Internet Radio Royalties


June 28, 2002


BROOKE GLADSTONE: In Washington we saw the end of a 4 year dispute over an old medium poured into a new bottle -- radio on the internet. It centered on the amount of royalty payments on-line stations should pay for the songs they play, and it was up to the Copyright Arbitration Royalty Panel headed by the Librarian of Congress James Billington to find the formula. Here's what it is. Webcasters will pay .07 cents per song per listener, or 70 cents per song for every thousand listeners. That sounds pretty cheap, but is it cheap enough to ensure the survival of the bastion of democracy that is internet radio? Here to answer that question and a lot of others is Rick Karr who covers culture and media for NPR. Rick, welcome back to the show.

RICK KARR: It's great to be here, Brooke.

BROOKE GLADSTONE: So-- 70 cents per song for every thousand listeners. Is this considered a victory for webcasters or a defeat?

RICK KARR: I think it depends on what kind of webcaster you're talking about. If you're talking about a small webcaster -- somebody who's literally running a station out of the back room of his or her house -- somebody whose intention is to only snag a thousand or two thousand listeners playing a specific kind of music, it's clearly a defeat. They are not generating enough revenues to pay these royalties. If you're talking about larger webcasters, it's not a victory but it's not as bad as they thought it was going to be originally when this Arbitration Royalty Panel actually first made its proposal.

BROOKE GLADSTONE: Yeah, back in February they were proposing that they pay twice as much!

RICK KARR:Yeah, it was 14 hundredths of a cent per listener, per song. One of the things that the webcasters were upset about was that traditional broadcast radio stations only had to pay half the rate if they streamed on line.

BROOKE GLADSTONE: Half the rate.

BOB GARFIELD:Seven hundredths of a cent per listener, per song. And so what the librarian said is look - this distinction between broadcasters who also webcast and pure webcasters is arbitrary and silly; we're going to make everybody pay the lower rate of 7 hundredths of a cent per listener, per song.

BROOKE GLADSTONE: And currently that's what everybody who broadcasts or netcasts on line has to pay.

RICK KARR:Everybody except two kinds of broadcasters who also stream on line -- one is public broadcasting stations -- things that are part of the Corporation for Public Broadcasting's mandate. Those stations pay a much lower rate. That rate hasn't been made public. The other stations that get off a little more lightly are non-CPB, non-commercial stations, so in your town that might be a community radio station; it might be a college radio station--

BROOKE GLADSTONE: Or Pacifica?

RICK KARR: Pacifica Station as well. Right.

BROOKE GLADSTONE: So how is the recording industry going to be able to track all of these internet-only radio stations to make sure they pay up?

RICK KARR:Well they're going to be having to spend a lot of time on line listening for radio stations [LAUGHS] that are, that are streaming and make sure that they're up to date. One of the things that a lot of the smaller webcasters are upset about right now is the reporting requirements, the amount of data that they have to send in to this recording industry organization saying, you know, what the bar code number on the CD is - what its International Standard Library number is and a lot of small webcasters are saying we're, we're not going to be able to comply with this either!

BROOKE GLADSTONE:It seems to me the whole thing would have been simpler if the Library of Congress had settled on the system that both the webcasters and the recording industry seemed to prefer which was to have the payments based on a percentage of the station's annual income.

RICK KARR: Which is exactly what broadcast radio stations do, paying their royalties. This is kind of a long and convoluted story. Each side says that the other side backed away from what's called "the percentage of revenues model." Each side accuses the other of trying to get it pushed out of the proceeding. It's not really clear how that shook out. What is clear is that when the government has to set a rate of pay or a royalty rate, nobody is happy in the long run. The one good thing about this royalty that everyone seems to agree on is that half of it goes straight to musicians.

BROOKE GLADSTONE: So about 6 weeks from now when the 4 years of retroactive royalty payments are due, who is going to be left standing?

RICK KARR:It depends on whether or not 6 weeks from now this actually goes into effect. I mean there are an awful lot of people talking about lawsuits. In fact there has been one lawsuit filed already alleging that the decision was arbitrary and capricious. The parties all have time to appeal it. And finally an awful lot of people in the world of small webcasters and community broadcasters have been talking about civil disobedience, saying we're going to keep streaming. Come after us, recording industry and see what kind of public relations spin you get out of that.

BROOKE GLADSTONE: Why should we really care? How many people actually listen to on-line radio?

RICK KARR:Arbitron, the research company, has done some research on this, and I think it's somewhere in the range of 12 to 15 percent of Americans listen to internet radio at least once a week.

BROOKE GLADSTONE: But you think that this decision has broader implications than even that.

RICK KARR:Well, it about does, because if you go back to the Telecommunications Act of 1996 when radio broadcasting was deregulated, part of the legislative history of that bill was everyone was saying ah, the internet's going to take care of it; who cares if Clearchannel Communications comes along and buys 20 percent of all the radio stations in America? Because people will get diversity on the internet. Well, this decision really seems to be sort of at cross-purposes with that.

BROOKE GLADSTONE: It'll reduce diversity by pushing people out of business.

RICK KARR:Yeah! The idea that anybody can start broadcasting on the internet-- it's not that simple now. Now you need -- even with the minimum fees that have been set -- well over a thousand dollars in royalties just to get started.

BROOKE GLADSTONE: Rick, thank you very much.

RICK KARR: You're quite welcome, Brooke.

BROOKE GLADSTONE: Rick Karr covers culture and media for NPR.