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Internet radio refuses to die

By Christine Boese
CNN Headline News

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(CNN) -- There was some high drama last week for anyone who cares about Internet radio.

Compromise legislation over copyright fees hashed out between Internet radio stations and the music industry had already passed the House and was about to pass the Senate by unanimous consent, when it was blocked by Sen. Jesse Helms, R-North Carolina, using his senatorial privilege.

Helms cited the concerns of religious, classical and even college webcasters who were left out of the negotiations over the legislation.

The timing couldn't have been worse. Legislators were off to concentrate on the upcoming midterm elections and wouldn't be back until mid-November.

The bill looked at adjusting the fees that were set in a copyright arbitration ruling earlier this year, retroactive to 1998. When an October 20 deadline hit, most small Internet radio stations would have been forced out of business by huge copyright payments.

When it appeared the bill would eventually pass, the Internet royalty collection agency for the music industry, SoundExchange, suspended its fee deadline and Internet radio got an 11th hour reprieve.

So what's the big deal about Internet radio?

You may have tuned to radio stations on your computer and wandered into a land of unlimited channels and funky niche stations, as opposed to settling for whatever you can find running scan on your car radio. Some say wireless Internet may even bring Internet radio to your car.

Net radio fans say the diversity, quirky musical styles, and ethnic or cultural specialties spice up a marketplace dominated by bland corporate programming.

The music industry claims that Net radio has been spinning tunes without having to pay copyright fees. Because Net radio is so new, the dispute went before a government arbitration panel.

In June 2002, the Librarian of Congress, whose office oversees U.S. copyright law, overruled the panel and set a fee per performance of 7 cents for commercial stations and 2 cents for non-commercial transmission, per listener.

Those who saw Internet radio as a labor of love, an act of independence against "homogenized" mainstream radio, were reeling. The first casualty appeared almost immediately,

A double standard for radio stations?

Even with the compromise bill worked out by webcasters and the Recording Industry Association of America (RIAA), shepherded through Congress by Sen. Patrick Leahy, D-Vermont, the basic model of charging the fee per listener remains.

All the legislation does is create a loophole for small, cash-poor operations that would have been driven out of business otherwise. Such webcasters are exempt from paying performance royalties and have to pay only an annual fee of $500., an industry advocate, argues that the fee structure is more like an effective royalty rate of 200 percent to 300 percent of gross revenues.

"Airwave-broadcast" radio stations never had to pay per-performance royalties to record companies and artists. Instead, they pay about 3 percent of revenues to music industry membership organizations such as ASCAP and BMI.

How did "airwave-broadcast" radio stations get off so easy? Back in the early days of radio, Congress decided that record companies benefited from the "promotional value" of their songs getting airplay.

The prevailing view of the arbitrators was that Internet radio's audience is still so small that "promotional value" doesn't exist.

In the land of fragmented and niche audiences on the Internet, specialized radio is the point, not the exception. And according to people who get their radio online, regulators and fee-setters are living in an "old media" radio monoculture that is no longer viable.

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