Internet-Based Radio Decision Near

Internet radio advocates told a U.S. panel Wednesday that a mandate requiring Web stations to pay for songs they broadcast could put many such stations out of business. But representatives of the recording industry countered that Internet piracy threatens their bottom lines as well.

A forthcoming decision by the U.S. Copyright Office, scheduled to be handed down next week, has prompted the congressional hearings on how royalties for Internet-only broadcasters should be handled going forward.

The Copyright Office must decide whether it will accept the recommendations of the Copyright Arbitration Royalty Panel (CARP), which has suggested a rate of US$1.40 per song for each 1,000 listeners, or $.0014 per person.

The Copyright Office has the authority to raise or lower the rate — or to do away with the fee completely.

The CARP also has suggested that any fees adopted should be made retroactive to 1998.

Settling Business Issues

The recording industry’s interest in Internet radio is an adjunct to the file-sharing issues it has argued since it brought its firstcopyright infringement lawsuit against Napster, explained Michael Hoch, senior analyst for content delivery and distribution at the Aberdeen Group.

While the popularity of Internet radio is growing, according to Hoch, questions about how business deals will work between Internet radio stations and the recording industry remain unanswered, and there is little precedent to guide discussions.

Hoch told the E-Commerce Times that business relationships between the recording industry and radio stations have been built up over many years. However, the question of who gets what part of the distribution dollar is still being worked out for Internet-based radio.

End of Webcasters?

Hilary B. Rosen, chairman and CEO of the Recording Industry Association of America (RIAA), told a U.S. Senate panel that the Copyright Office decision has the potential to rectify what she termed the “long-standing inequity” that has existed between the music community and the Internet.

Rosen rebuffed the notion that such fees would put Webcasters out of business.

“We fervently believe now, as we did then, that Webcasters can succeed while compensating the creators of the sound recordings upon which they have built their business,” she said.

Fees Outstrip Major Webcasters

Jonathan Potter, executive director of the Digital Media Association, representing the online media industry, told the committee that retroactive fees would shut down Webcasters even if regular fees did not.

Potter’s examples included Beethoven.com, a Connecticut classical music Webcaster that, under the CARP recommendations, would owe $48,720 in royalties even though its total revenue is $33,500.

Potter also pointed to Radio Free Virgin, the Internet radio division of the Virgin Group, which had April 2002 revenue of $23,000 and combined license fees to ASCAP, BMI and SESAC of less than $1,000.

Under the CARP proposal, the group that includes the Virgin Megastore record chain would owe royalties of $67,000.

“For Webcasters of every size — no matter the number of performances, or the size of the media company — CARP’s Webcasting royalty leads to an unsustainable economic result,” Potter said.

“Even for subsidiaries of large multimedia companies, the business model for Webcasting must be capable of generating profits and standing on its own,” he added.

Supporting Technology

Aberdeen’s Hoch suggested that while the recording industry is stillreeling from the Napster saga, it may have discounted technologies that could prevent piracy.

Specifically, Hoch pointed to Digital Rights Technology (DRT), which can prevent most instances of copyright theft by allowing Internet radio listeners to hear music but not to record or copy it.

“Technology can support any business relationship,” Hoch said.

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