Will audio streaming be worth the cost?
Originally published in Current, Sept. 24, 2001
By Dan Odenwald
Public radio stations that transmit their signals online once prayed for big bucks to come from the Web. But in reality the streamers are paying the big bucks themselves to stay in the Internet game, and the costs are getting bigger.
At issue are the fees that copyright holders demand from streamers for use of their works online. The debates between rights-holders and broadcasters have sparked court challenges and tense negotiations. For public radio, with its limited resources, the squeeze is always felt more acutely.
In the over-the-air world, music broadcasters pay copyright royalties to one group: composers and music publishers, represented by the BMI, ASCAP and SESAC agencies. In a deal worked out several years ago on behalf of public radio, CPB agreed to cover the fees of copyrighted music at a cost of about $5 million to $7 million a year.
In online streaming, however, the law requires webcasters to pay fees not only to songwriters but also to artists and their record labels. Exactly how much? No one knows yet. Establishing that figure is currently the subject of a proceeding at the U.S. Copyright Office, pitting broadcasters against the recording industry and asking the essential questions: Who will pay? Who gets paid? And how much?
A major news provider also is asking for new payments for Internet streaming. The Associated Press wants to charge a 15 percent surcharge for member stations that stream its news. Naturally, public radio managers are balking at what they believe is an unreasonably high price for a service that reaches only the relatively few people who listen on their computers.
"The recording industry and the AP are sticking a knife into a brand new, fledging technology that needs all the help it can to survive," said Jim Paluzzi, g.m. of Boise State Radio. "Let them kill it. It will be a sad commentary on corporate avarice and greed."
Add to these fees the costs of servers and software for streaming, which rise with every new web listener, and the economics of streaming become daunting.
It's clear that the Great Internet Boom didn't pan out the way it was supposed to. Streamers haven't made their fortunes on the Web, and they don't think others should be able to make their fortunes off of them. The conflict could drastically slow the rollout of webcasting for years to come.
Who pays for the music?
Beginning in 1995, Congress--with the help of the recording industry--came to see that digital media would make it much easier for consumers to obtain perfect copies of music without paying. Recording industry executives complained that this could put them out of business.
Congress agreed and passed the Digital Millennium Copyright Act of 1998, giving record labels new copyright protection to shield their music from illegal copying. Among other things, the law required webcasters to make it difficult for listeners to copy works off the Net. For example, webcasters were forbidden from playing more than three songs from the same album, pre-announcing music selections and offering Web archives of certain kinds of programming.
The law also required webcasters to pay record labels for use of their music, something over-the-air broadcasters never had to do. In fact, broadcasters were exempt from the digital copyright law's restrictions because, it was thought, local broadcasts pose a much smaller threat to rights-holders than streaming through the Internet, a global medium.
But then radio decided to get into the webcasting game, throwing a wrench into interpretations of the law. Are streaming radio stations compelled to adhere to the rules of the digital copyright law? Are they subject to the same fees? No, said the National Association of Broadcasters (NAB), and it went to court to prove it.
NAB argued that the mere fact of playing the recording industry's music online was payment enough. People hear music on the radio or on the Web, and they go out and buy CDs, said NAB spokesman Dennis Wharton. In other words, Mariah Carey wouldn't have made a dime if it weren't for the radio stations that play her music.
Stations that stream, Wharton said, do it as a public service. It's a money-loser, and stations provide the audio not to attract new listeners but to serve the ones they already have. People who can't get the signal over-the-air or who go away on vacation want to stay in touch with their local stations.
But, last month, a federal appeals court in Philadelphia disagreed with the NAB, ruling that radio stations are no different than webcasters: If you want to play, then you have to pay, the court said. The new copyright law intended to treat all webcasters the same. The Internet, a new medium, has new rules.
"If courts and the RIAA [Recording Industry Association of America] are not careful here, they will put this business out of business before it even gets started," Wharton said. Hundreds of stations have quit streaming because of the fees that could be assessed. "I'm not sure how it benefits the RIAA to kill this business in its infancy."
The RIAA rejects the argument that radio stations already pay the labels by driving listeners to record stores. It's wrong-headed to think that asking broadcasters to pay artists for their work is a form of double-dipping, said Jano Cabrera, an RIAA spokesman. When Steven Spielberg turns a Michael Crichton novel into a movie, he still has to pay the writer for rights, Cabrera said, even if the movie inspires viewers to buy books.
He agrees that audio streaming today makes no money, but says record labels still should be compensated. In an era when AOL Time Warner and Viacom invest millions of dollars in Internet technologies, the RIAA asks, why shouldn't broadcasters be expected to invest in their future business as well?
The court's decision is not surprising, said John Crigler, a D.C.-based attorney for many public radio stations. It's in keeping with legal trends. Consider recent court rulings: publications must pay freelancers for use of their work in electronic form; commercial radio stations have to pay actors in advertisements a separate rate for webcasting; and authors are entitled to publish their books online even after they've given away the print rights.
