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?


You can tell the instant The Voice pipes up between songs: Jim Atkinson's a radio guy. "Hi, it's Jim," The Voice says, humming like a power chord from a seasoned Les Paul. "Stay tuned for new music from Mastodon, the Decemberists and Chin Up Chin Up."

For Atkinson it has always been radio. As a teenager in the '60s, he used to call the DJs in his hometown of Lansing, Michigan, to talk about the Kinks and the Stones. By sixteen he was driving a hundred miles to fill weekend shifts on a nearby station. In the 1970s, the salad days of free-form FM rock, when King Crimson segued into the Who and then to Head East, when "Stairway to Heaven" stoked many a backseat grope, Atkinson generated the soundtrack, dropping needles into grooves and letting them lock till the record ended.

When he wasn't on the radio, Atkinson was pushing rock as a part-time clerk at a record store at the Lansing Mall. That's where he met Wanda, recalls Jim, now 50, taking a smoke break outside the single-story brick building on the Hill that houses his Internet radio station, 3WK. "She was working at Montgomery Ward, came in with a friend to buy a record — it was her friend's birthday or something."

A rusted Toyota cruises past, spitting Christina Aguilera from a ten-dollar car stereo.

"It was my birthday," corrects Wanda from her desk just inside the door. It was a Pointer Sisters record, she thinks. "We were meant for each other," she laughs.

Wanda favors wire-rimmed glasses and wears her gray hair piled high on her head. Today she's wearing a tie-dye dress. "We broke up three times but then got married," she goes on. "My parents were not pleased when I kept going back to him. Not at all. But there's something about a guy with a deep radio voice and musical knowledge."

From outside, 3WK Underground Radio looks more like a storage garage than a global rock & roll church. But inside this unassuming bunker around the corner from Hanneke Hardware is a radio station that generates two streams of continuous music: one formatted for indie rockers, the other for aging longhairs. Each month 300,000 listeners across the globe tune in.

"When I started in the radio business, the announcers still talked about the music," says Jim, who landed at MOR station KADI-FM (now-defunct) in St. Louis back in 1977 before becoming music director of KWK-FM, then embroiled in a heated ratings war with perennial powerhouse KSHE 95. Atkinson gigged at KSHE for six months, as well. "We'd announce where the artist was from, that it's their third album, and so on."

But as the industry consolidated, demographers dictated strict formats, and playlists created at corporate headquarters replaced hand-selected songs from disc jockeys. So Atkinson left the business in 1993.

Like many radio men, he couldn't stay away. After a few years publishing an industry newsletter, he and Wanda began looking to buy their own FM station. The costs, they found, were steep, and corporate conglomeration had sapped the medium's creativity.

"The best we could have done is maybe a station in Saginaw, Michigan," says Atkinson. "And then I realized: Well, I'm not going to be able to play music that I want to play, anyway. There's no way as a mom-and-pop business you could ever compete.

"So then we decided: Well, why don't we do it on the Internet?"

In December 1997 the Atkinsons debuted their station out of their bungalow in the South Hampton neighborhood, its name a play on the World Wide Web and WWWK, the official call letters of dear departed KWK-FM. (They even secured WWWK's old request-line phone number.) Since then, the couple has helped pioneer Internet radio. In boom times they watched as billions of dollars in venture capital swarmed around them. They helped set the standard for streaming technology, listened as their initial offering — a tinny, AM-quality feed — grew stronger and cleaner. They witnessed the Internet bubble fill with hot air, saw it burst and mopped up after it.

Last year, for the first time, 3WK turned a (modest) profit.

But now a new financial threat looms.

Like AM and FM radio stations, digital broadcasters must pay songwriting royalties, which typically amount to 5 percent of gross revenue. For the past four years, one of the fattest line items in the Atkinsons' budget has consisted of additional royalty payments earmarked for record labels and the artists who perform the songs played on 3WK.

3WK's government-mandated rate for these so-called performance royalties: 10 percent of gross revenue.

