Music industry to webcasters: Pay up!

Music industry to webcasters: Pay up! By Janelle Brown Will the new copyright law's rules help Web radio flourish -- or smother the infant medium?

By Janelle Brown

Published November 9, 1998 8:00PM (EST)

You may never hear a good techno set on a radio station on your FM dial -- there's just not a mainstream market for such esoteric music. But every month, more than 90,000 jungle, house and techno fans flock to the Betalounge Web site to tune in to live DJ sets by some of the world's most renowned turntable experts. The year-old startup is run by a handful of young musicians, and as co-founder Brian Benitez explains, "We're trying to provide an outlet for the kind of music you don't hear in traditional media -- we want to help be a promotional outlet for smaller record labels."

But thanks to the Digital Millennium Copyright Act, legislation that was signed into effect by President Clinton last week, the Betalounge founders are worried about staying in business. Provisions of the Act that restrict what webcasters can do were championed by the Recording Industry Association of America as a way to regulate the distribution of music online; these new rules may strangle the infant Net radio and webcasting companies before they have a chance to explore what their new medium can do.

"It could be prohibitive. If this is implemented in a stringent way, we won't be able to do what we're doing right now, and it wouldn't be as much fun," Benitez worries. "It's a freakout on the part of [the RIAA] -- they don't really understand digital music so they're going for all kinds of special protection that goes against precedent." Traditionally, broadcast radio stations have never paid recording companies for the right to play music -- but now the industry is trying to rewrite the rules.

The Betalounge isn't alone in its concern about the new bill. More and more people are surfing to a soundtrack: More than 1,700 radio stations currently broadcast online, according to -- from terrestrial radio stations being redistributed via the Web, to small eclectic online-only stations like GoGaGa, to personalized radio services like Imagine Radio that serve up countless channels of niche music. Rolling Stone launched Rolling Stone Radio last week, and SonicNet released its own service, FlashRadio, earlier this month. There are even more webcasters that, like the Betalounge, broadcast weekly shows and concerts.

Net music is a nascent industry that just happens to be facing off against an extremely powerful trade association -- the RIAA, which represents the legal and financial concerns of the $12.5 billion recording industry. The record labels are worried about protecting their music and their profits; the Digital Millennium Copyright Act promises to do both. But digital media companies are starting to fight back by organizing their own lobby. And as legislation creeps into the online world, there's promise of a long battle between record companies and the technology companies that want to change the way we consume music.

Until just last week, online radio was an unregulated no man's land. Although many online radio stations paid ASCAP and BMI royalties, which go directly to composers and songwriters, no legislation dictated how online radio and webcasting should comply with regulations and rights issues. That's all changed with the Digital Millennium Copyright Act.

The Digital Millennium Copyright Act is, in many ways, exactly what the online webcasting industry needed -- for the first time, it legitimized their business by paving a formal relationship with the record industry. The bill, created so the U.S. could comply with the global copyright protection treaty from the World Intellectual Property Organization, mandates a new statutory license fee for the "digital performance right" to music for all commercial webcasting. In other words, if you're going to run an online radio station or webcasting service, you'll get unlimited access to music as long as you pay a flat sum to the RIAA for the right to do it.

As Joe Pezillo, manager of the eclectic online radio company MacroRadio, puts it: "A statutory license will theoretically provide us with the flexibility that we're looking for, and would let us play a much more diverse selection than most radio stations offer. We're encouraged by the blanket license."

But the statutory license also forbids a whole range of activities, including "interactive services" and customization services, such as the one offered by Imagine Radio that allows listeners to program personal radio channels by rating the bands they like. The RIAA is concerned that this would be similar to a jukebox, enabling users to listen to the band they want when they want, thereby undercutting the market for CDs. If webcasters who want to offer personalized music selections don't pony up to the RIAA, they'll still be able to broadcast, but they'll have to pay their license fees directly to each record company instead of paying one lump sum directly to the RIAA -- a daunting, and some say unfeasible, task.

That could be a death knell for personalized radio online. Imagine Radio is fighting to keep its service, and SonicNet has already pulled plans to do its own customized radio. Considering that last year "personalization" was the trend to watch, some industry insiders feel that
the RIAA is prematurely choking an exciting technology.

There are other restrictions as well. Webcasters will be forbidden to play more than two songs in a row from the same album, or three in a row from the same band, within a three-hour period. That rule has already put an end to sites like Dead Radio and Floyd Radio, which had developed cult followings by broadcasting only Grateful Dead and Pink Floyd songs. The Betalounge founders, in particular, are concerned about the requirement that a webcaster must identify each song, title and artist as the track is being transmitted -- a task that will be impossible for them, since DJ sets can cut between 100 songs each hour. And why, asks Benitez, should indie-oriented webcasters and radio stations pay license fees, if most of the content they are playing is from independent labels not represented by ASCAP or the RIAA?

