Thanks to all the fine companies who were part of Wednesday's "RAIN Vendor Guide (Ver. 2.0)" issue. If you didn't have a chance to spend time with it yet, you can access the issue here. Thanks!

BY PAUL MALONEY
It's a pretty rare occasion indeed when something involving law and government regulation is straightforward and easy to understand. Granted, those who craft policy need to do their best to "cover every base." But in doing so, what can often result is a seemingly impenetrable entanglement of conditions, clauses, and exceptions.

So it's no surprise that the DMCA, the CARP recommendations, Copyright Office directives (like recordkeeping), and the Librarian's final determination have raised a few questions in RAIN readers' (and our) minds. Over the past few months, we've been on the receiving end of pretty consistent stream of questions regarding the new regulations for webcasters. We'll try to deal with some of the major ones here.

You may also want to refer to the U.S. Copyright Office site (here) and the Future of Music Coalition's CARP Factsheet (here).

How do I figure out how much my station owes?
You'll need to figure out how many "performances" your webcast has made. Remember, the DMCA defines a performance as one listener hearing one song. In other words, you're basically multiplying songs times listeners. To get a rough idea of what your royalty fees may total, here's some simple math:

(a) Estimate the number of songs you play in a year. The Copyright Office will allow webcasters to estimate the number of songs played through December 31, 2002, or the effective date of final rules (when they're determined), for the use of royalty calculations. If you need (or choose) to estimate, Internet-only webcasters are assumed to have played 15 songs/hour, broadcasters 12 songs/hour, and talk radio 1 song/hour (we couldn't figure out exactly why -- is this bumper music, or is that exempt?).

After December 31 (or when the final rules are determined), you'll have to keep exact count of the songs you play. But for our purposes here (and for official purposes from October 1998 through the end of this year), we'll estimate.

Let's use our own RAIN Radio as an example, and go with the average of 15 songs per hour.

(b) Estimate your average audience. Note we're coming up with an "average" number of listeners, NOT total. We want to come up with a number that gives us a rough idea of how many people are hearing your stream at any given moment. Note this number will likely be much greater than your audience at "off" hours, and less than your audience at "peak" hours.

And let us stress once more that while exact recordkeeping regulations are not yet finalized, when it comes time to pay your royalties, you'll most likely be expected to keep track of your audiences as best as possible. Our mathematics here are simply estimates to give you a rough idea of what sort of charges you'll be facing.

Let's say we know RAIN Radio's average audience size is 350 listeners. (Again, to stress, this 350 listeners is NOT a TOTAL audience size any more than 15 is the TOTAL number of songs streamed. It is an AVERAGE for any given hour. We'll multiply to come up with a total based on this average).

(c) To get a rough estimate of our royalty obligation for the year, we multiply the average number of songs per hour (15) by the average number of listeners, by the total number of hours in a year (8760), times the royalty rate (0.07¢, which expressed in dollars is $0.0007).

But (as they say on late-night TV commercials for products you don't need...) "Wait -- there's more!"

(d) There's the issue of the charge for "ephemeral" copies. These are the copies of the songs you make in order to stream. For instance, if you "record" a song file to a hard drive and convert it to a WindowsMedia (.wma) file before you stream, you've just made an ephemeral recording. Add 8.8% of your royalty fee to the bill.

Note: If you have the means of deducing a "Total Tuning Hours" number for a given time period (for instance, you subscribe to a ratings service that supplies you with these numbers), you can simply multiply that number by the average number of songs you stream in an hour, and then the $0.0007 rate to compute the total royalty (before the ephemeral charge) for that time period. (For example, according to Measurecast, Radio Free Virgin streamed 3,714,258 listener/hours in May. With no DJs and very few commercials, let's estimate that RFV plays the same 14 songs per hour. We can thus estimate RFV's royalty for the month.