Congressional legislation that set the performance-royalty rate expired last year. A three-judge panel appointed by the Library of Congress is expected to set a new rate by next March.

The Atkinsons fear the worst.

"As it is now, we can barely afford to pay it," Wanda says. "It's too much. We're the ones playing the music, supporting the artists, helping them sell CDs by getting people to know about the artists. Realistically we shouldn't be paying anything, because we're giving them free promotions. But that's not the way it has worked out."

3WK's homepage is a garish sight, with blinking marquee ads screaming "Winner! Winner! Winner!" or shilling Skechers, Scions or Beneath the flashing lights, though, it's a streamlined affair. Buttons send visitors to the station's charts (at this writing, ...And You Will Know Us by the Trail of Dead holds the top spot), giveaways, free MP3 downloads, and to the station's streaming audio feeds.

Click one and you'll hear indie rock, click the other and it's all classic rock, all the time.

Like the Web site, the station's offices are pretty bare-bones, plastered with rock posters and furnished with secondhand desks.

Despite recent technological advancements that have transformed the way people interact with music and media, 3WK's business model is baldly old-fashioned. The Atkinsons offer audio content and sell ad space to surround it, in the form of audio spots or banner ads. Aside from a few bells and whistles, it's the same deal as buying a spot on WSM in Nashville during the Grand Ole Opry in 1949.

Jim's and Wanda's desks are side by side: Wanda on the left, Jim on the right, desktop speakers aimed at his head. Monday and Tuesday are "add days," when Jim rotates into the 225-song playlist several dozen new titles, which debut throughout the week as software shuffles the music according to parameters he sets.

Now Atkinson pops in the critically acclaimed new Mastodon album, Blood Mountain. Jim and Wanda look at each other as guitar wrath fills the office. "What is this, 1980?" asks Wanda, baffled at Mastodon's allure. A dual guitar solo rings. "It sounds like Triumph, except for the singing."

Jim skips ahead to the next track to see if it's more in tune with his aesthetic, then grabs a cigarette and steps outside.

He smokes a lot on music days.

And he's not impressed with Mastodon: "Pitchfork gave this a 9.2? This is awful."

Along he goes, one song after another, until he finds one that's acceptable. "We've got to play something from this," he concedes. "It's probably going to be number one in CMJ or something." Although he founded 3WK to be free of constraints, Atkinson must play to his audience.

3WK is a cottage industry, but the station draws a coveted demographic, which they describe on their Web site in the form of a rhetorical question:

"What happens when you have a loyal, 18-54, tech savvy, upper income, mostly male audience? You sell products — lots of them."

"We sell packages," explains Steve Wolf, founder of long-running Nashville-based Internet station WolfFM ("The Hottest Mix of '70s, '80s and Today's Hits!"), who, like Atkinson, learned radio on the FM dial, where he toiled as an engineer. "We were running a special for a couple of months, 99 plays for 99 dollars — run your spot basically over a two-week period."

The Atkinsons started 3WK nine years ago, investing a half-million dollars over the first five years. They weren't the only ones. Radio veterans across the nation have been sniffing around ever since Tracy Barnes left a nationally syndicated radio network to launch, which bills itself as "The World's First .com Internet-only radio station," in 1995. ("We figured: Hey, the Internet is going to happen," Barnes says today. "[And] the barriers to entry were really low.")

Drawing upon Jim's FM experience, the Atkinsons called labels and pitched potential advertisers. In December of 1997, at the stroke of midnight (neither remembers the exact date), 3WK went live with Nine Inch Nails' "Ruiner," delivered via a mono stream in RealAudio. (The Atkinsons started out with a single stream of new rock, mostly indie. In 2003 they added a classic-rock stream, a throwback to Jim's FM days.)

The sound quality was awful — worse than AM radio. It faded in and out, and at peak hours the stream would cut out entirely, re-buffer, then return to Beck, Pavement and Sonic Youth, only to vanish again.

