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[whitespace] KSJS General Manager Nick Martinez
Photograph by Jeff Kearns

Dead Air: KSJS General Manager Nick Martinez recently shut down his station's webcast, now that broadcasters may have to pay steep royalty fees.

Pay to Play

Internet broadcasting has exploded, but a federal panel's ruling could silence the movement

By Jeff Kearns

THE TO-DO LIST for Nick Martinez, general manager for radio station KSJS, in early April, looked something like this:

1.) Read the most recent proposal from the U.S. Copyright Office on the 1998 Digital Millennium Copyright Act.

2.) Figure out how many songs we've played on the website since 1998.

3.) Figure out how many people listened to them.

4.) Calculate the money we owe in royalties to music companies.

On April 5, his to-do list contained just one item: Pull the plug.

It was a sad day for the small but dedicated following of friends, parents, alumni and fans--not to mention a small cadre of underground music fans as far away as Poland--who regularly tune in to hear KSJS on the web. It also spelled the end of a well-respected pioneering effort that began 10 years ago, when San Jose State's KSJS-FM (90.5) was one of the very first to broadcast its signal on the then-embryonic Internet. Worse, it portends an end to the web efforts of both broadcast and web-only stations throughout the nation, one of the last bastions of unique, experimental and high-quality programming in an industry overrun with commercial giants.

Martinez says the new royalty-rate proposal for webcasters, released by the U.S. Copyright Office in February, would break the budget at KSJS, a small station supported by volunteers and school funds. The fee structure, which would also require webcasters to track every detail of what songs they play, calculates rates on a per-song, per-listener basis.

"For us, it came out to about $24,000 a year," Martinez says. "The entire station runs on under $100,000 a year. We don't make any money; we don't do fund drives." The bill also proposes making the payments retroactive to 1998, a nightmare for a small station.

Radio stations have always had to pay royalties, but Martinez says that the new webcasting royalties would be more than 10 times what the station pays to transmit a conventional signal over the airwaves.

Some stations, like UC-Berkeley's popular KALX-FM (90.7), are still streaming but have filed comments with the Copyright Office, which has a May 21 deadline to accept, reject or amend the proposal. "There are a lot of small stations that are potentially going to get a bill and not even know that they owed it," says general manager Sandra Wasson, who is one of two people leading a coalition of college stations opposed to the regulations.

The ruling would apply to large radio conglomerates, community stations and small-time hobbyists--the latter two of which make up the majority of the tens of thousands of stations on the Internet. It would only apply to webcasters in the U.S.

Bob Kieve, longtime owner of San Jose-based KRTY-FM (95.3) and KLIV-AM (1590), simulcasts KRTY's signal and webcasts three Internet-only stations featuring round-the-clock Beethoven, big band and classic country.

"We'd have to pay about a half-million for each stream we do," Kieve fumes. "It's just absolutely outrageous unless the purpose of it is to stop all music on the net, which it isn't. We're still doing it in the hope that it won't go through, but a lot of comparable stations have just said the heck with it and dropped their streams. It's an absurdity."

Cash Cow

Like most of the major communications legislation passed by Congress, the Digital Millennium Copyright Act was largely a creation of a powerful industry lobbying group: The Recording Industry Association of America, the same folks who successfully sued to shut down Napster and are currently pushing for draconian copyright protections for digital media. (An RIAA spokesperson did not return calls for this report.)

Ironically, four of the five industry giants who pushed for the American fee structure are foreign corporations (Warner Bros. is U.S.-held; BMG, Sony, EMI and Universal are all foreign-owned.)

The law was crafted in the heady days of 1998 when anything associated with "dotcom" was viewed as a gold mine. Record companies had dollar signs when they looked at the Internet, thinking it would be a cash cow of unprecedented size and plumpness. Webcasters jumped in, but many of the early ones were big companies like Yahoo! Since then, thousands of small, nonprofit and hobbyist stations have jumped on the web as the technology became cheaper and easier to use. At the same time, the easy money never materialized.