Finally, if you stream on a much smaller scale, keep in mind that there is still the minimum charge of $500 per year. To qualify to pay the minimum (with the $0.0007 per performance rate and 15 songs/hour), you'll need to have an average audience of less than five listeners at any one time!
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How much in ad revenue do I need to take in to cover this?
Given this royalty, each listener will cost just over 1¢/hour (0.07¢ * 15 songs). So obviously, to cover this debt alone, you'll need to bring in more than 1¢ in ad revenues for every listener every hour -- which equals what is called a $10 CPM (cost per thousand).

Though broadcast revenues vary greatly (national network buys are made on much lower CPMs; local spots for special events, like perhaps a Major League Baseball game, might be much higher), this $10 CPM is generally where traditional radio comes in. In other words, broadcasters can typically sell each commercial for $10 per 1000 listeners.

What this boils down to is that if a webcaster hoping to cover royalties with ad sales were to sell one commercial an hour, the webcaster would need to charge the same rate as broadcasters generally get.

(Note: The above has been corrected from an earlier version of this story...)

What about public/educational/non-comm stations?
The CARP recommended, and the Librarian agreed, that these stations (if they are NOT Corporation for Public Broadcasting stations) would incur royalties as above (including the minimum charge), but with a 0.02¢ per performance rate. (The CPB has a separate agreement with the RIAA. If you are a member station, contact the CPB for information).

Do note that if you offer "archived programming subsequently transmitted over the Internet, substituted programming and up to 2 side channels," the rate remains at 0.02¢. However, if you have more than two side channels, the rate for those goes up to 0.07¢.

When is the bill due?
The Librarian of Congress set the "effective date" of his determination as September 1st, so retroactive payments (for the period covering October 1998 to August 31 2002) will be due October 20th.

How can the royalties be retroactive?
Note that the Digital Millennium Copyright Act (DMCA), the law that set the framework for all of this, was passed in 1998. At that point it was determined that webcasters would in fact be liable for royalties on sound recordings. Neither the CARP nor the Librarian determined that -- their job was simply to determine "how much." In other words, it was a "done deal" in 1998.

It was also stipulated that the liability for royalties would begin at that time. As a matter of fact, since the rate wasn't yet determined, webcasters and broadcasters got something of a break here. Kind of like "0% financing until 2002" (to quote the late-night commercials again). But this was with the understanding that once the rate was determined, it was time to pay the piper.

Can I move offshore and avoid the royalties?
Several webcasters have suggested the idea of streaming from a "safe haven" (a municipality that doesn't recognize US Copyright law). We have no expertise on the feasibility of this idea, or the technological issues (for example, might the US government could block streams coming in from these countries?).

Is it true that this determination is no longer in effect after 2002?
Yes, the rate structure that was just determined is in effect retroactively from October of 1998 to December 31 2002. A new CARP is convening soon to determine the rate for the next period.

What can hobbyists do?
While the RIAA and SoundExchange have repeatedly claimed they are willing to make special deals with "hobbyist" webcasters (those with no intention of ever profiting from their streams), we know of no such deals.

What if all the artists we play give us permission to stream royalty-free?
The DMCA does require that the royalties collected are split evenly between the owner of sound recording copyright and the performers on that particular recording. However, this is not to be confused with ownership (or the "exclusive right") of those copyrights.

In the vast majority of cases, the owner of the copyright of these sound recordings is the record label. Artists can give you all the permission they want...but if they don't actually own the copyright to the sound recording, it doesn't mean anything.

But there are some forward-thinking unsigned artists who are willing to forgo streaming royalties to get their music played by webcasters. One example of an effort to centralize this music is the RRadio Network.

Can I play only non-RIAA music and avoid these royalties?
Not necessarily. The SoundExchange has been granted authority to collect royalties for all copyrighted sound recordings, whether those copyrights are owned by SoundExchange members or not.

However, a webcaster is at liberty to make individual "marketplace" deals with any copyright holder (RIAA member or not) -- the terms of which would supersede the "compulsory license" of the Copyright Office. Of course, a copyright holder can only negotiate terms for recordings that they own.

