The Internet Radio Double Standard

When reading articles such as this CNN report on Internet radio, it becomes apparent that government simply doesn't understand technology. How can it? Those of us in the industry only understand a small sliver of it. Furthermore, what we do manage to get a good grasp on reinvents itself every few years.

Consequently, it doesn't bother me so much that government doesn't get technology. Besides, technology has a remarkable resilience to bad laws, finding ways to outmode bad legislation with new inventions. However, when it becomes equally apparent that a particular piece of legislation favors corporations and incumbent industries over small business and new technologies, it is a different story altogether: though technology may survive, the small businesses and non-profit organizations which invent and promote it may not. Such is the case with Internet radio.

There is a growing concern that new licensing fees for Internet radio, which are retroactive back to 1998, will force many smaller Internet radio stations, including non-profits such as schools, off the air -- or Internet, as the case may be. This is because a convoluted pricing structure, fees which cost more than twice as much as traditional broadcasting, and completely new licenses will all coalesce at once this October. This has already led to a new proposed piece of legislation, the "Internet Radio Fairness Act," which would seek to establish a level playing field for traditional broadcasters, called terrestrial broadcasters, and Internet broadcasters.

The core issue is new fees which terrestrial broadcasters are not required to bear. Traditionally, these stations only pay royalties to the composer of a song. In addition to these royalties, Internet radio stations will have to pay similar fees to both the artists who performed and recorded the song as well as the copyright holder of the song, which is usually the record label. Though this is a more fundamentally fair way to distribute royalties (most other countries with copyright laws function this way already), it obviously creates an unfair advantage for terrestrial broadcasters. If the terrestrial broadcasters were to pay these same fees, it would amount to somewhere in excess of three billion dollars.

Additionally, Internet radio stations will be saddled with licensing fees for "ephemeral recordings," copies of songs which may exist for a short time on a server or network device. These copies are used to make distributing the song more efficient, cutting down on the traffic on the Internet and cost of distributing songs. Though no human being will ever hear these recordings themselves, and the "Registrar of Copyrights has determined that these temporary recordings have no independent economic value," Internet radio stations will have to pay for these. To put it in other terms, it would be similar to charging terrestrial radio stations for transmitting a song through their internal system on its way to the antenna, through the antenna itself, and through the air on its way to the listener, as if each of those locations constituted a different copy of the song.

To complicate matters, the pricing structure has been set so that small, independent and non-profit Internet radio stations simply can't afford to even join up. There are minimum fees of $500 for each type of license. Additionally, Internet radio stations argue that complicated pricing schedules, as well as oversight and reporting, create enough red tape to significantly increase the total cost of running an Internet radio station.

And where does it all come from? With the enactment of the extremely controversial Digital Millennium Copyright Act (DMCA) in 1998, the United States government sought to revamp copyright laws to take into account advances in technology. In the process they put the responsibility of coming up with licensing terms on the Library of Congress with the qualification that it would be the rate that a "willing buyer" and "willing seller" would agree upon. That sounds fair, right?

The problem was, there weren't very many examples out there. In fact, there was only one. As a result, a deal brokered between the Recording Industry Association of America (RIAA) and Yahoo during the height of the dot-com bubble (back when Yahoo had more money than most countries), has been used to determine the rates for small and large companies everywhere, including non-profit radio stations, which though they receive a substantial discount, are nonetheless encumbered with licensing costs that eclipse their entire yearly budget.

In the end, it appears to be nothing more than a mistake. Congress, with the best intentions towards artists and copyright holders but ignorant of the fact that there were few examples of such licensing, included a boiler plate, throw away clause in a monumental piece of legislation, the willing buyer, willing seller restriction. This placed the Library of Congress in an impossible position. The end result is a fee structure which greatly favors incumbent, terrestrial radio stations. Misunderstandings of the purpose and functionality of certain aspects of current Internet radio technology, such as ephemeral recordings, further strangle a young industry.


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