Internet Radio Rates Face New Roadblock

The day webcasters were supposed pay the new royalties rates for streaming music online has come and gone. Webcasters large and small say the proposed higher rates could put many out of business.

Now there is now another roadblock to a settlement.

Back in March, a three-judge panel created to oversee royalties in the digital realm announced new royalty rates for music streamed online.

Commercial webcasters had been paying a percentage of their annual income, but the new rates would require them to determine how many listeners they had each time they played a particular song. Noncommercial webcasters, many of whom were represented by National Public Radio in negotiations, said they couldn't afford the technology for this kind of monitoring.

Smaller commercial webcasters said the new rates would amount to more than their annual income and large webcasters, with thousands of channels, balked at a $500 per channel minimum fee imposed as part of the new rates.

After an appeal to a federal court, smaller webcasters and noncommercial outlets have reported tentative agreements with Sound Exchange, the nonprofit set up by the record industry to collect royalties.

For larger webcasters, Sound Exchange offered to cap the minimum fee, but the webcasters would have to encode their streams with software that prevents their listeners from recording them, or stream ripping.

Jonathon Potter is the Executive Director of the Digital Media Association which represents the six largest webcasters including AOL, Yahoo, Live 365, Pandora, Real Networks and MTV.

"The connection of the minimum fee to stream ripping is fantasmical. It's doesn't exist," Potter says.

Potter blames the record industry, specifically its lobbying group, the Recording Industry Association of America, for trying to push webcasters to adopt the kinds of copy protection measures it has installed on CDs in an effort to prevent unauthorized file sharing.

"It's something that the RIAA and Sound Exchange have decided: 'Hey, we've got these guys, we got a gun to their heads. Perhaps we can box them in and force them to give us something that they have never been prepared to give us before'" Potter says. "And that would be a technological mandate to block stream ripping and we're just not going to do that."

The kinds of digital locks the record industry wants to put on Internet radio are either not feasible, expensive or not reliable, according to Ken Fisher, editor of the technology Web site Arstechnica.

Fisher also says the locks are unnecessary. "It's almost a guess at the next threat. There is not real proof that stream ripping is a problem. The fact is we have very little knowledge of stream ripping."

Richard Ades, spokesperson for Sound Exchange, disagrees. He cites the wide availability of stream ripping software and he says webcasters have as much to lose from the practice as the record industry.

"If somebody is a fan of '60s music and webcasters has a '60s channel and someone rips the music for a week, they don't need the webcaster anymore," Ades says.

But Fisher says there is much more at stake. He has been following the negotiations and says the record industry is desperate after its repeated failures to stifle unauthorized peer-to-peer file-sharing.

"The future of media is streaming over networks like the Internet," Fisher says. "So this is an important decision. It's sending out a message saying, 'We're interested in this new medium only if it is played 100 percent on our terms.' That's something — if I were in the music industry — I would think twice about."

The webcasters' appeal is still pending and there are two bills in Congress, including the Internet Radio Equality Act of 2007, that would roll back the online royalties to the previous rate.

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