STREAMING MUSIC MAY DRY UP
Fees roil Web radio
Online broadcasters consider cutbacks, signing off as new royalty rates set to drive up costs
Bowker records the vocal track for a weekend online broadcast for 95.9 FM at the radio station's Santa Rosa studio.
Photos by CRISTA JEREMIASON / The Press DemocratPublished: Sunday, June 3, 2007 at 3:49 a.m.
Last Modified: Saturday, June 2, 2007 at 9:00 p.m.
The Kenwood stereo in the front office of the Best Western Garden Inn sits mostly idle these days. Since front desk clerk Sharae Richardson discovered online radio a few years ago, computer speakers pump music into the 300-square-foot office on Santa Rosa Avenue where she works.
"This is the modern age," Richardson said. "I can find stuff online that is not playing locally."
She streams her favorite R&B songs from a virtually limitless selection of online radio stations. And she isn't alone.
More than 35 million Americans use the Internet to connect to music broadcast online. But that luxury might soon come to an end, according to local radio stations and Bay Area Internet companies that have helped fuel the online radio explosion.
New federal regulations laid out in March will more than double the royalty fees that online broadcasters pay to the recording industry. And that will drive them off the air, say many U.S. Internet radio providers.
"We will have to quit streaming our radio station online," said Pam Long, program director at KRSH, the Santa Rosa radio station known as The Krush. "It's a bummer."
The problem, in part, is that new royalty fees for online broadcasters are prohibitively expensive, say Long and others. The fees are significantly more expensive than what traditional radio stations and satellite radio providers pay to broadcast music.
For instance, The Krush pays about $5,000 a year in royalties to the recording industry to reach about 30,000 listeners a week on its FM signal, Long said. But it will have to pay more than double that -- about $11,000 a year -- to stream its radio broadcast online to just 100 listeners a day. And that's just for 2007. The royalty fees continue to increase through 2010, when The Krush would have to pay about $20,000 a year. And if it doubles its online listeners, its fees also double.
"We're going to have to trash the whole thing, because it's not worth it," Long said.
Robin Pressman, program manager for the KRCB, the National Public Radio affiliate in Santa Rosa, said the new royalty structure will force her station off the Internet, too.
"It will effectively cause us to stop streaming," Pressman said.
NPR, others oppose fees
Online broadcasters such as National Public Radio, Yahoo, AOL and others are pushing the U.S. Court of Appeals in Washington to overturn the new fees.
The increased royalties were announced in March by the Copyright Royalty Board -- a three-judge federal panel charged by Congress with setting royalty rates for online stations based in the United States. The ruling retroactively raised rates for 2006, which are due July 15.
The recording industry approves of the ruling. Musicians and the companies that back them deserve to be compensated for the music that draws in listeners, said Richard Ades, spokesman for SoundExchange, which was created by the large recording companies to protect copyrights in the digital world.
"The CRB judges are experts that had unfettered access to pertinent information like these companies' accounting records," Ades said.
Before the March ruling, Internet broadcasters paid fees to record companies under an agreement negotiated between the two industries, said Richard Strasser, senior attorney for the Copyright Royalty Board. But after the two sides could not agree during the most recent rounds of bargaining, the board was called in to make a judgement.
"It was very similar to a trial," Strasser said.
Opponents of the new royalties say the results will destroy the burgeoning online radio industry.
The judges set royalty fees that are unrealistically high, said Tim Westergren, founder of Oakland-based Pandora.com, which broadcasts music to its 6.5 million online users.
"They will put us out of business, us and everyone else," Westergren said. "It's uneconomical . . . It needs to be set at a rate that allows us to still operate."
Under the old royalty fee -- about 1 penny for every 14 songs a user hears -- Pandora.com paid about 25 percent of its total revenues to the music industry. The new fees will force it to pay about 70 percent of revenue to the recording industry by 2010, Westergren said.
Like many other online radio companies, Pandora is still developing its business model and relies on investors to keep the company afloat.
"Pandora is losing money hand over fist right now, and will be for several more years, even at the old rates," Westergren said. "At the new rates, it becomes a fool's errand. We'd stop operating because we'd just be wasting investors' money."
Some say end not near
Predictions of the demise of online radio are exaggerated, said SoundExchange's Ades. The vast majority of online broadcasters are just proclaiming doom to get a better deal, he said.
"It's nonsense," Ades said. "It's a negotiating ploy so they can get Congress to lower the rates."
Across the nation, radio stations such as The Krush have urged listeners to call their congressional representatives to complain. The effort appears to be working: The Internet Radio Equality Act has 100 co-sponsors in the House and a similar bill was introduced in the Senate on May 10.
The House bill would require webcasters to pay about 7.5 percent of their revenues for performance royalties, which is still more than what satellite radio pays. Traditional radio broadcasters do not pay performance royalties.
All three types of broadcasters must pay publishing royalties, which are about 4 percent of revenues.
But Congress is not likely to act by July 15, said Rod Hsiao, a political consultant for Foster City-based Live365.com, which hosts online radio stations for about 10,000 broadcasters.
"If we are not able to find a solution, we will really have to shut down," Hsiao said. "We would have a whopping payment due on July 15 that would effectively shut us down."
College radio feels pinch
The college radio station for Sonoma State University, KSUN, is hosted by Live365.com. Petaluma resident Art Granoff also uses the Web company to host his online station, www.frontrow
radio.net.
"Internet radio offers people freedom of choice to experience music not played on corporate radio," Granoff said. "We feature local Sonoma County artists who don't get featured anywhere else."
Granoff said about 60 people listen to his station during peak hours, and their locations range from Finland to Brazil. He pays Live365 less than $400 a month to host his station, he said. Advertising on his site pretty much lets him break even on what he describes as a hobby to his live recording business.
"We could never afford a tripling of the rates," Granoff said. "Frontrow would be regulated into the sunset."
If Internet radio dries up, some listeners might turn back to their stereo systems. But Richardson said she wasn't so sure.
"I'll probably just listen to music I have on my computer," she said.
You can reach Staff Writer Nathan Halverson at 521-5494 or nathan.halverson@pressdemocrat.com.
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