The day internet radio DIES - Part II

The following is a continuation of my blog entry entitled: May 15, 2007 -- The day internet radio DIES.

Another aspect of the Copyright Royalty Board proposed fee schedule that deserves mentioning is that it continues the unbelievable disconnect in royalty payments between terrestrial stations and internet/satellite radio (at least as far as I can tell). Ever wonder why your favorite FM station, with all the backing of a mega-conglomerate like ClearChannel, doesn't offer an online stream? I know I've thought about it before (the local ClearChannel rock station here does not offer such a service). The (likely) answer: It's because as soon as they cross over to streaming their station online, they are required to pay additional royalties that they are not obligated to pay as terrestrial stations. That's right -- internet radio stations are actually required to pay royalties beyond those that terrestrial stations are required to pay. Now tell me that makes sense.

I'm sure that the additional royalties are not the only factor driving the decision not to stream online for these FM stations, but it's got to be a major player at the very least. And don't tell me they lack the capital to purchase the necessary equipment to get a stream off the ground. If Joe Blow the internet radio hobbiest can stream his favorite Led Zeppelin tunes at 192 kbps mp3 using his P.O.S. home computer and COMPLETELY FREE SOFTWARE, then certainly a ClearChannel owned FM station can find a way to afford to simulcast their terrestrial signal. In the end, I've got to think that the additional royalties make venturing into online streaming significantly less attractive to terrestrial radio.

As noted above, the gap in royalty payment requirements between terrestrial and internet radio is unfortunately a continuation of the status-quo. The Digital Millennium Copyright Act of 1998, which was built upon the Digital Performance Rights in Sound Recordings Act of 1995, says that internet radio stations have to pay performance royalties on songs played, in addition to composer royalties on those songs. Terrestrial radio stations pay composer royalties, but are not obligated to pay performance royalties. Why, you ask? Because of the long-established rationale that recognizes record labels benefit from the promotional value of songs played on terrestrial stations. In essence, the logic is that the promotional value to record labels offsets any performance royalties that would be due. So why is it that internet radio is not afforded the same rationale??? If anything, internet radio provides more promotional value for a wider artist-base than terrestrial radio. It just doesn't make sense. Unfortunately, the CRB ruling set to go into affect May 15, 2007 not only increases the royalty fee schedule, it also appears that it fails to address this disconnect.

I'll admit that I do not know exactly how the fee schedule is setup for the composer royalties terrestrial stations must pay. Perhaps they are somewhat inflated to try and balance with the total royalties paid by internet stations, I don't know. But from the reading I've done, it doesn't appear to be this way.