Death of Internet Radio?

As we’ve discussed previously here and here, the recent rate hike by the Copyright Royalty Board could spell the end of internet radio stations.

As a recap, here’s the story from Wired News.

In the old, percentage-based fee system, webcasters paid SoundExchange — the Recording Industry Association of America-associated organization that pushed the Copyright Royalty Board to adopt the new rates — between 6 percent and 12 percent of their revenue, depending on audience reach. The new system charges all webcasters a flat fee per song per listener; for instance, in 2007, streaming companies would owe $0.0011 per song per listener.

While this may not sound like much, it has been demonstrated in the comments on this post that it amounts to an increase of at least 1000% in monthly royalty payments, possibly more, for some bluegrass webcasters.

Internet radio service Pandora, which we told you about here, has calculated that they will owe $2 billion in back royalties for the year 2006 due to the retroactive nature of this new fee structure. That would be in addition to the increase in monthly operating expenses they would sustain this year. Joe Kennedy, CEO of Pandora, has commented on the situation.

The rates are disastrous…I’m not aware of any internet radio service that believes it can sustain a business at the rates set by this decision.

In another stroke of heavy handedness surrounding this decision, the only webcasters allowed to file an appeal are those that were involved in the original CRB rate setting process, and they only have 15 days in which to do so.

The House Commerce Committee’s telecommunications subcommittee held a hearing yesterday, March 7, and heard testimony on current and future radio industry from Mel Karmazin (Sirius), Peter Smith (Greater Media), and Bob Kimball (RealNetworks).

Digital Music News reports on yesterday’s hearing.

During testimony, Kimball pointed to a “serious statutory bias” against internet radio, a structure that contrasts heavily with satellite radio rates. Kimball also warned that an entire class of internet broadcaster could soon face extinction, and implored members of Congress to establish parity between terrestrial, internet, and satellite formats.

What effect yesterday’s hearing will ultimately have on this decision remains unknown. Let’s hope that Pandora CEO Joe Kennedy was correct in his belief that

rationality will ultimately prevail here, either through appeal or congressional intervention.

The full ruling by the Copyright Judges is available from the Library of Congress website as a pdf. It’s quite lengthy and goes into detail about the negotiations surrounding this current decision. If you have the time or inclination, you can read it here.

Many webcasters are asking their listeners to participate since they are not allowed to file an appeal themselves. If you’d like to help, below I’ve included links to sites where you can contact a few people directly to let them know what you think of this rate increase.