Webcasters Dodge Dead Air, Receive Royalty Reprieve

Internet radio stations threatened with being silenced due to an increase in music royalty rates got a reprieve when the organization collecting the royalties postponed the hike to allow negotiations to move forward. That is good news for Vince Garcia and other webcasters in the San Fernando Valley and Southern California who faced shutting down their online stations because the royalty rates would be too expensive. “I’d be paying enough to put me out of business and that just doesn’t make sense,” said Garcia, who operates myfreeradio.com, a collection of nine online music stations from his home in Tarzana. In March, the Copyright Royalty Board approved new rates for webcasters, retroactive to January 2006. The increase to .11 cents per song this year and to .19 cents per song in 2010 drew immediate criticism from the online radio industry who predicted the fee hike would result in thousands of stations shutting down. On July 13, two days before the new rates were to go into effect SoundExchange, the not-for-profit agency that collects royalties for artists and sound recording copyright holders from digital transmissions on cable, satellite and webcast services, announced it would hold off on the increase for small commercial and noncommercial webcasters to allow for negotiations on a new rate. Large commercial online stations, such as Yahoo!, however, will pay the new fee structure. Fred Johnson, the general manager at KCSN, the radio station at California State University, Northridge, waits for the outcome of the negotiations. KCSN simulcasts its programming over the Internet with the number of listeners capped at 200. Although it is a small not-for-profit, the station will still be subject to a fee structure of some sort that he hopes is not too onerous, Johnson said. “To discourage us from streaming vis a vis a fee structure or annual fee that is out of our ballpark pulls the music away from the people,” Johnson added. “How are we going to market their music?” At myfreeradio.com, Garcia attracts up to 30,000 individual listeners a month to his stations playing Top 40 music from the 1970s and 1980s, country and other musical genres. The stations generate revenue through banner ads and pre-roll commercials preceding the songs. Garcia estimated he grosses $75,000 a year with the stations he launched as hobby in 2000. What he hopes comes out of the negotiations with SoundExchange is for webcasters to pay a fee based on a percentage of their revenue, which is how it’s done in terrestrial radio, Garcia said. KCSN’s Johnson predicts an annual fee to be placed on webcasters. “I can only pray we are not lumped in with the Clear Channels and Salem broadcasters where they are looking for 8 or 9 percent of their annual income,” Johnson said. “That would kill us.” The pending Internet Radio Equality Act now before both houses of Congress would put in place such a revenue-based system for streaming audio sites rather than a per-song, per-listen and/or channel royalty. At the Broadband Comedy Network in Sherman Oaks, President Eric Beretz said the material streamed over his five channels is not subject to royalties because he either owns it or has negotiated separate deals with the labels releasing comedy discs. If he did pay royalties, Beretz estimated it would add $12,000 to his expenses. As it is, the station just breaks even, he added. “It could just force new business plans and new business models,” Beretz said of what results from the fight over the royalty rates. Rockie Thomas, the business development manager at Encino-based Bid4Spots, an online auction site for unused advertising time on terrestrial and internet radio, compared the situation of SoundExchange and its last minute backing away from enforcing the royalty rates as “a poker game.” What she finds frustrating is that it makes venture capitalists and investors look twice at putting money into online streaming, Thomas said. “It causes us to slow down and we don’t develop as quickly as we should as an industry,” Thomas said.