BY KURT HANSON and DANIEL MCSWAIN
In response to a impending royalty rate increase that, if implemented, would lead to the virtual shutdown of Internet radio in the U.S., thousands of webcasters plan to go silent next Tuesday, June 26, to draw attention to their industry's plight.

This "Day of Silence" is an encore of a successful media event that small webcasters organized on May 1, 2002 in response to a similarly royalty rate ruling from a Copyright Arbitration Royalty Panel (CARP) five years ago. That event garnered national attention and was subsequently followed by a rate cut by the Librarian of Congress and the passage of the Small Webcaster Settlement Act for the period 1998-2005. [Previous RAIN coverage here.]

Webcasters will be alerting their listeners that "silence" is what Internet radio may sound like on or shortly after July 15th, the day on which 17 months' worth of retroactive royalty increase payments are due to the SoundExchange collection organization under the terms of a recent Copyright Royalty Board (CRB) decision.

Although a royalty rate like this is typically 4% to 5% of revenues in other media (e.g., satellite radio), for other rights (e.g., the musical compositions), and in other countries, the rates set by the CRB judges equate to roughly 50% of revenues for large webcasters like Yahoo! LAUNCHcast (and probably many terrestrial station streamers), 150% to 300% of revenues for small webcasters like AccuRadio, Radioio, and Digitally Imported, and, for webcasters with large numbers of channels like Rhapsody and Pandora, well more than 1,000% of revenues.

If the rates are left unchanged, virtually all independent webcasters will be bankrupted and most larger parent companies would logically shut down their Internet radio divisions through the end of the 2005-10 period.

'Day of Silence' also day for action
Listeners will be urged to call their representatives in Congress that day and to ask them to support the "Internet Radio Equality Act" (IREA) (H.R. 2060 in the House and S. 1353 in the Senate) and to call or write their local newspapers that day to ask for editorial support for the bill.

The IREA would vacate the CRB's decision, while instituting an interim performance royalty rate of 7.5% of revenues (similar to the rate paid by satellite radio services) and change the standard used for future CRB proceedings to the standard typically used in other Copyright Office proceedings (which balances the needs of copyright owners, copyright users, and the general public). The bill currently has 118 co-sponsors in the House and is gathering support in the Senate.

The specific "Day of Silence" date of next Tuesday was selected by members of the SaveNetRadio.org coalition, which includes representatives of large Internet-only webcasters, smallcommercial webcasters, terrestrial radio broadcasters, non-commercial broadcasters, hobbyists, musicians, and independent record labels. (Earlier this spring, RAIN had proposed a date of May 8th for a "Day of Silence," but when the CRBpushed the implementation date of their decision from May 15th to July 15th, webcasters agreed that it would be pragmatic to push back the "Day of Silence" as well.)

Major player support expected this time
Whereas the "Day of Silence" event in 2002 was largely designed by and for smaller webcasters, this year's version appears as if it will have the support of larger players as well, possibly including Yahoo! LAUNCHcast, Pandora, Live365, MTV Online, many NPR-member and other noncommercial stations, and many terrestrial broadcast groups that currently stream their signals on the web.

Most webcasters are planning the June 26 "Day of Silence" to begin at dawn in their time zone and end in late evening. Many webcasters are planning to shut off access to their streams entirely, while other webcasters plan to replace their music streams with long periods of silence (or static or ocean sounds or similar) interspersed with occasional brief public service announcements on the subject.

The CRB denied a motion to re-hear the case filed by webcasters, including NPR and major companies like AOL and Yahoo!; those parties have since filed for an emergency stay with the U.S. Court of Appeals in Washington, D.C., but the court has not yet responded to their filing.

Earlier this month, SoundExchange released press releases in which they offered to grant an extension of 1998-2005 rates to certain small commercial webcasters and non-commercial webcasters, with some modifications. However, those modifications have apparently not yet been worked out between the parties involved.

Banner ads and PSAs will be available to all participating stations from SaveNetRadio.org. More details will follow later this week in RAIN.

...

x "Day of Silence" inspired by a 1927 promotion From a fascinating web page called "Building the Broadcast Band" (to which I was first referred by Tuner2's David Frerichs), here is a truly insightful anecdote about how West Coast broadcasters galvanized public opinion in 1927, when the government was refusing to adequately regulate stations' frequency assignments:   "New York and Chicago were worst hit by the increase in stations and congestion, but the effects were felt nationwide, especially with an increase in nighttime heterodynes. "In the West, one group of stations staged a novel demonstration in support of the restoration of government controls. According to the June, 1927 Radio Broadcast, 'Between the hours of eight and nine February 11, KFI, and ten other Pacific Coast stations presented what they termed an Interference Hour. "The stations were paired off and so changed their wavelengths as to interfere seriously with one another. After an hour of squeals, howls, indistinguishable announcements, and distorted music, the stipulated wavelengths were resumed, following which pleas were made from each of the stations in support of the radio bill before the Senate.' "Congress reconvened in December, and work slowly began on the radio crisis... With the chaos radio sales had declined, and there was a sense that radio was being wasted. The whole country was watching."   In this case, "silence" is an extremely appropriate metaphor, since silence may be what listeners hear from most webcasters starting on July 16th. -- KH x x

From today's lead story in the Wall Street Journal: "In January, a recreational vehicle in remote West Texas suddenly started blasting the Steve Miller Band's 'Space Cowboy.' It was a triumphant moment for Slacker Inc., a start-up trying to move Internet radio out of the computer and into the car...

