Net Radio Goes Silent

By Richard Menta 5/01/02

Radio streams will go silent Wednesday May 1st to protest the Copyright Arbitration Royalty Panel's (CARP) idea of fair royalty fees for the young webcasting industry. The problem with these fees is that it will put out of business all US Net radio streams that do not have deep pocketed corporations behind them to front the expenses.

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The corporations love this because it forcefully increases not only the barriers to entry for future competitors, but knocks out most of the present competitors allowing the likes of AOL, the record industry, and the major radio networks like Infinity and Clear Channel to take over and rule the market.

The royalty rates recommended are far in excess of those paid by terrestrial stations, many who are also not happy about the fees because they too are subject to them. Network stations have a parent company who can afford the cost and any potential losses incurred by a continued Net presence under these terms, but the rest will simply find it not fiscally feasible. This is especially true since no one has found the right profit model yet. Because fees increase as the audience grows, few webcasters will be able to derive and develop their model as they go along as it is too easy to fall financially behind.

The plan on the table calls for webcasters to pay the record companies 0.14 cents per listener per song. The burden of keeping accurate records on how many songs or partial songs each listener tunes into is also placed on the webcaster. It gets worse. Many artists are arguing that they, not the record companies, own the digital rights to the music they created meaning the fees may not exempt them from further demands from other parties.

The Death of American Net Radio

The great irony of all this is that there is a great chance the successful passage of CARP's recommendations will backfire on the very entities who expect to reap its windfalls. That's because they are thinking of Net radio as being in this US vacuum. It's not.

Any country with a T1 line may simply impose the same royalty requirements that they impose on the music played over the airwaves and say that satisfies copyright responsibility. Many will indeed do just that and we don't just mean 3rd world islands in the Caribbean, but very possibility the lawmakers in Amsterdam, London, Taiwan, and Sydney.

Net radio stations in these countries can reach US listeners just as easy as native streams - that's the power of the Internet. They also will pay far less money than stations located on US soil, giving them a significant competitive advantage.

That puts Net radio stations developed by the American radio networks at a fiscal disadvantage. The only way around it is to also set up their stations overseas and hope they won't be dragged into US courts for doing it.

In the end, Net radio will probably shift beyond US borders. American music played on these stations will become a foreign import. American jobs in Net radio - from producers to Web developers to online DJs to technical staff to management - will go the way of the American textile worker.

And the record industry? They will have created all this damage for nothing as they will be denied the extra fees they won because market forces will compel the industry to circumvent them.

As for the real pioneers in the Net radio space, Web savvy individuals and inspired college radio stations, they can't afford to go overseas. They will be silenced. The ultimate loser will be us.

The copyright office plans to make its final decision by May 21. Right now, despite the protests, it looks like they are going to pass it. We support the action by the Independent webcasters. We hope that the copyright office finally listens and responds by imposing a more equitable consideration.

Sadly, I can't honestly say I'm optimistic about that happening.

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