The imminent death of Internet radio

New royalty rates are illogical, irrational and gouging

On March 2 the Copyright Royalty Board decided to raise the royalty rates for Internet radio stations. My goal this week is to get U.S. readers fired up enough to sign a petition and write to their member of Congress, and demand that this decision be reconsidered in a rational and fair manner, because neither of those attributes have much to do with the current adjudication.

Here's the story: The Copyright Royalty Board (CRB) is part of the Library of Congress and consists of a panel of three judges who came to the conclusion that the rates paid by Internet broadcasters were too low. As a result, the CRB hiked the royalties to levels that can only be described as illogical, irrational, gouging and suspicious.

I must make a slight digression here and note that the CRB's site is a sad excuse for public service. Not only is it light on content; it also is inexcusably incomplete: Check out the site sections "Governing Laws" and "Background Information and Website Use" -- they return pages that state "Coming soon!" dated 19-Aug-2005!

This means that on the CRB's site you can't, for example, find out anything about who the CRB judges are; I found the information on the U.S. Copyright Office's Web site.

Anyway, back to the new royalty rates. The rates are illogical because the factors the royalties are based on make no sense; irrational because the new rates will put a huge burden on Internet broadcasters, which will guarantee that many of them go out of business; gouging because the new rates are not only retroactive but also work out to about 400 percent of what regular AM and FM broadcasters pay; and suspicious because the CRB has very obviously sided with the viewpoint of SoundExchange.

SoundExchange is a royalty-collection organization that has on its board: Cary Sherman, president of the Recording Industry Association of America, an organization with a history of bullying and dubious money-grubbing tactics; representatives of the major labels, EMI Music Group, Sony BMG Music Entertainment, Universal Music Group and Warner Music Group; and a handful of independent labels and various other industry groups with axes to grind.

Now it must be said that SoundExchange's stated mission is laudable - it is trying to get artists compensated fairly for their work. But what it has done with this crucial case is support a set of incredibly faulty assertions, which makes its motives look very questionable.

According to Paul Maloney of Save the Streams, an organization campaigning against the CRB's decision, judges of the royalty issue are instructed to make their decision based on the facts of the case and not consider the impact on industries affected by any changes. While this may be the traditional method of dealing with these decisions, in this case the method is neither fair nor sensible.

One of the best analyses of how illogical the arguments for the new royalties are and how unfair the situation will be can be found on BetaNews , which notes that, "At the projected 2010 rate, streaming radio providers would provide SoundExchange with US$2.3 billion in revenue. That's almost exactly 400 percent of the calculated cumulative total for [Performing Rights Organizations'] royalties to be collected during that same year - and keep in mind, radio stations with Internet services would owe both fees."

So, here's the deal: It's up to you. Do you want SoundExchange and the RIAA to bleed the life out of Internet radio, or do you want to see a level playing field? If you don't make your voice heard, even the stations that are both regular and Internet broadcasters could disappear from the online world. Sign the petition today!

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Mark Gibbs

Network World
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