"In copyright terms, the World Wide Web really is new a world," Crigler said.
A break for public radio?
Streaming stations are running up a music copyright bill at rates they won't know until the copyright proceeding concludes months from now, according to Crigler. Once rates are established, record labels can charge retroactively for all streaming since 1998. The meter is running.
Crigler believes public radio may get a break. Just as pubcasters were able to negotiate a reduced rate with ASCAP, BMI and SESAC, they hope to cut a deal with the record labels. The rate that's ultimately set won't be exorbitant, Crigler said. "It doesn't pay for the RIAA to drive distributors of their music out of business."
With support from CPB, lawyers from NPR are representing public radio during the copyright negotiations. It's unclear whether CPB will pick up the tab for any fees that are finally assessed. The corporation is required by statute to use 6 percent of its budget to pay for certain types of system costs, including some copyright fees, though not necessarily the full amount, said CPB lawyer Steven Altman. "We would like to solve the problem, but it can't bankrupt us," he said.
Phil Smith, g.m. of WVUB in Vincennes, Ind., killed his audio stream last spring, fearing the untold costs of putting music on his station's website. "We operate within a budget," he said. "Rather than lay someone off down the road, we decided to stop streaming."
WVUB, which is licensed to Vincennes University, is staffed by students, who use the station as a laboratory. Many of their parents in distant cities would tune into the station via the Web. "The students are missing out on opportunity to work with and learn about new technologies because we're being treated just as commercial stations who can profit from web streaming," Smith said.
Stations need to worry about more than just money, said Ginny Berson, v.p. of the National Federation of Community Broadcasters (NFCB). If the courts rule that broadcasters must adhere to the provisions of the new copyright law, then they better start paying attention to its rules, which seek primarily to prevent copying.
Forget about putting a Miles Davis retrospective on the Web, Berson said. Under the digital copyright act, stations can't stream an entire CD. Neither can a station forward-promote song titles or repeat shows multiple times in a given week.
These restrictions were designed to control Web-only streamers, Berson said. The law didn't give much thought to radio because record labels sought to keep radio out of the streaming business. Most stations that stream today ignore the new copyright rules because they aren't enforced. In short, she said, they hope no one's monitoring them.
AP wants 15 percent surcharge
While many public radio stations worry about the eventual copyright costs of streaming, those who subscribe to the AP already are dealing with very definite numbers.
For Paluzzi of Boise State Radio, that figure is $2,000 annually--the amount AP wants to charge Boise State Radio for streaming its news content online. His radio network serves two-thirds of Idaho, or roughly 70,000 listeners. On the Web, Boise State Radio has the infrastructure to support 50 simultaneous listeners.
AP now charges Paluzzi about $13,500 to serve its over-the-air audience. He believes the $2,000 Web surcharge is "preposterous." Paluzzi refused to pay and now blocks out all AP news programming from his stream. "I am not going to pay an extra 15 percent to serve less than one-tenth of 1 percent of my audience," he said. "That's just bad business."
Because the AP negotiates its fees with each station independently, Paluzzi urged his fellow public radio stations to unite and battle the AP surcharge collectively. Several stations, equally outraged, agreed and were slated to meet earlier this month at the since-cancelled Public Radio Program Directors Conference in Baltimore.
"We're dealing with an organization that is trying to get money wherever it can," Paluzzi said. "It would be different if there was a competitive service, but there's little alternative to AP. It has become a monopoly."
At a time when commercial stations are dumping their news departments in droves, Paluzzi said, AP ought to be enhancing its relationships with the few radio clients it has left, not tearing them down.
AP did not return calls seeking comment.
Joel Willer, g.m. of KXUL in Monroe, La., severed his relationship with AP when he learned of the surcharge. KXUL is a small college station that shares its facilities with KEDM, an NPR station. Both are licensed to the University of Louisiana.
Willer said the Web surcharge was outrageous, costing him more than all the music copyright fees he pays for his much larger broadcast audience. KXUL, which had encouraged its deejays to pepper their shows with news briefs, wasn't interested in streaming its service with news items blotted out. So it stopped.
While he once considered picking up AP, Mick Fiocchia, g.m. of WXPR in Rhinelander, Wis., decided to stick with his local wire service after learning of the extra fee. Though he prefers the more robust AP product, he can't afford to pay the streaming charge.
WXPR expects a sizeable Web audience because its region of northern Wisconsin is home to many retirees who flee to warmer climates in the winter. These so-called "snowbirds" check in with what's happening back home via the Web.
When considering the switch to AP, which costs three times as much as the local news service, Fiocchia couldn't stomach the additional $1,500 it would cost him to stream.
Not everyone in public radio disagrees with AP's decision to hike fees, however. Scott Hanley of WDUQ in Pittsburgh currently pays $6,000 to AP for its over-the-air service. He pays an additional $900 for use of the news online.
"This is new territory," he said. "There are going to be bumps along the way. We have to pay for intellectual property or else it will go away."
Web page posted Sept. 27, 2001
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