Radio Is Radio!

Internet radio isn’t getting a fair shake. – Ed

Internet radio has a big problem.

Those responsible for such things have set royalty rates for Webcasting. Webcasters have been screaming like stuck pigs, or at least like KPigs.

They say they’ll go bankrupt and/or can’t afford the fees. They’re almost certainly right.

Usually, I’m not too sympathetic to such arguments (and I certainly wasn’t to many of those arguments often presented on the webcasters’ behalf).

However, looking deeper into this, there is a major injustice here.

A Tilted Playing Field

Regular over-the-air radio stations pay royalties to the composers of the musical works they play (actually to collecting agents like ASCAP and BMI). They don’t pay the record companies.

The reason why they don’t pay the record companies is that Congress felt that the promotional value of essentially advertising the record companies work by broadcasting was sufficient compensation to them.

The Digital Milennium Copying Act (DMCA) set up rules for Internet radio and one of those rules said the record companies had to get paid by them, too.

To keep this simple, the webcasters offered to pay X, which roughly was a conversion of what broadcasters currently pay in royalties to composers into Webcasting terms.

The RIAA suggested that the fee be 30X, or thirty times what the webcasters suggested, offering a number of negotiated contracts as evidence that this was a fair rate.

The Copyright Office found both offers very questionable, and decided that a fee of 10X, or ten times what the webcasters suggested and about a third of what the RIAA suggested, would be fair.

The Real Inequity

The over-the-air radio stations don’t have to pay the record companies, but the webcasters do. Given that the two are basically doing the same thing, either both should pay the record companies, or neither should.

There were quite a few arguments about how different webcasting is from broadcasting. Some are at least arguable; others are pretty dubious. None justifies a royalty rate ten times higher than what regular radio stations pay.

A very strong indicator that this isn’t just a matter of freeloaders whining is that commercial stations have shut down their webcasting in anticipation of or due to this rates (they get a bargain rate of only five times the suggested webcaster rate).

This ought to tell the Copyright Office something.

If It’s Used Like A Radio, It Should Be Treated Like A Radio; If It’s A Thieves’ Nest, Then Treat It That Way

If Internet radio is basically used like a regular radio; then at least a rough approximation of the rules that apply to radio should apply to it. There’s some big problems applying the exact rules; but conversions like those suggested by the Webcasters can achieve at least rough justice.

When the Copyright Office suggests rates that would leave small webcasters paying more in royalties than the average radio station, there’s something seriously wrong somewhere. Either the Webcaster is paying far too much, or the radio station is paying far too little.

On the other hand, if Internet radio is simply NWA (Napsters With Announcers), with everybody just recording away and not buying CDs; these stations shouldn’t be overly taxed, they should be banned.

If you’re a store owner and you catch somebody stealing something, you don’t charge him ten times the normal price and say, “Come back soon and try again.” You hand him over to the police.

Not even the Copyright Office swallowed the thieves’ den argument, yet they set a rate as if they did.

Another major argument to justify the increased royalty price is the Copyright Office’s belief that over-the-air broadcasting has stupendously more promotional value than Internet radio.

Again, this defies common sense. You might argue that Internet radio is very narrowcast, but so is over-the-air broadcasting. Unless you have stations that play only a couple acts, it’s pretty rough to believe that somebody listening to an average radio station is going to buy ten times more albums than somebody who listens to Internet radio.

The only reason left is that the record companies deserve it for what they do. Ironically, this is the argument I’m most sympathetic with, but nailing the Internet radio folks while letting the regular radio folks go scot-free is like pouncing on roaches in your house then petting the elephant parked in your living room. It’s absurd.

Right now, the radio stations really are getting close to a free ride. U.S. radio stations pay about $350 million a year in royalties to composers, of which the record companies get nothing. That may sound like a lot, but it’s only 3% of the radio station’s revenues.

If the radio stations were required to pay what the Internet radio folks are going to be required to pay, they’d be laying out about ten times more, too, or about $3.5 billion dollars. Considering that record companies took in about $12 billion in the U.S., that would be a hefty sum of money.

Of course, the radio stations would never end up paying that much. They would negotiate that downward, and they’d have real negotiating power against the record companies, unlike the relatively tiny Internet stations.

So if there were a level playing field between Internet and real radio, you’d probably end up with regular radio negotiating a new fee of probably 2-3 X, which would also be reasonably fair to the Internet guys (at least a hell of a lot fairer than what they’re going to get). The RIAA would get a lot more money from milking the elephant a bit than by stomping on roaches.

Demand A Level Playing Field: Radio Is Radio!

There are plenty of places that will tell you whom to write. Here’s a good place to start.

There’s sample letters at that site available, but you might want to incorporate the following thoughts (if you’re another website who wants to make up a sample, just acknowledge us with a link to this article, and use the material):

Radio is radio, no matter where or how it is broadcast. The Copyright Office has recommended that Internet radio pay ten times the amount of money a typical regular radio station would pay for doing essentially the same thing, transmitting music to an audience.

This will effectively drive most of Internet radio out of business in late May, when the royalty bill will become due.

It is unjust for Congress to require Internet radio companies to pay record companies while exempting regular radio companies from paying them anything. Either the record companies should be paid by both, or they should be paid by neither.

The Copyright Office has calculated a fee largely based on what the record industry was able to get from small, powerless companies. If regular radio were subject to the same laws as Internet radio, the royalty rates they would negotiate would be a far fairer and accurate assessment of the true value of royalties than the record industry negotiating with financial pygmies.

The radio playing field should be level. If record companies deserve royalties for the playing of their records, regular radio stations should no longer get a free ride and should pay their fair share, too.

What would you call a tax that taxes the rich at a lower rate than the poor? Certainly not fair, certainly not just, but that is just what the Copyright Office is proposing.

The reason why this inequity exists is due to the Digital Milennium Copyright Act providing for far different rules to apply to Internet radio than regular radio. I respectfully request that you support any future legislation that would apply the same rules to both regular and Internet radio.

Since Internet radio is facing a crushing (and retroactive) royalty bill based on the proposed rates in May, I respectfully
urge you to communicate to the Librarian of Congress that you and your fellow legislators, in passing the DMCA, did NOT intend the royalty rate to be ten times higher than the average rate paid for radio, and that royalty rates should at least temporarily be set at a rate similiar to what regular radio stations pay.

P.S. For you apathetic lames out there:

The report from the Copyright Office pointed out the tremendous apathy Internet radio users in general and teens in particular had on the subject. The majority (vast majority for teens) were too lazy (p. 34) to even complete a survey on how much Internet radio affected purchase decisions. This “substantially undermines the reliability of the conclusions offered by these two witnesses” (who testified that Internet radio did have a significant promotional effect and thus deserved lower royalty rates).

It doesn’t take much imagination to suspect the Copyright Office might have thought (in much nicer terms, of course) “These guys (??) will just take anything we give them.”

Now will you and all your friends get off your apathetic lame loser asses and do something for once?

Ed Stroligo

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