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Webcasters and Rising Royalty Fees: Paying the Price for Innovation?
Under the new royalties scheme, Hanson says he will owe $600,000 a year, vastly more than his total revenue. "We would literally be bankrupted," the Chicago-based webcaster says.
Hanson has concluded that even some of the most popular webcasters might conclude that there's no profit to be had in Internet radio. Pandora.com, the popular, innovative service that lets each listener create a personal radio station based on a recommendation engine (such as Amazon.com's suggested-reading software), would have to pay $500 for each listener's station -- a cost that would drive the company out of business almost instantly.
  John Simson of SoundExchange defends the rate hike because "Web radio is growing exponentially." (Soundexchange) |
Hanson contends that AccuRadio, which reaches as many as about 20,000 listeners at a time during Internet radio's midday prime time (far more people have access to broadband at the office than at home), helps the music industry even without the new royalty rates. His stations, like most on the Web, go out of their way to promote music sales, selling about $40,000 worth of CDs per month via links to Amazon.com, displaying the names and covers of the discs being played, and streaming at a bandwidth low enough for decent listening quality but not high enough to substitute for owning the CD.
Simson isn't buying that. He says artists deserve to get their money straight up. "The music is why people come to these stations," he says. "Web radio is growing exponentially. These little stations develop a popular URL and then flip it and sell it for big money and the artists get nothing."
But there's no big money in a Web station such as Streamingsoundtracks.com, Eric Thornton's hobby. Thornton, a scientist for a pharmaceutical company in Richmond, has played movie soundtracks on the Web for five years, reaching about 200 listeners at a time. He struggles to break even, relying on listener donations to pay his bills for bandwidth and royalties. Thornton says he's "all for making artists as much money as possible," but the only choices he sees under the new rate structure are to base his station overseas or shut it down.
Message boards throughout the music-loving Web have been buzzing with protests and petitions against the new royalties, and Hanson believes that through an appeal, direct negotiations with the recording industry or congressional action, webcasters will win a reprieve from onerous royalties.
Simson pours water on those embers of hope. "This is the process the stations chose," he says. "It may be unfortunate, but they chose to litigate with this process."
Where webcasters and the recording industry do agree is on the unfairness of making tiny Web stations pay for performance rights while huge radio companies pay nothing. Congress decided that Web stations must pay royalties to the composers of each song and to the performers and record labels, even as traditional AM and FM broadcasters continue paying only the composers -- a quirk in the law that gives broadcast radio a huge advantage.
Simson agrees that "there's really no justification for broadcast radio not paying, and we're going to try to address that."
Making over-the-air broadcasters pay more wouldn't do much for Web stations that might be priced out of existence. "Internet radio is one of the few bright spots for the music industry," Hanson says. "Artists love Internet radio. Record companies are coming up with promotions for us. It's the trade association lawyers who are playing hardball."
Web radio was threatened with a big boost in royalties once before, in 2002. That time, Congress worked out a compromise that saved some stations, while others went dark. Will Congress step in again? The campaign for that to happen is already underway -- on Web radio.
