Small webcasters fear royalties will choke nascent industry

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Posted 8:37AM on Thursday, May 2, 2002

Operating out of a spare bedroom in Kailua, Hawaii, Robert Abbett normally keeps his 200-disc CD changer loaded so Internet listeners worldwide can hear "Aloha 'Oe" and other Hawaiian tunes all day, all night. On Wednesday, though, Abbett interrupted regular programming and draped his Web site in black. He joined hundreds of Internet broadcasters in a "Day of Silence" to protest proposed royalties that many of them say would put them out of business, dealing a body blow to musical diversity online in favor of a few large outlets playing the same roster of Top 40 hits. Internet radio operators like Abbett feel they're under siege before they've even built the ramparts. "These rates are so high as to kill our nascent industry," said Kevin Shively of Beethoven.com, a classical station in Hartford, Conn. "We haven't had a chance yet to build our industry to be able to come to anywhere near the royalty rates such as these." Internet broadcasters have won small but fiercely loyal audiences, many offering eclectic tune selections and appealing to niche tastes. Unlike traditional radio, webcasting requires neither federal licenses, transmitters or other expensive equipment. While some Internet broadcasting is by over-the-air stations that pipe their signals online, many are like Abbett's 7-year-old Internet Radio Hawai'i: They operate on a shoestring, are listener-supported and get a few thousand listeners at most. If the royalty rates for Internet-only broadcasters - $1.40 per song heard by one thousand listeners - are approved later this month, Abbett says he may have to pull the plug on his labor of love. "People will be left with Britney Spears, Michael Jackson and hip-hop," said Abbett, a former rock-and-roll deejay on traditional radio. "Hawaiian music, Louisiana music, world music and gospel music will disappear." Webcasters and over-the-air radio stations already pay composers and music publishers royalties for the music they play, based typically on a percentage of their revenues. But traditional radio broadcasters have been exempt from paying the royalties now being applied to webcasters - because lawmakers bought the argument that radio stations were promoting the music already. The new royalties, which would go to music labels and musicians, had long been sought unsuccessfully by the recording industry from traditional broadcasters. So the industry turned to webcasters and got its wish in a 1998 law. In February, a Washington, D.C., arbitration panel awarded the record labels and musicians royalty rates that could cost Abbett $10,000 a year - a third of his budget and nine times what he now pays composers and publishers. Larger webcasters could owe hundreds of thousands of dollars annually. Under procedures established by Congress, the U.S. Copyright Office has until May 21 to accept, reject or modify those rates - which are retroactive to 1998. Internet radio is now popular at work and is becoming so in homes as more people get high-speed connections. It is expected to become more mainstream as wireless devices begin to proliferate, allowing listeners to tune in while walking or driving. The executive director of SoundExchange, the group formed by the recording industry to administer royalties, says it is willing to negotiate with hobbyists on lower rates - but won't subsidize commercial webcasters. The official, John Simson, also rejected arguments that broadcasters - be they traditional or on the Web - are chiefly promoters of music and deserve royalty breaks. "Radio is not in the music business," Simson said. "They may be playing songs, but what they are trying to do is aggregate people so they can sell advertising." The union that represents recording artists backed the recording industry. Performers "need to be compensated when a business is built on their work," said Ann Chaitovitz, national director of sound recordings at the American Federation of Television & Radio Artists. However, some Internet legal experts say lawmakers need to be careful to balance the public interest for free expression on the Internet with the rights of copyright holders. Jonathan Zittrain, co-director of Harvard Law School's Berkman Center for Internet & Society, considers the move to impose royalties on webcasters "part of a push to make the Internet as a distinct experience go away, (leaving) a conduit for carrying the traditional, familiar, consolidated forms of media." Bill Goldsmith, a listener-supported webcaster who runs Radio Paradise from his garage in Paradise, Calif., fears Internet radio could become more like traditional radio, controlled by a handful of powerful large corporations with most stations limited to formats with mass appeal. Instead of music Wednesday, some stations ran a "Save Internet Radio Marathon" organized by a webcaster from a Nashville, Tenn., apartment. Other Internet stations held minutes of silence. Radio Paradise carried sounds from Costa Rican rain forest.