Greg "Iceberg" Berg had recently been fired from alternative rock station the Point, in part for playing unapproved song selections (like "Weird Al" Yankovic at 3 a.m.), when he got an out-of-the-blue phone call from Jim Atkinson. Berg, who grew up in St. Louis, remembered Atkinson's name from KWK. Soon the former Point jock was over at the house cutting between-song banter for the station at the rate of $50 a day.

"I don't think I knew there were viable Internet radio stations at that point," Berg says. "It was definitely new territory."

Because it was virgin terrain, he and Atkinson even debated how to present voice-overs. "Jim was torn between making the station a traditional-sounding station, like a terrestrial station, versus trying something different," says Berg, who now lives in San Diego. After experimenting with eight-hour shifts and on-air personalities, they opted for a rotating, free-floating cast of announcers who created between-song "liners" that identified the station and the songs.

"It was cool," Berg recalls. "They were doing it in their living room and moved their real living room to the back of the house. Twenty-four hours a day, year round, they got out of bed, walked downstairs and went to work. You'd come by their house — and there was the station!"

Between playing the songs and raising two teenagers, the Atkinsons spent hours on the phone with software developers from Microsoft and RealNetworks, serving as "guinea pigs for a lot of these companies to get them to get their streaming perfect, get their advertising platforms perfect," says Jim.

At one point they leased bandwidth from, billionaire Dallas Mavericks owner Mark Cuban's thoroughbred entry in the Internet stakes race.

"Which, by the way, had very bad service," Wanda puts in. "But we wrote letters to Mark Cuban, and within two days everything was fixed. He sent a note to the entire staff saying, 'This salesperson did everything wrong, so don't do what this guy did.' He made an example of him."

Likewise, Wanda says, when they ran into problems at RealNetworks, they went right to the top. "We went to Rob Glaser, and he helped us out. Those were the good old days, when you could talk to the CEOs who were personally involved because the companies were so small."

Though no one was turning a profit, speculation on the future of the new medium drove up values. The Atkinsons watched wide-eyed as budding Internet stations got fat with venture cash.

Recalls Wanda: "NetRadio in Minneapolis, which had 150 channels, and SpikeRadio in LA, blew through millions of dollars in venture capital, [moved] into huge buildings with huge staff — and there's no advertising. Some of those places in LA were putting up billboards around town, and there was no way at that point to listen to Internet radio in your car." shuttered in spring 2001. followed later that year.

The Atkinsons say they were approached by potential investors but always left the negotiating table dissatisfied. "It always came down to their wanting to buy us for stock in their company," Wanda says. "Most of them were new Internet companies: We don't know if you're going to succeed. Why would we want stock in your company?"

Jim: "And every investor wanted our 'end strategy' — isn't that the word for it?"

Wanda: "They all wanted to know, 'How soon can you get it so that we can do a public offering?'"

Jim: "Or, 'We'll invest, but how soon can you build it up so we can sell it?' And we went into this because we like doing it. We like the music."

Wanda Atkinson describes the division of labor at 3WK in snarkily simple terms: "He programs the music and I do everything else."

The Atkinsons have been married 28 years, and it shows. Wanda does a lot of the talking, Jim does a lot of the sighing, grunting and — when he sees fit, correcting. Each completes the other's sentences, butts in when the other deviates.

While Jim was jumping from station to station during the 1980s, Wanda was bridal director for 30 Famous Barr stores, but she left the department store in 1993 to work with Jim on their radio-industry newsletter. When they resolved to move to Internet radio, the couple continued their partnership.

They readily acknowledge that their station is a labor of love. "We're terrible business people," he elaborates. "We always watch the bottom line, and we break even — and sometimes make a little bit."

In 2001 3WK had yet to turn a profit and was relying on cash infusions from Jim's mother. But their pioneer status and networking savvy had helped the Atkinsons develop relationships with like-minded indie retailer and secure placement on large Web radio portals like Microsoft's MSN and Apple's iTunes player, which endure to this day.

Yet even as networking and word of mouth were increasing page views, a financial threat arose.

