Wed radio: No pay, no play

Charles Arthur reports on a ruling that may destroy web radio

They'll probably call it "the day the music died". Not, this time, a plane crash killing a songwriter (Buddy Holly in Don McLean's "American Pie"), but a fee to be imposed by the US Library of Congress, part of the US Copyright Office, on broadcasters using streaming technology on the net to create tiny radio stations. The decision, handed down last week, has caused outrage from the listeners and the radio stations. Many of the latter say that the fees are punitive, and that their only option is to close down.

Among those that did shut within days was Yahoo!'s radio channel, which hadn't been profitable since Yahoo! acquired it in 1999, in a $5bn stock deal to buy Broadcast. com. The Recording Industry Association of America (RIAA), representing the record labels, isn't pleased either: it says the rates (of 0.07 cents per song per listener) are too low, at half what it had demanded.

Doesn't sound much? It adds up. Say you attract an average of 1,000 users for 24 hours a day, all year. You automate your station, and you don't need announcers. You can play 15 songs an hour. Your fees for one year are 0.07 x 1000 x 15 x 24 x 365: $91,980 (£61,000). And that's backdated to 1998.

Hardly any of the web pages intended to be a business. Internet radio is easy and cheap. You set up a "stream" from a web server, which can be tapped into. The listener's browser dips into the stream of bits and converts them on the fly. (See http://www.pcworld.com/howto/article/0,aid,16060,00.asp for more explanation.)

Streaming has enabled the creation of perhaps thousands of internet radio stations, which grew without regulatory approval, venture capital or advertising. The quality is generally less than FM, but it's music. And internet radio became popular because the choice could be eclectic.

Many internet radio operators had believed they would be exempt from fees to the RIAA, because the panel examining it said it would find a fee based on "what rates would have been negotiated in the marketplace between a willing buyer and a willing seller for a license to engage in webcasting". For most webcasters, that rate was zero, or a minuscule percentage of their income. But the RIAA didn't ask them.

Yahoo! had other plans: according to Mark Cuban, the entrepreneur who set up Broadcast.com, it wanted to squeeze out the other radio stations and have the market to itself. (Yahoo! hasn't commented.) He claims it negotiated with the RIAA to set a high rate. That marketplace of a "willing buyer and a willing seller for a license" was small: one buyer, one seller. Plus, thousands on the sidelines, with whom the RIAA didn't negotiate, outraged. Yahoo! has now ducked out of the non-business it ruined.

First Napster, now internet radio. Can anyone doubt any more that the record industry really, truly doesn't like the net? The question is, which will prevail?

www.copyright.gov/carp/webcasting_ rates_ final.html; www.riaa.org