Internet radio: 'New song royalties will kill us'

US-based Internet radio stations are mobilizing in the wake of a potentially costly new royalty fee structure approved earlier this week by the Copyright Royalty Board (CRB).

The board decided Monday that commercial Internet radio stations, regardless of their size, will pay a new, higher flat fee to the record labels each time a song is played. The increase applies to songs played in 2007, and retroactively for 2006 at a slightly lower rate. As it stands now, the rates will go into effect in about a month.

"The CRB's ill informed decision to increase royalty fees to this unjustifiable level will quite simply bankrupt most webcasters and destroy Internet radio," says the Net radio stations' newly formed coalition, SaveNetRadio.org . SaveNetRadio says the move will increase its member stations' rates between 300 percent and 1200 percent, depending on the station's size.

Stations fear fees too onerous

Internet radio isn't a very lucrative affair to begin with, and the fee increase will put many out of business, the stations say. Their royalty payments, they complain, will exceed their revenues.

"It makes our business financially unviable," says Tim Westergren, founder of the Internet radio station Pandora . Westergren estimates that his company will end up paying out about 60 percent of its revenues in royalty fees once the new rates kick in.

Westergren says his company is funded by venture capital firms and has yet to reach profitability. He says that getting Pandora into the black wouldn't be easy even with the existing royalty fee structure. With the higher rates, he says, it might be impossible.

The Royalty Board has no understanding of the Net radio business, Westergren says. "The ruling was a flat per-song rate, and it's set at a level that makes recouping that and building a business on it impossible."

Another Net radio broadcaster, KCRW in Santa Monica, estimates that, with the new rates, it will pay US$140,000 in copyright royalties for 2006, and $190,000 for 2007 (based on the station's January 2007 traffic levels).

Since KCRW is a public radio station that does both terrestrial and Internet broadcasting, the new royalties aren't likely to kill it. But it'll hurt. "It's going to cost us money that we didn't plan for," says KCRW station manager Ruth Seymour. "We will be paying for each song every time it's heard by one listener."

Payment plans

Seymour explains that the Internet radio stations appealed to the Royalty Board to adopt a system that exacts royalties that are at least partially based on the revenues of the stations. But, she says, under the influence of the record labels, the board refused.

SoundExchange , the organization that collects Internet radio royalties for the record labels, says the radio stations have had it pretty good. John Simson, the organization's executive director, says the station's royalty payments have not increased since 1998, and that the stations knew proceedings to increase the rates were going on.

Simson acknowledges that the new rates will make it tough for some. "I think there are a lot of stories being told under one banner here," Simson says. "I think there are services that can easily afford the rates, and then there are some services that will struggle with those new rates."

Simson makes it clear that his side is willing to negotiate. "We're interested in discussing business solutions with them, but right now they only seem interested in making noise," he says. Asked what he means by "business solutions," he replies: "I'm talking about sitting down with them and saying 'Okay, let's see if we can reach a business deal that will work for both sides."

Meanwhile, the radio stations say they will follow a two-pronged strategy to prevent the new rates from taking effect. SaveNetRadio says it will take its case to an appeals court in the District of Columbia. It is also soliciting federal lawmakers to introduce a bill in Congress that would block the rate increase.

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Mark Sullivan

PC World

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