For decades, radio stations have paid 3 percent of their gross revenues to groups like ASCAP and SESAC, which represent artists. Record companies don't get a cut, though, because they profit from sales boosted by the exposure and publicity their products receive on the airwaves.

When the digital copyright proposal became law in October 1998, it didn't include royalty rates for webcasting. Instead, it asked the Copyright Office, an arm of the Library of Congress, to get together with record companies and webcasters on a rate structure. The Digital Media Association, representing webcasters, offered to pay a percentage of income or to pay per listener, per hour, but the RIAA pressed for more.

The industry's proposal didn't get an enthusiastic response. When those talks proved fruitless, the Copyright Office set up a Copyright Arbitration Royalty Panel (CARP) to referee.

In February, the panel sided with the RIAA's per-song, per-listener request. Even industry insiders are confused by the complex schedule. Under the proposal, radio stations that simulcast their broadcast signal pay 0.07 cents per song, per listener. That's on top of what radio stations pay in traditional royalties. Internet-only webcasters pay double, 0.14 cents. Public or nonprofit stations pay 0.02 cents. On top of that, all webcasters must also pay a flat-rate licensing fee.

There are additional constraints on the table for reporting what music is played. The CARP's recommendations include requiring stations to track more than two dozen bits of data on each song. These include time and date of transmission, duration of transmission to nearest second, release year, a digital recording code embedded in the CD and even the UPC code from the album cover. Webcasters would also have to report the date and time each listener logged on and off, the user's time zone and a unique user number assigned to the listener.

Webcasters say that, except for the major radio stations, it would be impossible to comply with the reporting standards.

Small webcasters say the steep fees and onerous reporting standards are only intended to do one thing: put them out of business. Some take it a step further, suggesting that record companies want to clear the field for their own outlets.

Pirate Gall

Kurt Hanson doesn't have any doubts about what the proposal would do to the growing number of webcasters.

"If they do that, the entire industry is dead," says the former media researcher for radio stations, who now publishes RAIN: Radio and Internet Newsletter from Chicago. "Probably within a week, everyone will be forced out of business. The back fees, especially, would bankrupt everyone."

Hanson has been one of the leading crusaders against the plan, and he recently launched a website devoted to the topic, www.saveinternetradio.org.

Hanson says there are about 60,000 webcasters in the United States, which he predicts would dwindle to about four if the plan goes through. Among the remaining webcasters, he says, would most likely be Pressplay and Musicnet, which are both run by the recording industry. Nobody else could afford to pay. (Pressplay is a joint venture of Sony and Universal; Musicnet is a joint venture of RealNetworks, AOL Time Warner, Bertelsmann AG and EMI.)

John Perry Barlow is co-founder of the Electronic Frontier Foundation (EFF), a San Francisco high-tech civil liberties organization, and a fellow at Harvard Law School's Beckman Center for Internet and Society.

"The record industry somehow always exceeds my expectations for their corruption," says Barlow, who also used to write lyrics for the Grateful Dead. "No matter how bad I think they are, they can always be worse. They're such blatant pirates, and then they have the gall to talk to other people about being pirates."

In Congress, several representatives, including Rep. Mike Honda, have signed a letter to Librarian of Congress James Billington, urging him to reconsider the CARP recommendation. (If that doesn't work, Congress can also rescind its original legislation.)

"We are concerned that the CARP proposal is contrary both to the intent of the DMCA [Digital Millennium Copyright Act] and Congress's general policy not to stifle innovation on the Internet," the letter says. "We want to ensure that all creators are fairly compensated for their work. We are concerned that the CARP recommended rates for sound-recording copyright owners are, however, high in comparison to historical royalty rates, such as rates paid by terrestrial broadcast radio to songwriters and music publishers."

Despite the pressure from Congress, the EFF's Barlow sees webcasters losing when the ruling comes out in May. "Like everything that's gone down on copyright for the longest time it will go down on the side of the content industry," he predicts. "The fix is in."

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From the April 25-May 1, 2002 issue of Metro, Silicon Valley's Weekly Newspaper.

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