Save Internet Radio from the "Bumbaclots", part 2

If you haven’t yet read part one, it’s here.

So what is happening to Internet radio, anyway?

I’ll let Doc Searls say it, because he’s already done it so eloquently:

Even if you don’t listen to Internet radio, chances are you’ve noticed that radio of the old-fashioned sort has been homogenized to death. If you haven’t stopped listening, you’ve probably stopped caring.

But in fact, Internet radio flat-out rocks. It’s what old-fashioned free-form FM was at its seminal best back inthe ’60s and ’70s, cubed. What’s more, it’s able to list and archive exactly what’s playing, which means it’s in a perfect position to cause sales of those tunes, and to share revenues with artists in a real market environment.

Which means Internet radio is in a perfect position to threaten the vast entertainment production and distribution system that considers its products “content” and its customers “consumers.” These producers haven’t just been trying to use Congress as an instrument for turning the Net into yet another set of pipes in their world wide plumbing system. They’ve been succeeding. The DMCA was just one step. How long before we have to pay to put up a link or a quote? Don’t laugh. That’s pretty much what the DMCA does to Internet radio.

What’s the DMCA?

The “DMCA” that Doc’s referring to the Digital Millennium Copyright Act. It’s a U.S. law that came into effect in October 2000 that is meant to update copyright law to address new technologies (hance the name “Digital Millennium”). I haven’t got the time to go over the DMCA in detail right now; please check out this layperson-friendly summary, or if you’ve got some kind of a legal background, you might want to read the DMCA in its full legalese glory.

As far as Internet radio is concerned, the problem with the DMCA is that it gives copyright holders — in most cases, these are record companies — the right to collect a perfromance royalty when the songs they own were played via digital media. This royalty are meant to help compensate for the risk to CD sales that the they are taking by broadcasting digital and therefore easily reproduced copies.

(Remember, in most cases, recording artists for major labels don’t own the rights to their own songs. The record companies do. I covered that topic in this posting.)

Paying the record companies for Internet broadcast is quite different from the way radio-play royalties work: whenever an AM or FM radio station plays a song, they pay the composer through fees handed to organziations like ASCAP or BMI (here in Canada, we have SOCAN). In broadcast radio, you don’t pay the artist or the record company; the reasoning is that the exposure gained through airplay is of commensurate value. On broadcast radio, Bob Dylan gets paid every time All Along the Watchtower is played, whether it’s his version, or Jimi Hendrix’s version. On Internet radio, Dylan would get paid for his version (Dylan actually owns the rights to his own song — very rare theses days) while Dwarf Music (the publisher for the Hendrix version) would collect every time Jimi’s version was played.

The DMCA stated that the U.S. Copyright office would be given the task of figuring out what an appropriate royalty for playing a song on Internet radio would be. The royalty fees would be retroactive back to the day the DMCA was passed, some time back in October 1998. The Copyright Office first let the record companies (represented by the RIAA — the Recording Industry Association of America) and Internet broadcasters (represented by a few groups, including DiMA — the Digital Media Association) try and come to an agreement on what that royalty should be.

The short story is that the negotiations failed because the RIAA and the record companies they represent are greedy soulless devil-spawn. The slightly more detailed story follows.

Payback for playback

In coming up for what they thought was an appropriate royalty for Internet playback, the webcasters decided to base it on an analogous, well-established industry: broadcast radio. They did the math, and it looked something like this:

  • U.S. radio stations pay over US$300 million per year to composers of the music that they play.
  • Using industry data on radio listenership, they figured that this translates into 0.22¢ for each “music radio listener hour”. This would be the starting point for the royalty rate. (A music radio listener hour is what you get when one person listens to the radio for an hour; 100 people listening to the same radio show for an hour translates into 100 music radio listener hours.)
  • They also figured that the copyright holders — most often the record companies — already derive promotional benefit from having their songs played on the radio. Simply put, airplay is free advertising for albums. That’s why broadcast radio pays composers (who don’t necessarily get promoted when their songs are played — after all, you know Britney sings Baby One More Time, but do you know who composed it?) and not copyright holders. The end result is that they decided that the copyright holders shouldn’t get royalties equal to those paid to composers, but a discounted portion. They calculated that a 30% discount was appropriate, resulting in a royalty of 0.15¢ for each music radio listener hour.
  • In coming up with this discounted figure, the webcasters kept in mind that Internet radio has some promotional advantages over broadcast radio:
    • Internet radio software can display the name, artist and album name of the currently playing radio track.
    • Many Internet radio programs display web pages, which can be used to promote the currently playing track and display a “buy this album” button

In response, the RIAA did what it usually does in the face of a fair proposal and overwhelming logic: it ignored it and came up with its own, fear-and-greed based proposal. They wanted .4¢ for every song played for every listener. The justify this exorbitant rate — approximately 30 times the webcasters’ proposed rate, and still way more than composers get paid by broadcast radio — by claiming that it’s based on prior contracts with webcasters and music listeners.

Since the two groups could not come to an agreement, the Copyright office created CARP — the Copyright Arbitration Royalty Panel — to make the decision. From July to September last year, CARP listened to the testimony of witnesses representing both webcasters and the RIAA sleazebags and their comrades-in-carbetbagging, the record companies. The compromise they came up with is as follows:

  • An Internet-only broadcaster would have to pay a royalty of 0.14¢ for every song played for every listener.
  • A commercial broadcast radio station that was also simulcasting on the Internet would have to pay a royalty of 0.07¢ for every song played for every Internet broadcast listener.
  • A non-commercial broadcast radio station that was also simulcasting on the Internet would have to pay a royalty of 0.02¢ for every song played for every Internet broadcast listener.

Under this arrangement, Internet-only broadcasters get screwed royally. Most Internet broadcasters don’t make any money; they’re simply people with a lot of bandwidth, sharing the music they love. Not only does the CARP-proposed royalty make it unaffordable for them to continue broadcasting; it’s retroactive, so any broadcasting they’ve done for the past three years will have already cost them! calculates that an Internet radio station that’s been broadcasting for the past three years to an average listenership of 1000 people would owe over half a million dollars in royalties.

These royalty fees will kill Internet radio, or make it so that only major players with multi-million-dollar bank accounts will be able to broadcast over the Internet. Consider these two key differences between broadcast and Internet radio:

  • Commerical broadcast radio is supported by advertising. In many cases, it’s supported by the nationwide marketing and advertising department of a large media conglomerate like Clear Channel. Internet radio is often a couple of people in a basement with a decent outgoing Internet connection. Its costs are covered by listener donations or paid for out-of-pocket by the webcaster. Few of them run ads.
  • In broadcast radio, once you’ve paid for a transmitter, your costs are the same if you have one listener or one million listeners. In Internet radio, every byte of music you pump out costs you money. More listeners means more bytes sent, which means more money spent.

Killing Internet radio is probably what the RIAA and their fellow swine, the record companies, want. With only the major broadcasters providing Internet webcasts, they can treat Internet radio exactly like broadcast radio, which they control through influence and payola. They would also be free to offer subscription-based radio services, where you’d pay to listen to their broadcasts, where you’d hear the music they’d like you to buy. You wouldn’t have anywhere else to go because all the smaller players would’ve been royalty-feed out of existence.

What you can do

Well, you always have the option of doing nothing. Of course, that’ll ensure that the RIAA get their own selfish way, and the music universe would be the worse for it.

Try doing these:

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