Webcasters and Rising Royalty Fees: Paying the Price for Innovation?

Sunday, March 18, 2007

At Contemporary-classical.com, Adrian Koren plays music that most folks don't want to hear. But for those who relish exploring the classical works of the past century, Koren's Web radio station is a godsend.

For just the $300 a year he pays Live365.com for bandwidth and music licensing, the Massachusetts software developer can share his beloved music with people around the world.

For more than three years, Koren has led listeners -- a few dozen at a time -- to new discoveries, a process repeated tens of thousands of times on Web stations based in bedrooms, basements and attics. But a new ruling from the U.S. Copyright Royalty Board -- an arm of the Library of Congress charged with determining how much radio stations must pay artists and record labels for songs they play -- threatens to silence many, and perhaps most, webcasters.

"I run this as a hobby," Koren says. "I get virtually no income from this -- just some small fees from my share of CDs sold through links on the site, and that just helps pay for a few CDs. Copyright law should encourage innovation. If it's having the opposite effect, something's wrong."

That's not how the feds or the recording industry sees it.

The Royalty Board's decision to more than double the fees that webcasters pay to play recorded music might seem unfair to mom-and-pop Web radio operators -- and to many of Web radio's 50 million listeners -- but it's about time artists got their share of the money that radio rakes in, says John Simson. He is executive director of SoundExchange, the D.C.-based organization that collects and distributes royalties, half to artists and half to record labels.

The heyday of advertising-free Internet radio might be coming to an end. Simson says small operators who play music and don't try to sell ads "will have a hard time paying the rate" -- a change about which he's not shedding tears.

"The attitude that really has to change is the idea that the people playing this music on the Web are somehow doing artists a favor," Simson says. Artists want their music to be heard, of course, and the industry likes the concept of Web radio, but Simson rejects the popular notion that the only thing small webcasters owe artists is the exposure they get from having their work streamed over the Internet.

Web stations are ringing the alarm about their imperiled future. At LuxuriaMusic -- a California-based webcaster that offers an alluringly original blend of exotica, lounge, Space Age bachelor pad, bossa, Bollywood, Latin jazz and sophisticated rock -- an announcement is running a few times each hour accusing the recording industry of "attempting to shut down all Internet radio stations" unless they cough up "more money than the business could ever possibly make." The station warns that "only the very rich will be able to afford to broadcast on the Internet."

That might not be hugely far from the truth, and the organization that represents artists and their labels acknowledges that it sees merit in culling some of the many thousands of Web stations that sprang to life during the wide-open first years of broadband.

"Is 10,000 stations the right number?" asks Simson of SoundExchange, which sought the higher royalties. "Does having so many Web stations disperse the market so much that it hurts the artist? What's the right number of stations? Is it 5,000? Is it less? Are artists better off having hundreds of listeners on lots of little stations, or thousands of listeners on larger stations?"

But it's not just hobbyists who could be wiped out by the jump in royalty rates. Kurt Hanson, who writes the Radio and Internet Newsletter at Kurthanson.com, also runs AccuRadio, an online provider of 320 streams of music, ranging from Chinese pop to West Coast jazz. Last year Hanson paid $48,000 in music royalties, with 6 percent of his $400,000 in revenues going to ASCAP and BMI, the umbrella groups that collect fees for composers, and 12 percent of his revenue going to performers and record labels through SoundExchange.

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