Radio Resists Webcasting Royalties

Broadcasters vow to fight in the courts and Congress a landmark ruling by the U.S. Copyright Office that they must pay fees to record companies for simulcasts of their radio stations on the Internet.

Radio stations are now exempt from paying royalties for their over-the-air broadcasts, but Copyright officials concluded in their 35-page ruling that that does not apply to the Web.

"Transmissions of a broadcast signal over a digital communications network, such as the Internet, are not exempt from copyright liability," the office said in the ruling.

The Copyright Office's review began at the urging of several record labels and the Recording Industry Assn. of America (RIAA). RIAA president/CEO Hilary Rosen says the Copyright Office reached the right conclusion.

"The broadcasters were hoping that they [were] not required to negotiate this right, and the copyright ruling goes a long way to putting that to rest," says Rosen. "Part of this has been about equity—the Webcasters are paying, and it's not fair the broadcasters shouldn't when they're competing for the same listeners and advertisers."

The Copyright Office has also ruled that broadcasters pay royalties retroactively to 1998, when the Digital Millennium Copyright Act was passed.

How much their Webcasts will cost will be determined by an arbitration panel. Those negotiations will likely take several months, in part because broadcasters have little incentive to quickly resolve the dispute. Moreover, in March, the National Assn. of Broadcasters (NAB) went to the U.S. District Court for the Southern District of New York, asking it to settle the issue. The case is still pending.

The next step, says Rosen, is for radio station owners, Webcasters, and the recording industry to sit down and negotiate a payment rate. "We really want this to be a workable right. We don't want it to be onerous, but we want to be fair to the artists and the copyright owners."

According to BRS Media, an Internet radio consultancy, there were 4,398 radio stations streaming on the Internet as of November. More than half are U.S. radio stations, while 451, or roughly 10%, are Internet-only.

"It's a definite wake-up call, given that they aren't generating any revenue or profit at this particular juncture," says George Bundy, BRS Media president. "If you have to eat these costs as well, you would take a second thought in developing a business of that nature."

Yet Rosen does not fear the ruling will stunt the growth of music on the Internet. "In fact, I think just the opposite. There's tremendous incentive for everybody for the Internet to be a new opportunity and a level playing field, and certainly those Webcasters that we have done business with will say licensing has not stopped their business at all. If anything, just the opposite—it's given them both a sense of comfort and partnership with the music community."

BROADCASTERS BLAST RULING

The Copyright Office handed a defeat to the NAB, which is spearheading the fight on behalf of its members.

"Broadcasters currently pay hundreds of millions of dollars annually to the licensing societies representing the authors, composers, and publishers and have never been required to pay additional fees to the record companies and artists," says NAB president/CEO Eddie Fritts in a statement.

If the NAB loses its court case and subsequent appeals, it vows to take its battle to Capitol Hill, where the broadcast lobbying group has many friends. Fritts thinks the ruling is "contrary to existing federal law and Congressional intent as expressed in th Copyright Act."

With only one battle in a war against the fees won, Rosen is confident an artist and music industry coalition will refute efforts to reverse the decision. "Our interests are exactly aligned, and I think we'll prevail," she says.

Clear Channel Communications, the nation's largest broadcast company, streams roughly 300 stations, all of which will continue to simulcast on the Web for the time being. "We are disappointed with the decision but feel that it is premature for us to comment until we have all the facts in front of us," says spokesman Randy Palmer.

The second-largest radio station owner, Infinity Broadcasting, a division of Viacom, has a company policy barring stations from Webcasting, so it is not affected by the Copyright ruling.

"This ruling makes no sense," says Emmis Communications chairman Jeff Smulyan. "The record companies want to get paid before anyone has any revenue. If this isn't reversed, no one will continue streaming because we'll pay extra without generating any new revenues that might lead to a profitable business."

In the meantime, Smulyan says, his stations will continue their Web simulcasts. "I think we will wait until the courts hear this. It was fairly certain that we would lose in this venue."

Yet Rosen counters, "They're already streaming, and they already have new advertising, and they're already working these new uses into their business plans. What we're saying is, 'As you develop your business plans, you should also consider one of your costs being paying for the very content that you're using to create the business.' "

Smaller broadcast companies are not excluded from the fees, either. Nassau Broadcasting president/ chairman Lou Mercatanti sees no economic value to discontinuing his stations' audio streaming. "It wouldn't be fair to our listeners; it's just the cost of doing business," he says. Nassau owns 32 radio stations in New Jersey, New York, Pennsylvania, and Connecticut.

INTERACTIVE OR NOT

In a separate ruling, the Copyright Office rejected the Digital Media Assn.'s (DiMA) request to open a rule-making proceeding to decide whether or not Webcasters that allow users to customize their audio stream be viewed as interactive, since such a designation carries higher royalties. The alternative compulsory licenses are usually less costly, since they allow a company to pay a flat rate instead of negotiating a fee with each record label. The RIAA opposed DiMA's request.

Seeing that the Copyright Office did not take a strong position either way, Rosen expects the issue is "going to come up somewhere else," such as in the arbitration hearings with broadcasters, or possibly the courts or in Congress.