RAIN's ongoing coverage of the CARP and RIAA license fee arbitration is brought to you by these fine firms: Learn more about them in our RAIN Industry Guide (here)!

BY KURT HANSON
The future of Internet radio rests today in the hands of the Webcasters who participated in the recent CARP (Copyright Arbitration Royalty Panel) hearings, as they are essentially the only entities who stand in the way of the implementation of CARP's recommended royalty rates -- and then only if they file a response with the Copyright Office by this Wednesday.

As for the rest of the industry, there's almost nothing we can do but sit back and watch, according to several attorneys RAIN has been in touch this week, including Weil, Gotschal and Manges's Kenneth Steinthal, Shaw Pittman's David Oxenford, and Live365's General Counsel, John Jeffrey.

When the U.S. Copyright Office established this particular CARP last year, interested parties were invited to participate. Those parties who didn't -- which include the vast majority of all medium- and small webcasters and most broadcasters -- gave up any right to play a role in the royalty-determining process.

"It's like a trial," Oxenford explained. "The decision's now been made, so it's too late for a new party to just jump in now and offer new evidence."

How did the concept of a "percentage
of revenues" alternative get lost?
As described previously this week in RAIN, a panel of three arbitrators appointed by the US Copyright Office concluded a six-month process by recommending a royalty rate due from Webcasters to owners of the copyright of sound recordings of $.0014 per song per listener -- or about $.02/listener-hour, assuming 15 songs per hour. (For commercial radio stations simulcasting their signals on the Web, a rate of $.0007 was recommended.)

Thus, an Internet-only Webcaster that has been streaming 500,000 hours a month of programming for the past two years -- i.e., AQH audience of about 1,000 people, which is tiny by broadcast radio standards -- faces a current monthly obligation of $10,000/month -- plus a bill for $240,000 for retroactive obligations!

The problem is that most Webcasters of that size may have had total revenues to date of only a fraction of that amount.

In recommending a $.02/hour royalty rate for Webcasters who are currently taking in less than $.02/hour in total revenues, did the arbitrators realize they were essentially bankrupting most Webcasters?

"They probably thought the number for Webcasters was reasonable overall, but they neglected to take into account its impact on pre-profitable firms," Live365's Jeffrey said.

Jeffrey noted that during the CARP proceedings, a alternative royalty rate based on a percentage of revenues was presented by both sides -- with DiMA members suggesting a rate of 3% of gross revenues and the RIAA requesting a 15% rate.

The fact that there was no alternative percentage-of-revenues royalty rate allowed for in the final CARP ruling "might have been an oversight," Jeffrey speculated, "or it might have been based on a less-than-clear review of the record." (In other words, the panel might have misinterpreted the testimony of one of the expert witnesses.)

What's the schedule
of upcoming events?
According to Rain's legal sources, the three arbitrators are now finished with their job and play no further role in the process. Decisions from this point forward are in the hands of the Copyright Office, which represents the Librarian of Congress.

There is now a two-week window for responses -- which began last Wednesday, when the CARP participants received their copies of the panel's ruling. (Some observers have speculated that the two-week window might begin today, when the CARP recommendations are scheduled to be posted on the Copyright Office's website, but that is apparently a misinterpretation.)

As noted previously above, the only parties from which the Copyright Office will entertain responses are those participated in the arbitration. Representatives from either side of the negotiations, including the RIAA, can file responses. The two-week window would close on March 6th.

If there are no responses filed, the CARP ruling will be accepted by the Copyright Office in about 45 more days (i.e., 60 days from the date of the ruling) and retroactive royalties will become due 45 days after that.

However, assuming there ARE responses filed, there will be another two-week period during which the parties can respond with comments to others' responses. That two-week window would close on March 20th.

At the close of that window, the Copyright Office has 60 days to review the comments and do the actual rate setting. That deadline would apparently be May 17th.

Whatever royalty rate is determined by the Copyright Office, a check from each Webcaster to Sound Exchange for retroactive royalties (apparently at least through 1/31/02) would be due July 1st.

If the CARP decision stands, the likely next steps available to Webcasters would be either legislative -- i.e., to convince Congress that the decision was a travesty and/or that the Digital Millennium Copyright Act should be revised to exempt Internet radio from paying a sound recording performance royalty -- or to wait for the next CARP hearing, which will set royalty rates for the two-year period from October 2002 to October 2004.

