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Photograph by Felipe Buitrago
Safe for who? The music industry says artists want the royalty changes that may kill Internet radio, but artists like the Decemberists, above, say they'd rather have the high-tech exposure the fledgling medium offers.
Cutting Off the Air
New rules for Internet radio royalties could kill the most dynamic innovation in the music industry
By Richard Koman
FOR Bill Goldsmith, it's always been about the music. Goldsmith is a longtime pro whose radio roots go back to the underground radio era of the late '60s and early '70s. He's worked in Monterey, Hawaii and Boston. In the 1990s, when Internet radio first started, he was working at KPIG near Santa Cruz.
"We saw ourselves as the last commercial radio in the state that didn't suck," he recalls.
Today, Goldsmith and his wife, Rebecca Goldsmith, are living their dream of working for themselves in radio, playing their favorite music over the Internet at radioparadise.com from their home in Paradise, Calif. They put in about two years of "really hard work," Goldsmith says, and have been supporting themselves through listener donations and merchandise sales for the last five years.
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"I had this little aha moment—'Wait a second, I can start my own station, and for the first time in my whole career not have to work for somebody else and in particular not have to work for someone whose one and only goal is to make as much money as possible," says Goldsmith. "That's what radio had become all about—selling as many commercials as possible for as much money as possible. That's not what I got into radio for. I got into radio because I love radio and I love music. My first and foremost concern throughout my career was putting out the best programming I could for our listeners. And that attitude had just totally fallen by the wayside by the 1990s."
The Goldsmiths have managed to make it financially thanks to what Bill calls a "decent" audience—about 100,000 listeners, and a core group of 25,000 to 30,000 people who listen every day.
But their world—and that of every other Internet radio broadcaster—changed dramatically on March 2, when the Copyright Royalties Board (CRB) changed the royalty structure that Internet radio plays. The new ruling, which goes into effect July 15, changes how Internet radio stations pay performance royalties. Instead of paying a percentage of their gross royalties, as satellite and cable radio broadcasters do, webcasters will now have to pay a small fee per listener and per song.
The new royalty structure—which was proposed by SoundExchange, the organization that collects performance royalties and distributes them to record labels and artists—would raise per stream performance royalties from .07 cents per stream in 2005 to .19 cents in 2010, tripling the royalties that larger webcasters pay. More importantly for small webcasters, the new rules do away with an option to pay a percentage of gross revenue. That effectively increases the rate that a webcaster like Goldsmith pays.
"Every time one person hears one song on our station, we owe a very small amount of money to the copyright holders," Goldsmith explains. "The problem is, those small amounts of money add up to a really, really large amount of money. More money, in fact, than we bring in in gross revenue. And that statement is true for every Internet radio station in the country, large and small, no matter how they're supporting themselves—listener support, advertising, subscriptions, whatever."
Webcasters, artists and Internet companies quickly banded together to form the SaveNetRadio coalition (savenetradio.org), which appealed the CRB decision. The courts upheld the decision and SaveNetRadio turned its sights to Congress. Just six weeks after the CRB's 120-page decision was released, a bill was introduced in the House to repeal the new rates. Last week, a companion bill was introduced in the Senate by Sens. Ron Wyden (D-Ore.) and Sam Brownback (R-Kansas), proof that the effort to repeal the rates is a bipartisan effort. The House bill had 79 cosponsors as of presstime, including Silicon Valley's Rep. Zoe Lofgren.
Even Sen. Dianne Feinstein, who has supported Hollywood on virtually every issue that has come to Congress, had her staff meet with Goldsmith on a recent lobbying trip to Washington. A Feinstein staffer told Goldsmith she was willing to meet with webcasters "because of all the calls and letters they've received." Still, Goldsmith doesn't look for Feinstein to support the Internet Radio Equality Act.
"Feinstein gets a lot of money from the RIAA [Recording Industry Association of America] and she has historically been one of their champions. She's on the Judiciary where this bill is going to fall. That's the really tough row to hoe," he says. "We're just hoping that the negative publicity on this will just be a little too much."
The way SoundExchange tells this story, the new, higher royalties are required to adequately compensate artists for their creative output. Somehow in the musty history of the recording industry, terrestrial radio got itself exempted from performance royalties, although stations still pay composer royalties. But fresh off the experience of Napster and illegal downloading, the recording industry seems to regard Internet radio—and satellite and cable radio, as well—not as promoters of music but as leeches.
But the argument that the rate hike helps artists is deeply offensive to Laurie Joulie, an artist promoter who represents the Roots Music Association on the SaveNetRadio campaign.
"That's totally ludicrous because if there are webcasters shutting down, that means less music is getting heard and no royalties are getting paid," says Joulie. "No coalition member has ever said they don't want to pay royalty rates; what they want to pay is what's fair, and what will keep the business existing so they can play the music, so they can pay royalties."
In a special bonus for SoundExchange, the new royalty rates are retroactive to the beginning of 2006. That means that when the first bill comes due on July 15, webcasters will be required to pay 18 months' worth of extra royalties very soon. "They're bankrupt on day one," Joulie says. An artist she was promoting recently finished his CD just as the March 2 decision was announced. "He had a number of web stations waiting for his new release and when we started to send it out we got a number of replies saying don't bother, I'm closing down."
