as Clear Channel, curtailed streaming over the past year while awaiting the outcome of this decision, which is retroactive to October 1998.

The ruling by a three-judge arbitration panel, assigned by the U.S. Copyright Office, would require commercial radio stations and Webcasters to pay 0.07 cents per performance per listener of any work or song simulcast over the Internet as part of a traditional radio broadcast. The ruling would require radio stations and Webcasters to pay twice that amount—0.14 cents per performance—for any work Webcast without an accompanying radio transmission. They also would have to pay another 9% of those fees to cover "ephemeral recordings," which are the copies computers make of digital products as they are streamed over networks and through servers, and a basic $500 fee for the license.

That means the cost to radio stations to simulcast one song over the Internet to 10,000 listeners would be $7. Multiply that by 20 songs an hour, 24 hours a day, for example, and radio stations could be paying out $3,360 a day to stream their signals, plus the additional 9%.

Noncommercial broadcasters would pay lower fees—0.02 cents per performance per listener of a copyrighted work and 0.05 cents for non-simultaneous Internet transmissions—but would still be required to pay 9% of their license fees to cover ephemeral recordings.

The fees are about 10 times more than radio broadcasters and Webcasters had suggested (around 0.015 cents per song) but much less than record companies wanted (close to 0.4 cents per song). The panel's decision offers a compromise that neither side likes.

"We would have preferred a higher rate. But the panel clearly concluded that the Webcasters' proposal was unreasonably low and not credible," said Hilary Rosen, president of the Recording Industry Association of America.

"We are pleased that the arbitration panel has recommended royalty rates for Internet radio broadcasting and that its recommendation is much closer to the royalty rate proposed by the Webcast industry than was proposed by the recording industry," says Jonathan Potter, executive director of the Digital Media Association. "We are extremely disappointed, however, that the panel's proposed rate is not significantly lower, as a lower rate would more accurately reflect the marketplace for music-performance rights and the uncertain business environment of the Webcast industry."

The new fees are on top of royalty fees radio stations already pay to music publishers ASCAP and BMI, which amounts to some $300 million a year. Radio stations don't pay royalties to record companies because the two have traditionally recognized it as a trade of content for the promotional value of airing the song. That concept does not appear to hold for radio Webcasts.

Radio broadcasters and Webcasters can still challenge the decision, which the U.S. Copyright Office must adopt and the Librarian of Congress must sign before it becomes official. Once that happens, they will have to take their appeal to Congress and/or to the courts.