Folks like Cornelius Gould. In 1999, he founded TheCityRadio.com, an adult alternative webcasting site, out of his small East Side apartment. Assisted only by a few friends and his tabby, he slowly built up a solid listenership, with TheCityRadio.com averaging an audience of 60,000 a month earlier this year. Gould -- and countless others like him -- had managed to take advantage of the one media outlet that's still open to most everyone: the Internet, that wild and woolly cache of nudie pics and Culture Club downloads that the broadcasting big boys haven't quite gotten under their thumbs yet.
Or have they? Click on TheCityRadio.com, and you'll see that it's no longer streaming -- hasn't been since late February. Why? Because if Gould were to continue operating his site, he'd likely incur more debt than Arthur Andersen could conceal. A new set of royalty rates aimed at compensating artists for songs played online threatens to commercialize Internet broadcasting by instituting exorbitant fees that only corporate heavyweights like AOL and Yahoo could afford. The forces behind these rates -- namely, the Recording Industry Association of America (RIAA), which first proposed performance royalties for webcasting -- claim they're fighting for artists' rights. But the exaggerated fees, combined with punitive accounting measures, make it clear that they're trying to stamp out Internet broadcasters, so that the major corporations can control webcasting in the same way they control radio.
In less than three weeks, the U.S. Copyright Office will respond to a proposal by the Copyright Arbitration Royalty Panel, a group that sets the rates by which artists and their record companies are paid for the airing of material online. The fees that CARP has concocted are so cost-prohibitive that Gould closed shop rather than risk having to pay them. For noncommercial traditional stations that stream online, the rate is .0002 cents per listener, per song; for commercial stations that stream, it's .0007 cents; and for online stations that strictly do webcasting, it's .0014 cents.
Doesn't sound like much? Do the math. Let's say Gould plays 10 songs an hour to a thousand people. Under the CARP proposals, he'd have to cough up around $350 a day and a staggering $123,000 a year. Plus, the fees are retroactive to the passage of the Digital Millennium Copyright Act of 1998. That means that, if the CARP recommendations are approved, Gould would owe around $350,000 up front, just to continue broadcasting past the May 21 deadline. Given that neither Gould nor virtually any other webcaster makes any money online, these fees are incapacitating.
"The amount that they're talking about is huge, even for a commercial station," says Gould. "If everything goes the way it is, I wouldn't be surprised if you saw [Internet radio] becoming very quiet very quickly."
Adds Michael J. Hilber, president/general manager of Clevelandhits.com: "I think if it goes through as is, it'll have a devastating effect on the entire industry."
So how did CARP arrive at the rates? It based its fees on the only significant deal struck between webcasters and record companies: Yahoo's pact with the RIAA after the Internet company's $5.7 billion purchase of Broadcast.com in 2000. At the time, Internet prospecting was at an all-time high, and Yahoo stock was worth about 10 times its current rate. Since then, scads of Internet start-ups have gone belly-up, and the market has thinned considerably.
"If Yahoo was to make a deal right now for a stream rebroadcast rate," says Bob Bellen, CEO of MP3Player.com and former general manager of WMMS, "I think it's pretty much a lead-pipe guarantee that it wouldn't be the number that they agreed to in 1999."
And yet this deal remains the measuring stick for performance royalties, which traditional broadcasters don't even have to pay. Why do cash-strapped webcasters have to pony up all this additional dough? Because, according to powerful music industry groups like the RIAA, online streaming offers a "perfect" digital broadcast of a song, unlike the analog signal of traditional radio; thus, it has the potential to hurt album sales.
Now, even if you look past the fact that you can't record a webcast, it's hard to agree with the RIAA's logic: Anyone who's ever listened to a song online -- static and all -- knows that such transmissions are hardly "perfect."
The CARP provisions also call for draconian accounting methods. More than 30 lines of information must be filled out for every song -- a time-consuming, overly elaborate process that pretty much requires that stations hire a full-time accountant.
Still, there are those who argue that the provisions are fair. Not surprisingly, the RIAA is even appealing the CARP proposals, claiming that the rates are too low.
"If you look at how these rates break down -- let's just look at the commercial webcaster -- basically you get 7,000 streams for 10 bucks, and I guess the question is 'What is the monetary value?'" asks John Simson, executive director of Soundexchange, the company that collects performance royalties and distributes them to artists. "Pressplay and Musicnet were getting killed because they were giving you a hundred downloads for $14.95 a month. Here, someone has 7,000 streams and they're paying $10 for it, so it seems to me to be a pretty decent value."
Moreover, backers of a performance royalty are quick to point out that the rates are less costly than many of the expenses involved in webcasting. Webcasters don't get a break on rent or utilities, so why should they receive a free ride when it comes to the music?
"They pay their employees, they pay for their bandwidth, they pay their electric bill; well, the sound recordings are the most important part," says Ann Chaitowitz from the American Federation of Television and Radio Artists. "They don't want to compensate the artists for using their creative work, and they've built their business on this work."
The Internet could provide a solid source of income for the musicians who need it most -- the underground, eclectic artists who have little chance of ever getting played on commercial radio. But for a burgeoning medium that has yet to find a route to profitability, these fees could sound a death knell before webcasting even gets its legs. The big losers: the struggling artists.
"Internet radio is a fledgling industry, much like e-commerce," says John Gorman, founder of the Cleveland-based Internet web portal Radiocrow.com. "Let Internet radio develop and become a profitable, influential venture, instead of cutting it off before it has a chance to even grow."
Whether the CARP proposals will be accepted is anyone's guess at this point. Opposition has been building of late, culminating in a letter critiquing the proposals that was signed by 20 congressmen and sent to the U.S. Copyright Office last week. Whatever the outcome, though, CARP has already had a chilling effect on Internet radio. Just ask Gould.
"Once again, the point where you have a chance to partake in the whole entertainment field just gets taken away and held by people with a lot of money," he sighs. "People had come to rely on [TheCityRadio.com] as their source of entertainment. That's really what kept it going, knowing that it was a part of people's lives. We never had any visions of becoming rich off it; we all worked day jobs."
They'd better get used to it.
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