In 2002, as a consequence of the landmark Digital Millennium Copyright Act of 1998 (DMCA), Web broadcasters suddenly faced a new drain on their finances. At issue: royalties.

Among its many provisions designed to address the expanding digital media marketplace, the DMCA required that broadcasters who digitally transmit music — be it Sirius Satellite Radio beaming a signal from outer space, KSHE or National Public Radio streaming their radio product or the Atkinsons rocking the Hill — pay royalties to record companies and performers.

Prior to the DMCA, Webcasters followed the same protocol as AM and FM stations, which pay royalties — amounting to roughly 5 percent of gross revenues — to songwriters. When KSHE plays the Guns N' Roses version of "Live and Let Die," for example, Paul McCartney gets paid; Axl and company don't.

The DMCA decreed that Web broadcasters had to give unto Axl and pay Paul.

Elsewhere in the industrialized world, it had always been so. "The United States stands alone in not compensating the artists," explains Walter McDonough, general counsel for the Future of Music Coalition, an artists'-rights lobbying organization. McDonough is also a member of the board of SoundExchange, a Washington, D.C.-based nonprofit that was formed to collect and distribute performance royalties. "If someone's using the music, then frankly I think people should be compensated for it."

David Oxenford, a D.C.-based attorney who represents 3WK and other small Webcasters, says the U.S. government used to see things differently. "It was felt that radio promoted the sales of records [and concerts, etc.], so that airplay of music was to be encouraged, not 'taxed,'" Oxenford writes via e-mail. "The composers, who did get royalties from broadcasters, do not benefit in anywhere near the same degree in the sale of recordings, and don't benefit from concert revenues. So that's been the way it is in U.S. broadcasting for well over 50 years."

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).

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."

The classic stream hits the basics — Led Zeppelin, Pink Floyd, the Rolling Stones — but also digs down for rockers like the Move, the Strawbs, Nektar and T. Rex. "Jim goes deeper than we did in the '70s," says Rundel, leafing through his encyclopedia while a cigarette, one of many that have combined to season his tenor with a rasp, burns away in an ashtray.

Both 3WK streams skew male — about 65 percent male, according to Wanda Atkinson. In fact, Jim has a policy of never playing two consecutive songs by female vocalists. Back when they started out, he explains, more men were surfing the Internet than women, and the format stuck.

"Jim picks the music that he wants to play," Wanda says. "And that appeals to the male audience. He likes the music, and men tend to like that music."

Like Atkinson, Rundel learned the trade in Lansing. "Jim used to listen to me on the radio when he was a kid," he says. "He used to call in. Even at that young age, he was spouting out trade names, knew when all the albums were coming out."

Rundel was the voice of rock in Detroit in the early 1970s, jocked afternoons at KZOO in Dallas ("We dominated Dallas the way KSHE dominated here"), then moved on to Houston. He dropped out of the biz to get his law degree and practiced for a year ("I hated it") before getting back into radio as the host of a syndicated jazz show that aired in Hong Kong and China. After a stint in Corpus Christi, he was lured to St. Louis by the Atkinsons and their classic-rock stream.

Full circle. But then, a lot of ex-FM jocks have resurfaced in Internet radio. And what began as dabbling is now a multimillion-dollar business. Webcasters envision a future in which tech-savvy music fans will have access to their streams 24/7. New multipurpose phones come equipped with hi-fi earbuds, wi-fi access and the capability to listen uninterrupted to 3WK on the go. It's already possible to plug your Treo into the car stereo and stream the rock while you roll down the highway.

Yes, 1999 was a long time ago, says Steve Wolf of Nashville's WolfFM. Internet radio's promise is finally being fulfilled. Way back then he'd retired as a radio engineer but still needed an income. So, armed with a love of radio, he got to work.

"I was in a two-bedroom apartment. Nobody knew what was going on in there," Wolf says. "I had, like, twelve computers and all this radio equipment in one room.

"People listening from all over the world — and nobody in the building knew what was going on in that apartment."

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