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Temporary Reprieve for Internet Radio

By Martin H. Bosworth
ConsumerAffairs.com

May 3, 2007

• Internet Radio Reaches Deal On Royalties • Sirius XM Near Bankruptcy • Poor Reception for XM-Sirius Shuffle • House Passes New Internet Radio Legislation • No Surprise: FCC Chair Decides to OK Sirius-XM Merger • Consumer Groups Urge FCC to Reject XM-Sirius Merger • States Raise Questions about XM-Sirius Merger • XM-Sirius Merger Gets Antitrust OK • Senate, FCC Chairman Spar Over Media Consolidation • Wisconsin Seeks To Block Satellite Radio Merger • XM/Sirius Merger Gets a Boost • Webcasters, Music Industry Reach Accord On Royalties • Karmazin "Clarifies" XM-Sirius Merger Plans • Last Minute Stay Of Execution For Web Radio • Dead Air Ahead: Court Denies Webcasters' Appeal • Notes From The Future Of Radio • Senators Throw Support Behind Internet Radio • Internet Radio Gets a Reprieve • Web Broadcasters Lose Music License Appeal • Feds Agree To Rethink Internet Radio Royalties • Reception Poor at Senate Sirius-XM Hearing • XM-Sirius Merger May Encounter Technical Difficulties • The End Of Internet Radio As We Know It • XM-Sirius Merger Encounters Serious Opposition • XM, Sirius Agree to Merge • Record Companies, Congress Take On Satellite Radio • Satellite Radio Looks Wobbly --- Consumer Comments • Sirius • XM Radio

Supporters of Internet radio have briefly stalled new royalty rate increases that threatened to sink many stations, thanks to a large public and media outcry.

The U.S. Copyright Royalty Board (CRB), which shepherded through the rate increase, agreed to extend the deadline for the new rates to take effect, from May 15 to July 15, giving time for opponents of the ruling to marshal arguments and file appeals in court.

The CRB announced the extension in the Federal Register, stating that the first payments under the new law would be due 45 days after the end of the month in which the final rule determination was published.

The SaveNetRadio coalition hailed the extension as an opportunity to gain more media attention for their story and push for legislation in Congress to prevent the royalty increase from taking effect.

"SaveNetRadio will spend the next 45 days educating Members of Congress and their staffs about the incredible diversity of programming Internet radio offers us all," the group said in a statement.

"We will set the ticking clock back 60 days and continue our fight to free Internet radio from these devastating fee increases."

At the same time, new legislation proposed by Congressman Jay Inslee (D-WA) would overturn the CRB's royalty decision, returning Webcasters to the previous model of paying a percentage from the profits of the station, rather than a flat fee per song play as the CRB mandated.

“You can’t put an economic chokehold on this emerging force of democracy,” Inslee said in a statement announcing the legislation. "There has to be a business model that allows creative webcasters to thrive and the existing rule removes all the oxygen from this space.”

“The Internet has provided us with amazing opportunities to enjoy music, and this unfair action by the CRB threatens to take it all away,” added Inslee's co-sponsor Don Manzullo (R-IL). “Our legislation overturns the huge rate increases and sets up a system that is fair to webcasters, web users and the artists whose music we all enjoy. And most importantly, it will keep music playing on the Internet.”

The CRB's new rules were crafted by SoundExchange, the royalty collections division of the Recording Industry Association of America (RIAA).

Critics have charged that SoundExchange's rules would force all but the richest radio broadcasters out of business, as the potential royalty payments would outstrip revenue that could be brought in from advertising.

Net radio broadcasters and supporters tried to persuade the CRB to review its ruling, but the CRB stuck by its decision.

The flat fee that Webcasters would pay even affected broadcasters such as National Public Radio (NPR), which offers regular Webcasts and streams of its programming over its Web site. NPR tried to stop the ruling in Washington, D.C.'s District Court.

Pandora's Boxed

Online radio service Pandora, which lets listeners create playlists and offers recommendations of other music they might like, has been both a major leader and the hardest-hit by the new royalty decision. Pandora founder Tim Westergren held a special "town hall" meeting for the SaveNetRadio coalition and its supporters in Washington on April 30.

"The outpouring of public support for internet radio over the past seven days has been nothing short of extraordinary," Westergren said.

"[E]very congressional office was flooded with constituent phone calls, emails and faxes.The entire fax system on the Hill was brought to a standstill. We had to hand deliver the faxes!"

But the music industry and its lobby doesn't take defiance lying down. Pandora announced on May 2 that it was blocking access to its service to listeners outside the United States, under pressure from record labels to comply with the Digital Millenium Copyright Act (DMCA).

While the DMCA provides license for royalty payments from music streams in the United States, no such overarching law exists in other countries, and record labels were pressuring Pandora to negotiate with them directly or prevent them from broadcasting globally.

Technology blog TechCrunch obtained a copy of the letter sent to a Pandora listener in Austria explaining why the service was blocked.

"Other than the U.K., we have not yet been able to make significant progress in our efforts to obtain a sufficient number of international licenses at terms that would enable us to run a viable business," the letter read. "Streaming costs are very high, and since our inception, we have been making publishing and performance royalty payments for every song we play."

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