Taxing Internet Radio to Death
April 3, 2007 — -- You may want John McCain or Hillary Clinton to run the country, but do you want politicians deciding what music you listen to?
Though we think of them as lawmakers, not tastemakers, elected officials play a tremendously important role in popular culture.
Congress may soon respond to a recent decision imposing high fees on webcasters, businesses that broadcast music over the Internet. Webcasters claim they will quickly go bankrupt as a result of the ruling by the Copyright Royalty Board, a federal panel that regulates Internet radio royalties.
Most Internet radio stations are independent from the major media companies that own the majority of traditional radio stations. As a result, webcasters play a far more diverse selection of music than broadcast or even satellite radio.
For my DJ and music selection business, I have relied on Internet radio stations to expose me to new songs, bands and trends. On Pandora, for example, you can enter the names of favorite artists and songs, and the site will generate playlists with similar types of music, make recommendations and play music that you likely haven't heard.
Pandora, KCRW.com and other sites such as lastfm.com have exposed me to literally hundreds of relatively unknown musicians. In turn, I have helped get some of these artists' songs into movies and played at retail and restaurant outlets. I have performed them in front of thousands of people live throughout the world. Without these stations, I wouldn't have this music to introduce to new audiences.
But sometimes it's harder for people in Washington to understand how this process works -- and how it helps music.
The Copyright Royalty Board, which operates under the Library of Congress, dealt a potentially devastating blow by ruling that webcasters must pay both artists and record labels every time a song is streamed online. Basically, if a station has 1,000 listeners for a song, it has to pay this royalty 1,000 times for that single song.
Imagine paying for 400 songs a day or 146,000 songs a year times the hundreds of thousands to millions of people that tune into your channel.
ABC News contributor Michael Smith is an internationally recognized DJ who has a music-services business. He works with a variety of national brands. www.smitheventmusic.com or info@smitheventmusic.com
These rates may far exceed the revenue at many Internet radio companies. Until this decision, these smaller companies simply paid a percentage of their income for their royalties. This generous rule was supposed to foster growth in the infant industry of webcasting.
In response to the ruling, these small independent webcasters have banded together to petition Congress for new laws -- and to plead listeners to give donations. They have formed a coalition Web site to aid them at SaveTheStreams.org. And they have persuaded the royalty board to reconsider its ruling, at least to buy some time.
Meanwhile, traditional or "terrestrial" radio stations operate under a more lenient system. They pay a fee to the composer each time a song is played -- not each time someone listens to the song. There is an understanding in the industry that the record labels should not receive royalties because radio play is essentially publicity for their artists.
No such understanding was present in the 1990s when Congress wrote the laws for Internet music distribution. Under the two laws, the Digital Sound Recordings Act and the Digital Millennium Copyright Act, the record label becomes entitled to payment for every play online. So webcasters pay both the composer and the label, while label fees alone will put them in the red.
A key part of my job is to identify which artists will matter months and years down the road, but with this decision we can see how our representatives in Washington can shape culture for decades.
Without laws made by Congress guaranteeing that music had copyright protection, the record industry wouldn't have even existed. The record labels have, in return, spent considerable sums of time and money to create their powerful lobby in Congress.
Even though many listeners would testify that Internet radio had encouraged them to buy more, not less, music, the labels have not fought hard for Web radio because they face their own crisis.
The Wall Street Journal reported last week that CD sales were in steep decline, and that profits at labels had tumbled as much as 74 percent in the case of Warner Bros., for example. Understandably, the labels want to milk as much from their copyrights as possible.
ABC News contributor Michael Smith is an internationally recognized DJ who has a music-services business. He works with a variety of national brands. www.smitheventmusic.com or info@smitheventmusic.com
Some lawmakers, such as Rep. Edward Markey of Massachusetts, have already come out against the high royalties. Can he get more senators and presidential candidates to go along with him?
ABC News contributor Michael Smith is an internationally recognized DJ who has a music-services business. He works with a variety of national brands. www.smitheventmusic.com or info@smitheventmusic.com