You Play, They Pay

How much should it cost Internet radio operators like Jim and Wanda Atkinson to satisfy your cravings for streaming rock & roll?

The record industry's powerful lobby was determined not to let that happen on the Internet, and with the passage of the DMCA, the only question was how much digital broadcasters would pay.

The Copyright Arbitration Royalty Panel (now known as the Copyright Royalty Board) originally decreed that anyone who broadcasts music on the Internet or via satellite had two options for paying SoundExchange: pay 0.0762 cents ($0.000762) per song per listener, or calculate so-called aggregate listening hours and pay 0.88 cents ($0.0088) per hour (commercial-free stations were assessed a higher hourly rate of 1.17 cents [$0.0117], based on the fact that they play more music per hour).

SoundExchange then doles out the money, half to the musicians, the other half to the owners of the recordings (typically record labels).

Jim Atkinson says he bailed on FM in 1993 because of "the potty-mouth humor and the stupid way that being an announcer was headed."
Jennifer Silverberg
Jim Atkinson says he bailed on FM in 1993 because of "the potty-mouth humor and the stupid way that being an announcer was headed."

David Oxenford says most stations opted for the aggregate method for the simple reason that it's easier to calculate.

Tony Jordan, director of interactive services for Emmis Broadcasting, parent company of KSHE-FM, says Emmis uses the aggregate method and that KSHE is paying about $10,000 per year in performance royalties.

For Webcasters like 3WK, who enjoyed growing legions of listeners but not much ad revenue to show for it, the decree sounded like a death sentence. Lumped in with their bigger Webcasting brethren and facing the prospect of paying royalties retroactive to the DMCA's 1998 passage, they teetered on oblivion.

"That royalty rate would have destroyed the industry. None of us could have stayed in business," says Kurt Hanson, who publishes "Radio and Internet Newsletter," an industry tipsheet, and operates the popular Web station

The small-scale Webcasters pleaded for special consideration. After acrimonious lobbying on both sides, Congress in 2002 passed the Small Webcaster Settlement Act, establishing a performance royalty rate for companies that earn less than $1.25 million in annual gross revenue. Those companies were to pay 10 percent on their first $250,000 in annual gross revenue and 12 percent for revenue in excess of $250,000, or 7 percent of expenses, whichever is higher. The compromise took an enormous financial bite. Though she won't disclose specifics, Wanda Atkinson indicates that 3WK's profit in 2005, its first year in the black, was about $50,000.

Combined with the required royalty payments to composers, the little Webcasters had to fork over about 15 percent of their gross revenue — triple the rate that pure AM and FM broadcast stations pay.

The Small Webcaster Settlement Act did produce one benefit, according to Mike Roe, president of "That whole experience galvanized us into a little community of independent operators," says Roe, whose company is the first Internet-only radio enterprise to be publicly traded. "We're all close, and we feel like we're all in the same business — and that's survival."

The 2002 settlement expired December 31, 2005. The new rate, once it's settled upon, will cover 2006 (retroactively) through 2010.

The Atkinsons and their fellow Webcasters have proposed that the performance royalty rate be set at 5 percent of revenues — essentially the same rate they and every other U.S. music broadcaster pay songwriters.

According to Kurt Hanson, the record companies are proposing just a little bit more than that: 30 to 40 percent of revenues. "Their argument is not that the landscape has changed, but that they always should have been getting that amount," Hanson says.

SoundExchange spokesman Willem Dicke declined to comment on specifics of the negotiations. But Dicke defends the notion of paying performers more than songwriters. "It's far less monetarily intensive to be a songwriter than a performer," he argues. "If you're a performer, you're out there on the road, and if you're a record label, you're making videos and promoting the music. The costs associated with performing are much higher than they are with just songwriting."

Opting for a conciliatory tone, SoundExchange board member Walter McDonough says he's confident the parties will arrive at an equitable agreement. "Everybody has to work through this, because the last thing anybody wants is to put Webcasters out of business," says McDonough, adding that he's a fan of 3WK. "That's not an outcome anybody wants."

Before the Internet, before satellite radio, before iPods and Treos and streaming audio, there was one, and only one, voice, and it consumed a city like a mushroom cloud. Ground zero was the radio studio.

Ken Rundel, the mouthpiece for 3WK's classic-rock stream, has been at ground zero for 40 years. Sitting in 3WK's windowless studio, he peppers the stream with musical factoids just the way he did back in the day. The only difference is that these days he comes and goes pretty much as he pleases, recording sound bites for Atkinson to add to the classic-rock shuffle.

He's in the studio now, holding a magnifying glass over a page of The Encyclopedia of Rock, a mid-'70s reference book that inspires his script. Rundel, who looks like WKRP in Cincinnati's Les Nessman after a hipness infusion, puts down the magnifying glass and turns to the computer screen. He adjusts a microphone, double-clicks a mouse, and then speaks: "One written by Mike Quatro and his sister Suzi up next on 3WK, classic underground radio. Two more sisters, Pat and Nancy, sing background, and the dad, a semipro jazz-band leader, Art Quatro. This is 'Circus, What I Am,' by the Mike Quatro Jam Band."

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