Copyright Ruling Alarms Webcasters

Record companies and bands, hungry for their share of royalties from music beamed over the Internet, are cheering a recent decision by the U.S. Copyright Office. And this victory for the folks who make the music has to do with Internet radio--not the better-known battle over Napster, the infamous file-sharing program that had millions of pirated copies of songs flying across phone lines.

In a ruling issued earlier this month, the copyright office clarified the Digital Millennium Copyright Act, which passed Congress in October 1998, and ordered radio stations that simulcast programming on the Internet to start paying artists and record labels for the privilege. Web-only broadcasters were already required to pay the royalties under the legislation.

“We’re obviously pleased. We thought they made the right decision, as a matter of law and as a matter of policy,” said Cary Sherman, senior executive vice president and general counsel of the Recording Industry Assn. of America.

However, the National Assn. of Broadcasters, which represents the nation’s 13,000 radio stations--4,000 of which have a presence on the Web--is fighting the ruling, filing suit against the recording industry in a New York district court. The broadcasters are arguing that, simply by giving music airplay, they’re already generating hundreds of millions of dollars in sales for the record labels.

That argument, said Sherman, is the one “that every user of copyright material makes. [But] they’re playing it not to benefit us, but to benefit themselves. Why shouldn’t they be paying for what is their dominant programming material?”

Broadcasters and Webcasters already pay royalties to play music--writing checks to licensing agencies such as the American Society of Composers, Authors and Publishers, or ASCAP, and Broadcast Music Inc., or BMI. They in turn pay songwriters and music publishers. But the stations have never paid royalties to the musicians or record labels, because federal law exempted radio stations’ “broadcast transmissions.”

In its ruling, the Copyright Office decreed that means only over-the-air transmissions and not the Internet.

“This little law that [President] Clinton signed in ’98 certainly has a chance to reshape the industry,” said Rob Jones, founder of KNAC.com, the online reincarnation of KNAC-FM, a hard-core heavy metal station in Long Beach that went off the air in 1995. “You’ll see an entirely different landscape than you see now.”

The amount of royalties will be determined by an arbitrator some time next year, and parties involved say it could range between 3% and 15% of gross revenue from a station’s Webcast. College and public stations may get a reduced rate.

The format is similar to the sliding scale that ASCAP and BMI charge for publishers’ rights. Money-losing operations won’t get a free pass--ASCAP has a minimum $264 annual fee, for example--but the cost won’t force stations like KCRW-FM (89.9) to shut down their Web streams, according to Will Lewis, a management consultant who spearheaded the station’s foray onto the Internet in 1995.

“We’re not worried. It’s another expense of business, but it’s not an expense that’s going to put us out of business,” Lewis said. “And I don’t think the record companies want to put us out of business. We perform too much of a service for them.”

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Once the royalty fees are set, they’ll be retroactive to October 1998, when the law passed. Jones, whose KNAC.com bills itself as “the loudest dot-com on the planet,” said he had expected the ruling and has been budgeting for the fees. But he said others--especially small niche Webcasters--might be unwilling or unable to pay.

“You’re taking someone’s passion for music, and you’re forcing the little guy to monetize it. Is it uncool? Yeah, I think so,” Jones said. “It’s the little freaks like us that go out and do these wacky things that change the scope of the business.”

The ruling signaled that Internet radio is not just the equivalent of someone sitting in the bedroom playing favorite records for friends, and it is more than a radio station having an outlet so fans can keep up after they’ve moved out of the listening area. It’s a business, and as with the songs traded via Napster, record labels expect to get paid for their music.

“The public has a different perception of what stealing is: ‘I just want to hear music. I’m not picking anybody’s pocket.’ People don’t equate that with stealing your wallet,” Jones said. “You’re going to find a fallout of the smaller dot-com radio players that can’t afford to do this.

“The little guys are just going to bail. They aren’t going to want to deal with this stuff. The larger companies are going to win. They have so many more assets.”

One of the little guys is Vic Fusco, host of “Swing City,” an hourlong show featuring modern swing on WGBB-AM (1240), a 1,000-watt station on Long Island, N.Y. “I have a little tiny radio show on a little tiny radio station. Our signal doesn’t even reach all of Long Island,” Fusco said. Because the station simulcasts on the Internet, his Sunday-afternoon show is available to members of his niche audience all over the world.

Fusco maintains he might have to cut off those listeners’ quota of Big Bad Voodoo Daddy and the Brian Setzer Orchestra if he has to start paying Internet royalties.

“I don’t make any money off the show. This is entirely a labor of love,” Fusco said. “I like the music and I want other people to hear the music. I think I’m doing a service, and I don’t think I should have to pay to do them a favor.”

Jonathan Potter, executive director of the Digital Music Assn., the Webcasters’ trade group, said the royalty issue shouldn’t drive anyone off the Net. He said online DJs just doing it as a hobby can go to a service such as Live365.com, which hosts more than 22,000 Webcasters at no cost.

The risk for those caught violating the law is a large fine. Not surprisingly, Potter disagrees with the copyright ruling, saying Webcasters should be exempt under the law, as are over-the-air broadcasters. According to Potter, if the Webcasters’ lobby had more clout in 1998 or had received more support from the NAB, it might have managed to get its own exemption.

“Unfortunately, the broadcasters’ lobby viewed the Internet as a threat instead of an opportunity,” he said. “It’s important for broadcasters and Webcasters to recognize we have much more in common than what distinguishes us. We’re both in the business of promoting artists and media and content.”