"Internet radio, which can draw on vast troves of music from around the world and customize them to a listener's personal tastes, is growing. While ratings for traditional radio broadcasters have been lackluster, Internet radio listenership in the U.S. has risen to 29 million a week, up from 20 million three years ago, according to Arbitron Inc. and Edison Media Research.

"Even so, the nascent industry has yet to capture the biggest prize — portability... Now, start-ups and giants are jockeying for position in mobile Internet radio, in a race that could rearrange the business model of music and broadcasting...

"Last month,... Pandora Media Inc., one of the biggest players with seven million registered users, announced it is working with Sprint Nextel Corp. to make its service available on mobile phones. Pandora says it is also working on its own player as well. [previous RAIN coverage here.]

"One of the field's newest aspirants, Slacker says its hand-held will be out by summer's end. Slacker is also pushing hard into automobiles. The company says it is close to introducing a car kit that will play Slacker-selected tunes in any vehicle. Chief Operating Officer Jim Cady says he is in early talks with unidentified auto makers about building Slacker technology into car dashboards...

"...Internet radio 'will sweep into the car, and the traditional station is going to have to think about how they reprogram to compete,' says Jonathan Jacoby, an analyst at Banc of America Securities...

"'We've had conversations with a huge number of car companies [and] car audio manufacturers that are all very eager to start making this more a part of the dashboard,' says [Pandora founder Tim] Westergren...

"[Slacker's] planned car kit reflects a technical advantage. While most other Internet radio providers are reliant on WiFi, Slacker's portable devices will use both WiFi and satellite technology...

"Slacker says the first hand-held devices, which will start at $149, will refresh automatically when they're in WiFi zones,...

"Rather than paying statutory license fees, Slacker cut deals directly with record labels. Like satellite-radio broadcasters, Slacker will turn over an undisclosed percentage of revenue in royalties, rather than paying per song and per play."

Subscribers can read the entire article by Sarah McBride at the Wall Street Journal.

...

x It surprises me — I guess pleasantly — that this is such a big story that it warrants being the lead story in the Wall Street Journal today. The thing is Internet radio is already mobile! Any consumer with a Palm OS device or a Windows Mobile device can download a music player than can handle the streaming MP3 format. Once they do, they've got access to thousands of Internet radio stations. And a $5 adapter from RadioShack will feed the signal from your mobile device into your car stereo system. So, basically, mobile Internet radio is here already! From now on, it's just a matter of improving and fine-tuning the details. -- KH x x

This week, the L.A. Times is featuring a series of "point/counterpoint" exchanges between RAIN publisher Kurt Hanson and SoundExchange and RAC board member Jay Rosenthal regarding numerous issues underscored by the CRB ruling, including the purpose and need for copyright, fair compensation to artists, and royalty structures that would allow the booming webcast industry to continue growing apace.

What follows are excerpts from both authors' articles. The articles are being featured in this week's "Dust Up" feature in the Opinion section of the paper. You can read our excerpts from yesterday's issue here.

From the L.A. Times: "Today, Hanson and Rosenthal focus on promotion on the internet...

Who's getting the value here?
BY JAY ROSENTHAL
Kurt,

"...[C]learly, there is some promotional value to artists when webcasters play their music. And just as clearly, there is promotional value to the webcasters when they—like the terrestrial radio networks—use music to draw listeners to their websites. If one would have to actually weigh the two, I believe the greater promotional value may actually lie with the webcasters...

"Webcasters are without a doubt getting a free ride if they do not have to pay for the music that draws listeners to their websites. Webcasters not only receive great value by using the music, they have actually created an industry using the music.

"Now I understand that you are claiming, and not without some merit, that excessive rates (and I am not conceding that the rates set by the CRB are excessive) could possibly cripple or destroy your industry... The question here is whether music should be gratis in exchange for promotional airplay. And that I conclude is an unambiguous 'no,'...

"...[I]]s the music more important to the webcaster than the webcasting is to the artist? The answer to that question is much more subjective in nature. There may be some validity to the point that younger artists need promotion more than established artists...

"But with all that said, the key point as it relates to webcasting is that your industry is very young, and I believe it is not unreasonable to conclude that webcasters need music more than artists need webcasting. So I state it with more conviction this time: It is the webcasters who have to stop worrying, and just accept the proper and righteous duty that the music they use must be paid for so that the webcasters gain from the use of that music all the promotion they will need to create a long-lasting and financially viable industry.

Jay

Tough to be sanguine
BY KURT HANSON
"Jay,

"Let's take a look at a couple of examples:

• Canasta is a local indie 'chamber pop' band in Chicago that plays three or four club gigs a month and has self-released one CD. We're playing them on AccuRadio's indie rock channel, mixed in between The Shins and Modest Mouse, and they're pretty happy with that! They're getting exposure to a national audience and making CD sales via the link we provide on our player...
  
  
• ...Perhaps the finest singer America has ever produced, [Frank] Sinatra has gotten virtually no airplay on American AM or FM radio stations since he and Nancy had a pop hit with "Somethin' Stupid" back in the '60s. Do you conceivably imagine that his Capitol and Reprise CDs sell more copies because he gets no FM airplay than they would if there were a major FM station in every U.S. city that featured pop standards and he did get airplay?...