RAIN exclusive: Efforts outside of CARP BY PAUL MALONEY As reported in RAIN yesterday, several industry forces who didn't participate in the CARP proceedings are making efforts to let their voices be heard by federal decision-makers. A small cooperative of industry leaders are making a collaborative appeal in the form of a letter to the General Counsel of the Copyright Office. They wish to present this letter today to RAIN readers as a "first draft" of what they hope will become a petition campaign. MeasureCast CEO Ed Hardy (right), Communications Director Sven Haarhoff, and Ultimate 80s founder David Landis (below) explained to RAIN that they first came together as a group with the intention of generating interest from advertisers for the streaming industry. But now it's the matter of copyright fees that is the more pressing issue. According to legal experts, precedence shows that the Librarian of Congress will only deny a recommendation if it can be shown to exist an error in law or fact in the CARP panel proceedings -- similar to an appeals court. In other words, whether something is deemed fair or "for the best" for businesses or consumers simply isn't part of the equation. Even though Webcasters who didn't participate in the CARP proceedings have no legal standing in the Copyright Office's decision process, Oxenford noted that the proposed letter "might increase the sensitivity of the Copyright Office or the Library of Congress to the issues involved." In those hopes, please take a look at the draft of this letter here. While you will indeed be invited to use the letter to take action on your own, all that is asked now is that you give us your input -- and ideas on additions, omissions, or changes to the ideas or wording presented in the letter are appreciated, and can be sent to paul@kurthanson.com.

From CNN Money: "Nostalgic for the good old days of the tech bubble? Pine no more. Just take a look at the stocks of two satellite-radio companies, XM Satellite Radio and Sirius Satellite Radio...

"XM and Sirius both saw their stocks skyrocket some 200 percent in the last three months of last year, based on little more than faith and hope and dreams. Though both stocks have pulled back somewhat, XM is still trading at more than three times its September low.

"What's all the excitement about? XM Satellite and Sirius are essentially marketing really, really expensive car radio...

"XM, which started rolling out its service late last year, has only a slight smidgen of revenue. And though actual earnings still remain somewhere over the rainbow, the company sports a market value of more than $900 million, giving the stock a price/sales ratio somewhere north of, ahem, 1,700. And Sirius, with literally no revenues (it only just started rolling out its services in a handful of cities) nevertheless sports a market cap of some $300 million.

"It may seem bizarre to expect Americans to pay more than $100 a year to listen to their car radio, but fans of the two companies note that the services are getting mostly rave reviews from early users and critics..."

Read this entire piece here.

From Wired.com: "This is exactly the scenario recently witnessed by Kevin Webb at a Dallas CompUSA store.

"Webb, a computer consultant from Dallas, was browsing his local CompUSA when he saw a young man walk toward him listening to an iPod. Webb recognized the iPod's distinctive ear buds.

"The teenager stopped at a nearby display Macintosh, pulled the iPod from his pocket and plugged it into the machine with a FireWire cable. Intrigued, Webb peeped over the kid's shoulder to see him copying Microsoft's new Office for OS X suite, which retails for $500.

"When the iPod is plugged into a Macintosh, its icon automatically pops up on the desktop. To copy software, all the kid had to do was drag and drop files onto the iPod's icon. Office for MacOS X is about 200 MB; it copies to the iPod's hard drive in less than a minute...

"The iPod is perfect for virtual shoplifting. It is designed as a digital music player, but its roomy 5-GB hard drive can be used as portable storage for all kinds of files, even the Macintosh operating system. In fact, it can operate as an external drive, booting up a machine and running applications...

"Dennis Lloyd, publisher of iPod fan site iPodlounge, also said this is the first time he'd heard of an iPod put to such use. 'I can see how easy it would be to do,' he said. 'It's a shame someone has stooped this low to bring bad press to the insanely great iPod.'"

Read the complete article here.

Beginning today, RAIN will report from the ConXis convention here in Chicago.

Recently added to the event lineup is "An Open Forum," a discussion on the recently announced CARP royalty rates and reporting requirements for streaming. That session began just after 11am.

Please note that the audio of the panel is being streamed (along with most of the rest of the conference) live on the Internet here.

CTO, President, and founder of iM Networks David Frerichs delivered this morning's keynote address. RAIN publisher Kurt Hanson will deliver his keynote, "Why Internet Radio will replace AM & FM," tomorrow at 9am.

	Feb. 27-Mar. 3, 2002	Canadian Music Week 2002: Toronto, Ont., CA
	Mar. 1-3, 2002	ConXis: Conference and Expo for Internet Streaming: Rosemont, IL
	Mar. 14, 2002	16th Annual Bayliss Radio Roast: New York, NY
	Apr. 5-8, 2002	Broadcast Education Association 2002: Las Vegas, NV
	Apr. 6-11, 2002	NAB 2002: Las Vegas, NV
	Apr. 23-26, 2002	Streaming Media West 2002: Los Angeles, CA
	Sept. 12-14, 2002	NAB Radio Show 2002: Seattle, WA
	October 1-4, 2002	Streaming Media East: New York, NY