Online Radio Stations, Record Labels Have Different Spins on Licensing Fees

For decades, record companies have viewed radio broadcasters as friends whose loyalty carried a price tag.

The labels provide the music that can draw listeners and advertising dollars to a station, but the broadcasters pay them no royalties. Instead, the money goes in the other direction. Labels funnel millions of promotional dollars each year to radio stations to help get their songs played, knowing that airplay is critical to selling CDs.

Now the Internet has spawned a new breed of personalized radio station, one that’s more responsive to individual consumers’ tastes. And to the record companies, these stations aren’t friends at all. They’re rivals.

That rivalry underlies a legal battle between the labels and personalized online broadcasters, which is being waged in two federal courts and the federal Copyright Office. The rulings could determine whether free Web radio stations sound just like their over-the-air counterparts or whether they deliver something more personal.

The issue is important because as high-speed, always-on Internet connections spread to more homes, the Internet slowly is becoming the new airwaves. In a year or two, such devices as advanced cable TV converters and Internet-enabled stereos will tune in to Web stations as quickly and easily as a boombox flips around the FM dial.

Thousands of radio stations already have begun broadcasting for free on the Web, including hundreds that exist only on the Internet. These range from do-it-yourself outlets such as Shoutcast to professionally programmed operations such as Listen.com.

The number of personalized stations is small, but their ranks include some of the most popular Webcasters, including Santa Monica-based Launch Media, MTV-owned Sonicnet and Microsoft’s MSN Music. Although their methods differ, all let consumers shape what they hear.

At MSN Music, for example, consumers can build a temporary station around a single band or song they like, producing a few hours’ worth of music that’s likely to hew closely to their tastes. Launch and Sonicnet, meanwhile, let users submit a list of audio likes and dislikes that form the basis for the playlists they hear.

The dispute between the record companies and some of the personalized Webcasters, most notably Launch and Sonicnet, revolves around a 1998 law intended to protect the labels and other copyright holders as their creative wares moved to the Internet. Called the Digital Millennium Copyright Act, the law sets the ground rules for the licenses that Webcasters must obtain from the labels to broadcast their songs on the Net.

Under the law, Webcasters that offer “non-interactive” services that meet a set of playlist guidelines qualify automatically for a license from all the labels, with fees to be set by a government arbitration panel. Others have to negotiate with each label for a license to use its music, a process that’s far more arduous and expensive.

Webcasters and the Recording Industry Assn. of America still are fighting over the size of the fees for automatic licenses, but the result is expected to be low enough for Webcasters to keep offering their services for free. That’s not the case with interactive licenses, and interactive Webcasters are expected to offset those costs by charging monthly subscriptions.

The key question: What constitutes an interactive service? Congress defined it in 1995 as one that lets listeners dictate which songs are played to them individually, as a jukebox would. After some vigorous lobbying by the RIAA, Congress expanded the definition in 1998 to include “a program specially created for the recipient,” even if the recipient can’t control which songs are played when.

What that means, in the RIAA’s view, is that Congress limited the automatic license to radio-like services that give listeners no control over which songs are played. The underlying purpose is to protect the labels’ sales, which they argue are threatened by personalized Webcasts that satisfy a consumer’s musical cravings.

For free Webcasters, that would rule out such consumer-friendly features as the ability to skip past an undesirable tune and customize playlists so that they never play hated songs or artists. Such features don’t threaten sales, the Webcasters argue; they promote them by exposing consumers to new artists they’re more likely to enjoy.

The fight is likely to drag on for weeks as the courts and the Copyright Office mull arguments from both sides. Launch has suspended its personalized stations while it negotiates with the RIAA, but the other customizable online outlets remain in operation--at least for now.

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Times staff writer Jon Healey covers the convergence of entertainment and technology.