Imagining the future of Internet radio

Ed Black President and CEO, CCIA
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In the last decade, technological advances have provided new ways for people to listen to the music they love and explore new genres. This innovation is no more evident than in radio, where new alternatives such as cable, satellite and Internet radio have broadened the notion of what radio is.

Millions of Americans listen to music through various Internet radio stations every day. They can find playlists that suit their moods and they can discover new artists whose music they enjoy, but have never heard before.

This could be just the beginning, as Internet radio is still in its relative infancy. Imagine what could happen over time as the industry grows, spurred on by innovation and more companies with more ideas entering the marketplace. It could be a very exciting time for music fans as the industry evolves.

Unfortunately, the laws that govern digital radio royalty payments are hindering that evolution. Dozens of Internet radio startups have gone out of business in the last several years.

The current royalty rate system for digital radio — including Internet — was built by piecemeal legislation that was enacted as new technologies were invented. The result is an unbalanced system that’s significantly out of date — and, critically, out of sync with the realities of the 21st century marketplace.

Current copyright royalty law discriminates against Internet radio by requiring webcasters to operate under a different, more punitive rate setting standard than is applied to other forms of digital radio.

It often surprises people who don’t follow these issues closely just how much digital radio royalties vary between the methods of delivery. Depending on whether the stream is coming from the cable provider, a satellite signal or through a web connection, the royalty rates are very different.

The problem with the current “willing buyer/willing seller” Internet radio standard is that while it is intended to lead to a market-based rate, the fact that the large record labels negotiate as a group means that a true market rate has never actually been determined. What’s worse is that government bureaucrats who set royalty rates are directed by law to discriminate against market newcomers when setting their royalty rates.

This royalty rate standard is so onerous that it has forced many of the Internet radio pioneers out of the industry and continues to scare off potential investors looking to expand on the web. This means less innovation, fewer choices for consumers and fewer places for artists to have their music played.

That’s why we’re one of the organizations supporting efforts to establish a fairer standard for the way that these royalty rates are decided. The bipartisan Internet Radio Fairness Act of 2012, sponsored by Sen. Ron Wyden (D-OR) and Reps. Jason Chaffetz (R-UT), Jared Polis (D-CO), Darrell Issa (R-CA) and Zoe Lofgren (D-CA), extends to webcasting the more widely accepted 801(b) standard to determine royalty rates.

This is the same standard that’s been used successfully for more than 30 years in most other Copyright Office proceedings. The 801(b) standard is balanced to encourage both the creation and promotion of creative works and the growth of robust and sustainable markets for these works.

The bill doesn’t set or change royalty rates for Internet radio. It simply modernizes the rate structure by encouraging the Copyright Royalty Board (CRB) to have access to, and take into account, more relevant information when they make their decisions about royalty rates — e.g., maximizing the availability of creative works to the public and generating a fair return for copyright owners and a fair income for copyright users.

Internet radio isn’t asking for special treatment. It’s already receiving ‘special’ treatment by being kept under a different standard than other forms of digital radio. Equal treatment would be a change for the better.

Imagine what the future could be for musicians and consumers if we have a vibrant, expanding Internet radio marketplace. It’s time for a technology-neutral solution that assures fair compensation to artists while encouraging new voices and new technologies. A fair royalty rate standard for Internet radio will drive future investment in webcasting, which ultimately means more choices for consumers and greater revenue and opportunity for working artists.

When the digital music sector is allowed to innovate and grow, everybody wins — artists, innovative new companies and consumers.

Ed Black