ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MELISSA BLOCK, host:
And I'm Melissa Block. Internet radio is big. According to one estimate, 57 million people listen to Web radio every week, most of them in the U.S. That's twice the number of weekly listeners to NPR member stations. But Webcasters say listeners may find their favorite Internet stations silent if new, higher rates for music royalties go into effect.
NPR's Felix Contreras explains.
FELIX CONTRERAS: AccuRadio.com offers 12 jazz channels, seven for electronica, 11 different Latin genres, and six channels dedicated to what the Webcaster calls country twang. In all, there are 320 channels, all of them available for free.
(Soundbite of music)
Unidentified Man: It's like listening to an entire record store in random order.
(Soundbite of music)
Unidentified Man: It's Accupalooza on AccuRadio.
CONTRERAS: The founder and CEO of AccuRadio is Kurt Hanson. He says he makes money by selling advertising time, but the new royalty rate hike would far exceed the revenue ads bring in.
Mr. KURT HANSON (Founder the Chief Executive Officer, AccuRadio): Our revenues last year were about $400,000. Our royalty obligation under the previous deal would have been about $48,000. Our royalty obligation under this new deal would be $600,000, which, you know, is 150 percent of all revenues, so it would bankrupt us for sure.
CONTRERAS: Under the old royalty system, Hanson and other small commercial Webcasters paid a flat rate of 12 percent of their annual revenue. Large online companies such as Yahoo and AOL paid royalties based on how many songs were played over a given period of time or tuning hour. But earlier this month, the Copyright Royalty Board, a three-judge panel appointed by the Librarian of Congress, set rates that would apply to all Webcasters.
It's only eight one-hundredths of a cent per user per performance right now, but a small Webcaster who does a one-hour show in which he or she plays 15 songs and gets 300 listeners a week would have to pay more than $1,800 a year in royalties.
CONTRERAS: It wasn't just the little guys who howled. Clear Channel Communications, the country's largest commercial radio network, and a number of other organizations last week in filed motions with the Copyright Royalty Board asking it to rehear the rate increases.
Among those organizations was National Public Radio, which filed a motion for rehearing on behalf of all public radio stations that stream their broadcasts online.
Mr. JOHN SIMSON (President, Sound Exchange): I think there may be a lot more noise there than reality.
CONTRERAS: John Simson is the president of Sound Exchange, the non-profit organization created by the Recording Industry Association of America to collect royalties for music played on the Internet, satellite radio and other digital outlets.
Sound Exchange lobbied for the higher rates. Simson says the market should determine who can afford to stay online.
Mr. SIMSON: In most industries, the big guy and the little guy compete. Whether you're a corner market versus a big supermarket, you both have to pay the same amount for the milk that you sell. It's not like the little guy gets a cheaper price for milk, and maybe the little guy has to create more of an interesting business model to compete against, you know, the big chains.
CONTRERAS: Simson argues that Webcasting is a growing business and royalty rates should reflect that growth. Sound Exchange distributes 50 percent of the royalties it collects to record labels. The other 50 percent is divided between featured performers and their back-up musicians.
Critics have charged that Sound Exchange is concerned primarily with major labels and their artists, a charge that Simpson denies.
Mr. SIMSON: We are a collective of the entire industry, and as such we are fighting to get fair value for our constituents.
CONTRERAS: But some critics also say that approach is shortsighted. Greg Scholl is president and chief executive of TheOrchard.com, which represents artists and labels providing digital music to online retailers. He says that in the long run, the new online royalty rates will hurt his clients.
Mr. GREG SCHOLL (President and Chief Executive Officer, TheOrchard.com): I think you need to look beyond the ostensible connection that higher rates means more money for artists and labels, and say higher rates means less diversity of programming, it means slower development of the digital music space, and it means more difficult time for independent artists and labels to take advantage of the Internet to build audiences and make and sell music.
(Soundbite of music)
Unidentified Woman: There used to be a lot of cowboys. Now they're almost all gone.
CONTRERAS: Composer Kim Ram(ph) says he and his band Euphoria have benefited from being heard on Web radio and not just through individual music sales.
Mr. KIM RAM (Musician): Different people in the film industry, different people in the television industry listen to a number of these stations constantly. And we've been on "CSI," and we're on the "CSI" soundtrack, and Euphoria's been used for a number of ads. And Apple used one of my songs to launch the iTunes music store, as a matter of fact.
CONTRERAS: Ram, other musicians and thousands of Webcasters have been caught up in a legally mandated cycle of renegotiation. The Library of Congress, which administers copyright, is required to revisit the royalty rate for digitally transmitted music every four years. AccuRadio's Kurt Hanson says the same turmoil ensued the last time.
Mr. HANSON: Small Webcasters had to go to Congress when the last royalty-rate decree came down from the Copyright Office, and Congress passed a law that allowed us to pay based on a percentage of revenues.
CONTRERAS: Webcasters have until April 2nd to file motions for a rehearing with the Copyright Royalty Board. If the board decides to stand by the current rates, Webcasters and other digital music providers can lobby Congress or take their case to the courts. The new rates are set to take effect on May 15th.
Felix Contreras, NPR News, Washington.
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