Online Radio Pioneer Falls Victim To New Royalty Rates

By | July 23, 2002 at 12:00 AM

The first commercial radio station to cybercast its over-the-air playlist is among the first to fall victim to newly imposed royalty rates for online broadcasts.

KPIG stopped streaming music online Thursday, ending a near seven-year run on the Internet. According to its own estimates, the small-scale station would have been forced to pay $24,000 in back royalties (or approximately $3,000 per month) from this year alone on an arm of the station that generates little or no revenue on its own. It was purely for the benefit of those who were interested in hearing it.

Based in Freedom, California, KPIG’s 2,850-watt signal spans only a 32-mile radius, though the audience for its eclectic playlist – something of a difficult commodity to come by on the conventional radio dial – far outgrew that perimeter thanks to its Internet stream.

“KPIG’s owners have decided to suspend our live webcast until a reasonable solution can be found on the issue of performance royalties,” reads a message posted on the station’s Web site, “The fees currently set by the U.S. Copyright Office are absolutely unworkable, given the current Internet Radio marketplace. Until a new fee structure is set, or until we are offered a workable alternative by the major record companies that control the bulk of the copyrights, we will not be able to webcast our programming… We sincerely hope that this is just a temporary setback.”

The new royalty rate that KPIG programmers say are forcing them to pull the plug on their cybercasting stems from a decision reached by the U.S. Copyright Office in June, which required stations – both conventional ones that cybercast their playlists and those that broadcast online only – pay a fee of 0.07 cents per listener per song (see “Will Lower Royalty Rates Save Online Radio?”). The contentious fee, payable to artists and labels, is part of the 1998 Digital Millennium Copyright Act, which dictated that copyright owners be compensated when their work is presented online, although a much-debated rate was only announced last month. As such, the royalties are retroactive to October 1998, when the DMCA passed.

Online stations, like their terrestrial counterparts, have always paid royalties to songwriters and publishers. Those rates are based on a percentage of a station’s revenue, not its listenership. Conventional stations are exempt from paying a fee to artists and labels because of a congressional decision reached decades ago that defined over-the-air broadcasts as free promotion for the artists and their albums. KPIG isn’t completely devoid of an Internet presence, however, as it continues to broadcast previously recorded in-studio performances and station-sponsored concerts, which aren’t subject to the new royalties.

KPIG is one of about 50 stations, both conventional ones that cybercast their programming and Internet-only stations, that have ceased online operations since the U.S. Copyright Office’s decision last month. Other brick-and-mortar stations that have pulled their own plug include rock stations WLUP (Chicago), WMMR (Philadelphia) and WAAF (Boston), but it’s the loss of stations offering genres that aren’t as readily available on the FM dial that is most upsetting to listeners.

SomaFM, an online-only station specializing in electronic music, shut things down almost immediately after the decision was handed down. Program director Rusty Hodge said he wasn’t opposed to paying a fee to artists and labels, but thought the rate should be based on a percentage of his revenues. After all, if he wasn’t making any money doing this – chalking it up as more of a labor of love than capitalist venture – why should the recording industry?

“A fair royalty rate should be based on a percent of revenue, with an annual minimum,” he said. “If you look at what a lot of other countries are doing – many of the European companies – they all charge a rate that’s based on revenue. It’s from three to six percent, it’s a sliding scale. If your revenues are pretty low, it stays down at three percent, and once you cross a certain barrier it goes up to a higher royalty rate. And it’s also very comparable to the [songwriter and publisher organizations] ASCAP and BMI.”

If the new rate isn’t amended, other stations are likely to follow the path of KPIG and SomaFM before the first payment is due in November. As an alternative, many online-only stations may move their operations to Canada or overseas, Hodge noted. Pirate radio stations may become more prevalent, and a new software application that masks a station’s point of origin may be utilized. Another option is that some stations, mostly the smaller bedroom broadcasts, will adopt a “come-and-get-me” attitude, and, given the number of stations that are out there, it could conceivably take the recording industry years to find them all.

In any case, surfing the Internet for eclectic programming is no doubt a pastime headed for troubled waters.

“It’s not a fun environment to be in right now,” Hodge said. “All we wanted to do was expose people to music.”

Stations have until mid-August to appeal the copyright office’s decision on the new rates.

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