- The Washington Times - Monday, April 15, 2002

Randal Allen's business has an address, though there is barely enough room to hang a mailbox in the closet-sized room that was home to an automated teller machine before he moved in three years ago.
The space a mere 70 square feet is the primary production facility for Mr. Allen's Radio Del Ray, an Internet broadcaster that reaches out to people who love music but can't find what they want on standard radio.
Like the minuscule workplace along Mount Vernon Avenue in Alexandria where Mr. Allen broadcasts from, the Internet radio industry is small. And with few people listening, the Internet broadcasters, or Webcasters, don't attract significant advertising and have little revenue.
Now, proposed federal regulation could silence Radio Del Ray and other Webcasters nationwide. They may shutter operations rather than pay royalties they say they can't afford to musicians and record labels.
"We don't wish to roll over and die, but that might be the only option we have," says Mr. Allen, a former radio and television journalist who runs Radio Del Ray when he isn't working at his wife's communications consulting business. He has yet to attract the advertising to make the station profitable.
Radio Del Ray, whose signal has been available on the Web since 1998, is among thousands of Webcasters involved in a debate over how much they should pay artists and labels for the right to play their music.

No more free ride
Webcasters argue the future of Internet radio hinges on the outcome of the debate. Musicians and labels counter that Webcasters have enjoyed a free ride for too long and must start paying a fee mandated by the 1998 Digital Millennium Copyright Act.
The royalties haven't been collected since the law passed four years ago because no formula was established to determine what amount Webcasters would pay. Then, in February, a panel appointed by the U.S. Copyright Office came up with a royalty rate. The Copyright Office must make its recommendation to the librarian of Congress by May 21. It can accept the panel's decision, modify it, come up with new terms, or call for a new panel. If changes are made, the new deadline for a decision will be June 20.
"They've already had a four-year moratorium," says Ann Chaitovitz, national director of sounds recordings at the American Federation of Television and Radio Artists, a union representing 80,000 performers.
Webcasters already pay an estimated 4 percent of their revenue to composers and music publishers, but they have never paid royalties to musicians or record labels.
Standard radio stations also pay a percentage of revenues to composers and music publishers. But they have never paid a royalty to labels and musicians. Radio stations have successfully argued that they promote labels by playing copyrighted music, and that leads directly to the sale of CDs.
Webcasters were not given the same exemption from paying royalties to labels and musicians as standard radio.
Webcasters proposed paying 5 percent of annual revenue to musicians and labels for the right to play copyrighted music. Musicians and labels think Webcasters should pay 15 percent. The arbitration panel appointed by the copyright office came up with its own formula, concluding Webcasters should pay 0.0014 cents per song, per listener. Standard radio stations that stream their radio signals to a Web site would pay half that rate. Fees are to be split evenly between artists and record labels.
That formula could result in payments to labels and musicians that exceed Webcasters' revenue and lead to the collapse of the industry, Webcasters and their supporters argue.
"This royalty rate would cause an extraordinary number of Webcasters to go out of business," says Jonathan Potter, executive director of the Digital Music Association, a trade group in the District representing technology developers, retailers and Webcasters.
Aram Sinnreich, entertainment analyst at technology industry research firm Jupiter Media Metrix, believes that no Webcasters are making money.
At Hober Thinking Radio, a Takoma Park Webcaster that began streaming music in 1998, it is clear that the proposed royalty rate would cut deep into the budget. But it is not clear whether it would spell doom for the small company. Hober co-founder Gregor Markowitz estimates the folk music station would have to pay about $1,200 a month to labels and artists under the proposed royalty rate. That is nearly 25 percent of Hober's estimated 2001 budget of $64,000, he says.
"We feel like if there is any way we can hang in there, we will have more listeners later," says Mr. Markowitz, a New Hampshire native who runs Hober out of a second-floor room in his home, but makes a living as a Web page designer.
A Webcaster with just one listener who tunes in all day would have to pay about $184 in royalties a year, according to the Web site SaveInternetRadio.org. A Webcaster with 100 listeners would pay an annual royalty of $18,400.
Mr. Markowitz says Hober's three co-founders have invested about $100,000 in technology to stream music to their Web site. So far, the station has not recorded a profit.
"We didn't start the station to make money. We started it to get good music on the Web," he says.
The business is growing each year, though Hober's following remains small. The station's software lets Mr. Markowitz and General Manager John Bonneville tap a few keys and figure out that late Tuesday morning last week, 195 fans were logged on.
Only about 9 percent of Americans over 12 years old listen to Internet radio during any given week, according to a study by media research firm Arbitron Webcast Services. By contrast, 95 percent of Americans over 12 listen to standard radio during any given week.
Charging the small Webcasting industry so much money now to play copyrighted music could wipe it out, says Mr. Potter of the Digital Music Association.
"This is counterintuitive for the recording industry. Webcasters are promoting the sale of CDs and promoting new artists, and the recording industry is doing everything it can to kill Webcasters off," Mr. Potter says.

