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And the bland played on…

Internet radio stations may have to shut up shop if record industry giants are allowed to demand retrospective revenues, writes Ashley Norris

Thursday October 17, 2002 The Guardian

DooWop Jukebox Gold is an internet radio station that has been playing harmony music of the 50s and 60s for more than two years. Run from his New York home by an enigmatic individual with the curious name of “papaoommowwow”, the station streams the best music from a genre long forgotten by mainstream radio. Its audience may be small, but for the internet DooWop community, it is invaluable.

That DooWop Jukebox Gold exists at all speaks volumes for the diversity of streamed music on the net. Whatever your taste in music, somewhere on the virtual dial, you’ll find a station playing your tune. Yet whether you’ll be able to enjoy that same degree of choice after Sunday seems to rest on the convictions of a small group of US senators.

It now looks likely that many webcasters, larger internet-only stations and college broadcasters could be forced out of business by a ruling made by the Librarian of Congress in July that the US Senate has failed to amend.

In fact, calling the web transmissions radio stations is something of a misnomer. Most stream music 24 hours a day via their own server or through one of the larger radio portals such as Live365.

The ruling that could silence them broke new ground in US radio by asking webcasters to pay 0.07 cents per performance for internet-only transmission per listener per song when terrestrial broadcasters pay no performance royalty fee. The fee would be retroactive for broadcasters to 1998.

With a deadline of October 20 looming, the date where stations would have to pay royalty fees for transmission, the Record Industry’s Association of America (RIAA) and groups representing the webcasters finally agreed a compromise solution – a new bill, the Small Webcasters Amendment Act, or HR 5469.

And while the bill was unanimously approved by the House of Representatives last week, it has yet to find its way through the US Senate. For the retroactive payments to be halted, the bill needs presidential consent by Sunday. To find time for the bill in a very busy Senate schedule, support needs to be unanimous.

Its backers claim the bill secures the future of internet radio by allowing small broadcasters to pay a royalty rate based on a percentage of their revenues or expenses, depending on which is greater. It also establishes a tier for non-profit making stations, which will keep them on air for an estimated $2,000 a year.

Even if the Senate does approve the bill, its supporters acknowledge it will change internet radio.

The publisher of the influential Radio and Internet Newsletter (Rain), Kurt Hanson, believes that HR 5469 “is not a perfect deal for everyone. However, for the pioneers of webcasting, accepting the option will allow them to stay alive after October 20; without the bill they could be bankrupted by their retroactive royalty obligation”.

Other webcasters are even more critical of the bill. “It is not a level-playing field for webcasters,” complains John Schneider of “How can congress justify charging webcasters a performance royalty fee that has never existed for terrestrials?”

Kevin Shively, from the popular classical music station, doubts the business can ever make a reasonable profit under HR 5469.

Potentially the biggest loser could be one of net radio’s richest music sources – Live365. The company started in 1999 and provided an easy way for hobbyists to get their music stations online. Using simple software, would-be DJs upload their music to Live365’s server to create their stream. Users pay $11 a month – considerably less than it would cost to set up using their own server.

Ironically, these small broadcasters, who invariably claim only a couple of listeners at a time, could be the real victims of the bill.

“The Small Webcasters Amendment Act does very little for us,” explains John Jeffrey, executive vice president of corporate strategies at the station. “While we are glad the legislation includes an option for smaller webcasters, it doesn’t apply to Live365. We are still obligated to pay the initial rates (0.7 cents per listener per track).”

For the moment, Live365 promises to absorb the rate without increasing its $11 base rate a month it charges station owners. However, it fears for its future. “For starters, we are going to have to pay a million dollars in retroactive royalties. The new rates are going to make it much more difficult to attract new capital to help the company grow,” says Jeffrey.

If time constraints in the Senate scupper HR 5469, or webcasters can’t stomach the new costs, there are other places would-be broadcasters could consider. Moving their operations outside the USA would enable broadcasters to evade the royalty fees. A deal agreed a couple of weeks ago by the European Competition Commissioner, Mario Monti, means that EU countries can compete with each other in collecting royalties for Europe-wide net broadcasters. Net-based radio stations can then gravitate to the country that has the lowest rates. It’s an option the larger webcasters are considering.

“I think it’s a last resort for some webcasters,” says Paul Maloney, editor of Rain. “There has been some talk of Europe, but if things came to the crunch, most webcasters would look closer to home – Costa Rica is always mentioned. Personally, I think that webcasters will wait until they get their bills, and then decide what to do.”

For the hobbyists, there is also the option of Peercast, which uses file-sharing technology but users pass audio stream to each other, instead of swapping files. It is almost impossible for the record industries to track down owners and demand royalties. While it hasn’t proved successful so far – only a handful of stations are online at the Peercast site – the failure of the US Congress to pass the bill could transform it into one of the most talked-about technologies on the web.

Whatever happens in the Senate this week, for many net radio stations, October 20 2002 looks set to become the day the music died.

Websites (DooWop Jukebox Gold)