Then there's the still unresolved question of just how much money the RIAA wants from webcasters. If the cost is too high, the statutory license fee could be an unwieldy burden on a delicate new industry. The RIAA is pushing for a fee as high as 40 percent of all revenues, according to participants in the negotiations, and the webcasters are battling to keep that down to 2 to 4 percent. For a small startup webcaster, even a small percentage of revenues could be the difference between success and failure.

"The Digital Millennium Copyright Act will definitely have an impact on what webcasters do. The true leaders in this space will really be positioned to rise to the top, and people who don't have the technology or flexibility will fall through the cracks," says Dave Samuels, CEO of the online radio group "It will put some people out of business."

Although no Net radio company will say that it opposes paying for music -- who wants to deprive musicians of their livelihood? -- most admit that they are bitter that online radio is being inflicted with fees simply because it is a new medium. Broadcast radio stations don't have to pay any kind of statutory license fee: Record labels have traditionally given away their content to MTV and radio stations, charging only BMI and ASCAP royalties. As Cary Sherman, the legal counsel for the RIAA, carefully explained at the Webnoize music technology conference last week, this isn't necessarily what record labels want -- they'd like to be profiting from each play, too. As Sherman said, "I am always mystified by the notion that everyone should be able to use someone else's music without paying for it."

Brad Porteus, vice president of business development at Imagine Radio, is more blunt: "The precedent has been that radio is promotion for record labels, and
[some think that] therefore [Internet radio] should also have free access
to music. The RIAA is saying that that wasn't a precedent -- that was a

So even though many Net radio stations are trying to placate the jittery, profit-focused record companies by selling themselves as promotional vehicles and potential online retail outlets, the RIAA's position makes it look like, this time around, it wants to make sure that it's got a share of the revenue up front. Web radio execs say such a strategy would be shortsighted: "The RIAA should not look at this purely from a legal perspective but also from a marketing perspective," Jan Anderson, senior vice president of sales and marketing for NetRadio, responded to Cary Sherman during a panel at Webnoize on Tuesday. "Do you make your money up front by skimming money off the top before this gets big, or do you look far ahead and realize that you will make more money in the future when this market gets mainstream?"

Hoping to influence the debate and challenge the recording industry's moves, the webcasters have begun to organize their own industry association. Seven music technology companies such as TCI Music (which owns SonicNet), Real Networks, a2b and have joined a new group called the DiMA, or Digital Media Association, which they hope will be the online entertainment industry's first lobbying group. They envision their industry as having to battle not only the record industry, but also broadcast, cable, satellite and motion picture companies, songwriters and music publishers -- all of whom see the Net as a potential threat.

DiMA officially formed in June 1998, when the members realized they had to react quickly to the Digital Millennium Copyright Act speeding its way through Congress; by moving fast, the DiMA managed to get several prohibitive features written out of the bill. The association will accept members in any kind of digital media company, like online music and video, for $10,000 (a fee which is prohibitive to smaller webcasters); DiMA acting president Nicholas Butterworth, president of SonicNet, was aggressively soliciting new members among the attendees of Webnoize earlier this week.

"We're busy in Washington fighting the good fight," evangelized Butterworth at a Webnoize lunch, giving the DiMa sales pitch while attendees munched on overcooked chicken. "It's exciting to see the response we're getting to DiMA. It didn't seem that way a few months ago: There was a lot of fire we were drawing."

DiMA has grown slowly, thus far: Some webcasters decided not to join out of concern that the group wouldn't represent the interests of smaller companies. Others say the record labels were hinting that they would stop working with them if they joined DiMA. But now that the legislation has been signed, the record companies' objections to DiMA seem to have passed; on panels at Webnoize, DiMA and RIAA representatives were downright solicitous to each other.

And, in fact, many webcasters say that just in the last month, since the Digital Millennium Copyright Act started becoming a reality, their jobs have become much easier. Now that there are laws requiring webcasters to pay up, the record labels that before shied away from the Net are suddenly more open to working with online music companies. "Suddenly, we're a partnership, and if we profit, they profit," explains Porteus of Imagine Radio.

The Digital Millennium Copyright Act will undoubtedly not be the end of legislation governing online music. Most Net companies realize they've only been lucky to have had a free ride until now. Still, webcasters hope the music industry will start to pay attention to how new distribution technologies could benefit them -- instead of clinging to the notion that webcasters are simply music pirates out to erode CD sales.

As Anderson puts it, "We have to understand their concern, but they have to know what we're bringing to the table. Ultimately, there's no benefit to anyone -- webcasters or record labels -- if Net radio doesn't become mainstream."

Janelle Brown

Janelle Brown is a contributing writer for Salon.

MORE FROM Janelle Brown

Related Topics ------------------------------------------

Copyright Intellectual Property Music