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SAN JOSE, Calif.—When 29 million music listeners turn to their favorite Internet radio stations Tuesday, many will be greeted with the sound of silence—and that’s not the song by Simon and Garfunkel.
Internet broadcasters around the country, including some public and commercial radio stations that broadcast on the Net, are observing a “Day of Silence”—muting all music on their sites—to protest and publicize increases in the fees they pay record companies and artists for playing songs. The fees, set to go into effect July 15, are so high, they argue, many of them will have to shut down their sites.
The battle is the latest grab for dollars in a war over who should be paid when music is distributed through online sites.
Record companies argue that this legislation is a way to ensure they and the artists get paid by companies that profit from broadcasting their work.
Internet broadcasters both large and small say they aren’t against paying a fee for use of an artists’ work, but they say the new rates will cost more than they earn. Some argue that increases will hurt small Webcasters worse, but larger companies say they too are vulnerable.
“This will be the death of Internet radio,” said Ian Rogers, general manager of Yahoo music. “Some people think the big companies can afford this but they are wrong. We lose money on every radio play under these new rules and there’s no way Yahoo, AOL, or anyone can afford that.”
When the new rates go into effect, charges will be raised 300 to 1,200 percent, depending on the size of the broadcaster, and the payments are retroactive to the beginning of 2006.
Rather than paying a percentage of revenue, like satellite radio does, Webcasters will be charged .08 cents per song per listener and an additional $500 a year for each channel. Since big broadcasters such as AOL, MTV, Real Networks and Yahoo host millions of “personal” stations—created specifically for the music tastes of individual users—the cost could reach hundreds of millions of dollars.
Pandora of Oakland, Calif., which also creates individualized radio stations for many of its 7 million users, would have to pay $100 million on July 15, according to its founder, Tim Westergren, 41, a figure he says would put it out of business.
Listeners worry that losing Internet radio will mean losing a diversity of music they can no longer hear on commercial airwaves, which play only a fraction of the songs and artists available on the Web. A site such as Pandora, has 40,000 artists in its library and plays 95 percent of its songs each day. A typical commercial radio station plays only a few hundred a week.
It would “terrible if there were no Internet radio,” said Jon Scott, 62, a Los Angeles event planner who listens to Internet radio six to eight hours a day. “I’m originally from Memphis and my favorite station is www.allmemphismusic.com, which is niche programming I can’t get when I turn on Star 98.7 or whatever,” he said.
Record company representatives have said the new fees are a fair payment from technology companies that profit off artists’ work. The payments will be split between artists and record companies, they say, helping both recoup for their work. The payments will be made to the companies, which will disperse them to the artists.
John Simson, the director of SoundExchange, which collects fees for the record labels, argued during a debate this month on Los Angeles public radio station KCRW-FM, that the recent sale of London-based Webcaster and social networking site Last.fm to CBS for $280 million proves there is more revenue in Internet broadcasting than its owners claim.
None of that, he said, went to the artists.
Music composers are already paid for the use of their work by licenses paid to companies such as the American Society of Composers, Artists and Publishers, which collects fees from anyone playing music, including radio stations and restaurants.
Digital broadcasters will pay those fees, as well as new ones to the record companies, which radio stations don’t have to pay. Historically, record labels were happy to have radio stations, which reach 295 million people a week in their cars and homes, play their music for free as a form of advertising to spur sales of their artists.
In fact, some labels wanted their music heard so badly, they paid DJs to have it played, an illegal practice known as payola.
With 1998’s Digital Millennium Copyright Act, the recording industry sought to tap growing revenue streams from digital broadcasters, in part because digital reproduction was seen as an identical copy, unlike radio’s analog format.
Satellite radio—Sirius and XM—which is digital and commercial free, negotiated a rate of 7.5 percent of revenue.
Internet radio stations have had their rate set by a Copyright Review Board, which starting in 1998 negotiated a compromise between the demands of record companies and the Internet broadcasters’ ability to pay.
However, the board’s recent rates reflected the highest request made by the record companies.
Internet broadcasters have asked for a rehearing, and have proposed new legislation called the Internet Radio Equality Act, which would set fees at the same level that satellite radio stations pay.
They are supported in this by the terrestrial radio lobbying group, the National Association of Broadcasters, NPR and public radio stations.
Part of the message of Tuesday’s silence is to ask supporters to write their representatives to support the new legislation.
