Get ready to kiss your favorite online radio station goodbye. On May 15, webcasters will owe their first royalty payments under new rates recently upheld by the Copyright Royalty Board -- a payment that will bankrupt many of them.
With the May 15 date looming, there's little hope for the webcasters of such popular sites as Pandora or Last.FM. Unless Congress intervenes or webcasters win a long-shot appeal, execs from both services will be writing royalty checks that are actually greater than the value of their companies. (The money goes to SoundExchange, an RIAA spin-off created by the music labels to collect and distribute the licensing fees.)
The Copyright Review Board says it will not extend the May 15 deadline, so pressure is mounting on webcasters to find a way to overturn the board's decision before then.
Jon Potter, executive director of DiMA, a trade organziation that represents webcasters, says it will appeal and file an emergency stay in the U.S. Court of Appeal for the D.C. Circuit. Non-DiMA associated webcasters, such as NPR and Clear Channel, are also expected to appeal.
These plans aside, webcasters' best chance for survival is Congressional intervention. A bill currently making the rounds on Capitol Hill called The Internet Radio Equality Act would save webcasters by allowing them to pay 7.5 percent of their revenue -- as satellite radio services do -- rather than the per-song-per-listener fee (up to 20 percent) demanded by the Copyright Royalty Board.
Washington is apparently getting the message that the 50 to 70 million online radio listeners in the U.S. (as estimated by Bridge Ratings & Research) want to keep webcasters around. The bill has already gathered 25 co-sponsors in the House; if it passes there, the Senate will have to pass it too by May 15th -- a tight, though not impossible timeline.
The Internet Radio Equality Act also keeps the rate increase simple. Without it, the new rates, announced in March and set by SoundExchange, require webcasters to figure payment for each song streamed to a user. For an online radio station with an average of 1,000 listeners, that adds up to more than $110,000 for 2006, according to the Radio and Internet Newsletter. The rates will continue to increase each year until 2010.
"The new royalty rates are irrationally high," says Tim Westergren, CEO of Pandora, which streams thousands of channels to more than 6 million listeners. "(They're) more than four times what satellite radio pays and broadcast radio doesn't pay these at all. Left unchanged, these new royalties will kill every Internet radio site, including Pandora."
Smaller webcasters, including nonprofits like schools and one-person operations, don't fare much better: There's a $6,000 annual minimum fee for both commercial and non-commercial channels, regardless of the number of listeners or songs played.
Faced with the new fees, webcasters are now contemplating charging subscriptions or running more advertisements.
Martin Stiksel, a founder of Last.FM, says most webcasters would need to charge listeners $5 per month to cover the royalty fees.
Five bucks may not seem like a lot, but Stiksel worries that Last.FM or other online music stations will have a tough time convincing listeners to pay -- at least initially.
Stiksel says webcasters that play fair will be crushed, as listeners seek out pirate webcasters, their friends' hard drives and P2P downloading sources.
"By hiking up the rates so much, they're punishing people for doing the right thing" he says.
SoundExchange, working under auspices of the Digital Performance Right in Sound Recordings Act of 1995, has been pressing for these rates since 2005 (PDF).
Recently, though, the organization has gone on record saying that the death of internet radio might not be the best thing for music.
Each day until May 15, Wired News' Listening Post blog will highlight a different online radio station that will be severely impacted by the rates (starting with KEXP). In the meantime, vote for which online radio station you'll miss the most if webcasters are forced out of business.
