Between 2004 and January 2006, when the federal royalty law governing internet radio expired, Rutherford paid about $60 a month in royalty fees. But if a new internet-radio royalty structure takes effect, as scheduled, on July 15, Rutherford estimates that he’ll suddenly owe at least $60,000 in royalty payments to SoundExchange, the music industry’s royalty-collection arm. That would force him to automatically shut down his station.
Rutherford’s predicament is shared by many webcasters, who see the hourglass filling with sand and hope for an 11th-hour reprieve from massive debts that they can’t hope to pay. To be sure, there has been a flurry of internet-radio activism in recent weeks. On June 26, webcasters around the country joined in a “Day of Silence” to protest the new rates, which were announced by the Copyright Royalty Board on March 2. Bills in support of internet radio have been introduced in both houses of Congress and the CRB’s ruling is pending consideration in the U.S. Circuit Court of Appeals. Last month, the House’s Small Business Committee held a hearing to allow supporters and opponents of the new royalty rates to vent their concerns.
The hearing was fascinating because it revealed a deep split among artists and demonstrated that both record labels and internet stations choose to casts themselves as Davids being manhandled by a ruthless Goliath. Tom Silverman, founder of the pioneering hip-hop label Tommy Boy, described most record-label executives as small-business people struggling to meet payroll and working feverishly to promote their product. He argued that internet radio’s crusade against royalty hikes is being driven by wealthy corporate webcasters such as Clear Channel, Yahoo, and AOL.
To webcasters such as Rutherford, who see themselves as passionate amateurs eager to spread the word about their favorite musical genre, Silverman was turning the issue upside-down. In their minds, the corporate greed is coming from record labels desperate to compensate for their own dwindling record sales by squeezing every nickel out of small-time internet radio stations.
The air of industry defeat that hung in the air at the Congressional hearing was almost enough to make one long for the bad old days of payola, when the music industry was so vigorous, and labels were so sure that radio airplay boosted their sales, label execs were willing to part (under the table) with huge sums of money to get their artists played.
This quaint old assumption — that radio stations were doing labels a favor by playing their records — drove royalty law for decades. Since the 1950s, radio stations have paid artist royalties (which go to songwriters and publishers), but not sound-recording royalties (which go to the performers on the record). If a radio station was promoting your record on the air, so the argument went, it made no sense to saddle that station with a fee for this free promotion.
These days, with album sales down more than 25 percent over the last seven years, record labels don’t know who their friends are anymore. Is digital downloading spurring interest in alternative forms of music or killing the album as a viable format? Are cutting-edge radio options (satellite and internet radio) and music-subscription services (such as Rhapsody) destroying the will to purchase music, or creating a more product-hungry populace?
The old internet royalty system charged stations a percentage of their revenue, an approach that protected smaller webcasters from the specter of exorbitant fees. The CRB’s new plan, crafted with the blessing of SoundExchange, includes a $500-per-channel administrative fee for all webcasters, a dicey proposition for webcasters such as Pandora, which allows each of its 6.5 million listeners to create their own, customized channels. The notion that Pandora and other multi-channel webcasters could be billed for millions of separate administrative fees created convulsions in the industry. SoundExchange recently agreed to deal with this problem by suggesting a $2,500 annual cap per station, although webcasters have complained that SoundExchange’s proposal would only extend to 2008.
The more fundamental source of conflict, however, has to do with CRB’s plan to charge webcasters with performance royalties on a per-song, per-listener basis, with an escalating scale that will reach .19 cents per song, per listener in 2010. If you play 100 songs a day and reach 1,000 listeners, you’re looking at performance royalties of more than $70,000 a year. That’s bitter medicine for webcasters, particularly when their terrestrial-radio peers are spared from having to pay any performance-based royalties.
So why were webcasters singled out on this issue?
“I think the best way to characterize that is that it’s a late fee,” says Jake Ward, spokesperson for Savenetradio.org, a coalition of webcasters that formed in April to protest the CRB’s decision. “Coming to the ballpark late, you get an added fee. Satellite radio was first, so it gets a percentage of revenues deal. Internet radio came later, so it’s getting the lion’s share, percentage-wise anyway, of recording royalty rates.”
Ward argues that the structure of the performance-royalty ruling will not only add the administrative burden of forcing webcasters to count how many listeners heard each song, it will lead to a “a cost-prohibitive point where you’re losing money to play music.”
Richard Ades, spokesperson for SoundExchange, acknowledges that if performance royalties are applied to webcasters, they should also be levied on terrestrial stations. But he sees a blatant disregard for artist rights behind SaveNetRadio’s protestations.
“The important question to be asked is why do webcasters feel that artists and creators of music should not be paid adequately for the product upon which they’re building their businesses,” Ades says. “They have a piece of legislation on Capitol Hill that not only vacates the CRB decision, but rolls back the old rates by 70 percent. The effect of that is a $100-million windfall for big corporate webcasters.”
With the July 15 deadline looming, and internet-radio owners scrambling for cover, the bigger question might be: Will artists be better off with low royalty rates from a healthy internet-radio market, or high royalty rates from a decimated internet-radio market?
For Phanie Diaz, drummer for San Antonio indie-rock trio Girl in a Coma, the choice is obvious.“I think it’s important to be able to get played,” Diaz says. “That’s the reason we’re in it. It’s not about the paycheck, it’s more about the history books. So we’re all about getting our stuff in the record shops and our stuff on the air, as opposed to jacking up prices.”
| RADIO BY THE NUMBERS:
785.1 million — Number of albums purchased by U.S. consumers in 2000
588.2 million — Number of albums purchased by U.S. consumers in 2006
57 million — Estimated number of weekly listeners to internet radio
$.19 — Performance royalty rate that internet stations will pay in 2010
$20 billion — Amount of revenue generated annually by terrestrial radio stations
$0 — Amount of performance royalties paid annually by terrestrial radio stations
$500 — New per-channel administrative fee that will be imposed on internet stations
300 — Number of channels provided by AccuRadio internet radio station
$150,000 — Estimated administrative fee faced by AccuRadio
$40,000 — Estimated amount of CD sales generated per month by AccuRadio