For independent artists, net radio is more than a cool application. It's an alternative music infrastructure, the only way most of them have to get their music heard, to build a fan base, to build attendance at shows, to sell music.
"The independent artists are the ones who have really nurtured and fostered this whole industry," Joulie says. "I think it's growing and it's effective, particularly because of its diversity. People want to hear what's new. There are a lot of studies that show that the majority of people are discovering new music via webcasting. Independent artists can get a foot in the door because there's so much out there. It gives them the world basically, in terms of promotion right at their fingertips. We're not just talking web radio, we're talking MySpace and websites and download sites, everything. It's made it affordable and accessible and it's been effective for them."
But don't artists want those extra royalties? Nate Query, bass player for the Decembrists, a Portland-born band that relocated to San Francisco recently and signed with Capitol, said royalties are important but they don't outweigh the promotional benefit of net radio.
"I think its important for Internet radio like all radio to pay royalties. It seems like the recent decision from the Copyright Royalty Board is a bit inappropriate for the role Internet radio plays. It's such an important part of how artists reach fans, especially bands that aren't particularly commercial. It's really important for jazz and for indie bands, like where we were a few years ago.
"Even if we get triple our royalties—and royalties are an important piece for us—I can't imagine that would make up for the number of people who wouldn't hear about us and wouldn't come to our shows or buy our CDs."
The Decemberists started in 2000, just as Internet radio was starting to get going, and Query says it made a big impact on the band's success. "KXP in Portland in particular was huge. They're a regular radio station but they webcast their entire broadcast. ... That was a big way for people to learn about the Decemberists early on."
For Query's first professional band in the mid–'90s, Calobo, "We just toured as much as we could and tried to get press ... getting any kind of radio was basically impossible. Maybe in Seattle and Portland a few stations played us, but now it just seems like it's a lot easier for people who don't have supermainstream tastes to find music they're excited about."
"Even now the Decemberists do OK on commercial radio, but not great. KFOG actually plays us a little bit in the Bay Area with the new record but with the previous record there's no way. Internet radio really equals the playing field for small bands with limited resources. People on Intenet radio are willing to play something that hasn't been proven yet and with commercial radio, it's exactly the opposite."
Is This a Business Model?
The history of radio is a dance between control and rebellion. Radio exploded in the early 1920s with the number of stations zooming from eight in 1921 to 564 the next year. "Colleges, churches, newspapers, department stores, radio manufacturers, hundreds of enterprising individuals, and even stockyards started their own stations. Jazz bands, poets, starlets, and elephants broadcast live in a rush of largely unrehearsed programming," explain Gene Fowler and Bill Crawford in their book, Border Radio. By the 1930s, the government stepped in, corporations were formed and programming was tightly controlled.
In reaction, radio operators in the '30s built huge million–watt transmitters over the border, and country music, evangelizing preachers, healers and charlatans of all sorts, and eventually Wolfman Jack, "blasted like a blue norther across the American airwaves," Fowler and Crawford write.
After rock & roll was safely appropriated by record companies and networks, radio got another blast of rebellion with the birth of FM and the counterculture of the 1960s and '70s. The free–form radio of the era was rubbed out in the age of media consolidation and formatted programming.
After decades of corporate control, Internet radio's growth represents yet another cycle of freedom in the history of broadcasting. Viewed in this context, the royalty hike can be seen as a cynical attempt to destroy independent programming and leave only major corporations—the same ones SoundExchange vilifies today—to serve up streaming radio.
Here's how it would work. Internet radio doesn't have to pay these statutory rates; broadcasters can negotiate directly with the labels to do direct licensing deals. Unlike the royalties SoundExchange collects, which are split between copyright holders (labels) and artists, direct license payments go completely to the labels. Payments to artists would depend on contracts with the labels—"typically single–digit percentages of revenue after recoupment but the artist is really left out in the cold," says Pandora's Westergren.
In other words, no independent net radio and no infrastructure for independent artists and small labels to build a business, just major corporations who are fundamentally interested in making a buck. In other words, says Radio Paradise's Goldsmith, a return to boring, formatted, label-driven radio.
"There is one kind of Internet radio station that could theoretically survive under the new royalty rate, " he says, "and that would be a station that played a very tight playlist of nothing but hit records and focused a lot of energy and attention on selling as many ads as possible. In other words, you can survive if you treated your Internet station very much like an FM station and programmed it like an FM station and if most of your competition went away."
Controlling CultureWhy, one might wonder, are the grassroots ringing their senators' and representatives' phones over something as seemingly trivial as online music, when the war in Iraq continues to rage, when the genocide in Darfur shows no sign of ending, when climate change threatens to turn San Francisco into a sandy little island? It turns out it's not trivial at all—it has to do with the culture and texture of our lives.
"I think people want control," says Laurie Joulie. "I think they see in all facets of their lives that corporations have had too much control—over what they watch on TV, over what they hear on the radio, over what the politics of the country is. And I think they just want to take control back."
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