Can I negotiate a voluntary license with the RIAA?
Definitely. Though many webcasters have complained that the recording industry trade group is unresponsive to negotiation, it is most assuredly within the scope of the law that webcasters and the RIAA can establish a marketplace agreement the terms of which (as above) would supersede the compulsory license.

Could a boycott of RIAA product work?
I believe there are about 100,000 Americans listening to Internet radio at the average moment on a typical weekday. Although we don't have solid numbers on their time spent listening to the medium, intuitively that implies to me that there are about 1,000,000 genuine fans of Internet radio. They are probably significantly greater music fans than the average American; let's say they buy an average of 20 CDs per year. That's 20 million units, or about $250 million in value.

Given consumer anger over the RIAA's hardball policies in general (e.g., releasing CDs that intentionally crash Macintoshes), perhaps another 1,000,000 music fans might be glad to support the cause. That's now almost $500 million in potential lost sales.

1999 CD sales: 938 million units, worth $12.8 billion (plus another $1 billion in cassettes). (Note: 2000 was higher.)

On the other side of the coin, organizing such a concerted effort would be very difficult task. For years, protest-minded citizens have tried to mobilize boycotts of major oil companies by planning one-day or one-week boycotts of gas stations. To the best of our knowledge, none of these have ever had a significant effect.

Other questions
There are most certainly lots of issues we didn't touch upon here. In fact, we're working on gathering information on some of the other issues on our minds and the minds of RAIN readers. If you have a question, or can shed some additional light on the issues above, please e-mail us here: feedback@kurthanson.com.

From Fortune Magazine: "Ever since Rob Glaser left Microsoft in 1994 to found RealNetworks, he has lived life as a fly in the ointment.

"That isn't meant as a slight. Anyone who has competed head-to-head with Bill Gates knows that being tenacious, scrappy, and a little annoying are prerequisites for survival. His perseverance has paid off: Today, when it comes to listening to music or watching video online, there are basically only two ways to go -- Windows' Media Player and Glaser's Real Player.

"A big part of Glaser's survival has been Real's close relationship with AOL (which like Fortune is owned by AOL Time Warner). But that relationship may soon be headed for divorce court.

"Why? Real is beginning to resemble a competitor rather than a partner. RealOne, its latest offering, is a multimedia subscription service that looks just like AOL and uses Microsoft's Internet browser, not AOL's. Worse yet, at $9.95 per month, the service is cheaper than AOL, and for broadband users it's sometimes better. After only six months RealOne has some 700,000 subscribers, while subscriber growth at AOL's flagship service is slowing...

"To combat the Real threat, Fortune has learned, AOL has been quietly developing its own music player using a set of audio and video standards called Ultravox and .nsv, developed by Nullsoft and others...What AOL plans to do with all this is still unclear; neither AOL nor Real would comment...

"Industry watchers bet that AOL has much bigger ambitions for the project, such as replacing Real's technology with its own in future versions of AOL's software and using its heft to undercut Real's deals with content providers..."

Read this piece in the July 8 issue of Fortune, or online here.



From CNet News.com: "AOL Time Warner is quietly developing technology that could dramatically cut the costs of audio and video broadcasts on the Internet, according to sources familiar with the effort.

"AOL Time Warner declined to comment on the technology, code-named Ultravox. But one source familiar with the technology said it aims to create supercharged network routers capable of moving large media files far more efficiently than is possible with current Internet technology...

"The concept and development of Ultravox was originated by a pool of engineers who develop media and streaming technologies for AOL. This pool includes members from Nullsoft, which created the popular Winamp media player and was acquired by AOL in 1999.

"Though integrated into AOL operationally, the Nullsoft team has been on the cutting edge of the online giant's software development efforts. The Nullsoft alumni have been preaching a new media software dubbed "Wasabi," which can run on various operating systems including Windows and Linux. The latest version of Winamp, which is still in beta, is built on Wasabi.

"Ultravox involves 'moving streaming software onto the (router) switch...like a Cisco or Extreme Networks device,' according to a source familiar with the technology. It 'fundamentally changes the layout of the infrastructure required to do radio or video over the Net,' the source said."

Read this entire article here.