Good for business
Despite their differences, artists and record labels hold Webcasters in high regard because they believe Web radio stations are good for the music industry. That is especially true for independent labels and obscure artists whose music stands little chance of making the playlists of behemoth FM stations.
"We realize that the Internet provides a huge market for artists who don't get traditional radio play," Miss. Chaitovitz said.
But artists and labels can't simply give their music for free to Webcasters, says John Simson, executive director of SoundExchange, an unincorporated division of the Recording Industry Association of America that was established to collect and distribute royalties once Webcasters begin paying the copyright fees.
The royalty rate will generate an estimated $15 million to $20 million in revenue annually for artists and labels if Webcasters pay the fee.
"Webcasters pay for bandwidth. They pay their rent. Why shouldn't they pay for the music?" says Mr. Simson, a musician who dropped out of Cornell University in 1970 to sign a recording contract and opened in 1971 for Jethro Tull at a concert in Albany, N.Y., before deciding to attend law school.
While Webcasters worry about having to pay high royalties, independent recording labels are concerned about their own fate if Webcasters pay a royalty that is too low. Independent labels are struggling because more and more consumers are downloading music rather than buying CDs, says Gary Himelfarb, president of RAS Records, an independent music producer in Silver Spring that markets reggae music.
"We think it's a great ruling that Webcasters have to pay the royalty. We also think it's too low," says Mr. Himelfarb. "We are hurting. We need a shot in the arm in this digital age, and we think this is it. Webcasters need to pay to use our copyrighted material, and [0.0014 cents] is nothing."
Even Mr. Markowitz agrees they should pay an uncommon view among Webcasters because artists deserve compensation. But coming up with a fair formula is crucial to everyone involved in the dispute, he says.

Early casualties
The mere threat of a royalty rate already has claimed victims.
NetRadio, a Minneapolis Webcaster, said last October it would cease operations. Last week the company told the U.S. Securities and Exchange Commission that its shareholders voted to liquidate NetRadio's assets and dissolve the corporation. NetRadio, among the first Webcasters, went out of business due in part to the royalty rate, Mr. Sinnreich says.
Standard radio stations also are pulling the plug on Webcasts.
George Bundy, chief executive of BRS Media, a San Francisco electronic commerce consultant, says the number of standard radio stations streaming their signal to the Internet has fallen from 5,700 last April to 4,600 this month. The falloff is due partly to the anticipated increase in the cost of doing business once the royalty rate takes effect, he says.
Web-only stations like Hober and Radio Del Ray are more numerous than standard stations streaming their signal to the Web, but no accurate accounting of the industry's size is available. Live365.com, in Foster City, Calif., is a network of 47,000 separate Webcasters. Thousands more Webcasters operate stations out of their homes, like Mr. Markowitz.
The royalty rate threatens the diversity of music that Web radio promotes, says Bill Rose, vice president and general manager of Arbitron.
"We believe in the medium. We want it to succeed, and I think it's good for consumers because they have a diversity of choices over the Internet that they can't get over the traditional medium," Mr. Rose says.
That is why he wants Webcasters to be exempt from paying artists and labels for five years, when they are more likely to have advertisers, make money and be in position to pay the fee.
Mr. Rose has written Rep. F. James Sensenbrenner, Wisconsin Republican and chairman of the House Judiciary Committee, to push his plan for the five-year moratorium. Mr. Rose is part of a massive campaign spearheaded by Webcasters and their advocates to write members of Congress and complain about the royalty proposal.
"They have been awakened to this threat," Mr. Potter says.
In fact no issue has rallied the young, fractured Webcasting industry like the royalty dispute, and they are making their voices heard now out of concern that the proposed federal regulation will silence them later.

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