Fee ruling may imperil online radio

WASHINGTON -- Video killed the radio star, as the 1979 hit song goes, and now some fear an obscure group of federal copyright judges may be on the verge of killing Internet radio.

In a ruling made public Tuesday, the Copyright Royalty Board significantly increased the royalties paid to musicians and record labels for streaming digital songs online. The decision also ended a discounted fee for small Internet broadcasters.

Broadcast radio stations that also stream their programs online, such as KCRW in Santa Monica, said they might have to scale back on webcasting, and operators of Internet-only radio stations said the new fees would probably force them to go silent.

An estimated 72 million listeners each month tune in to Internet music programming from hobbyists, traditional radio broadcasters and Web companies such as Yahoo Inc., AccuRadio.com and Pandora.com, seeing them as an alternative to broadcast radio.

The board ruled that the current rate of 0.08 of a cent each time a song is played would more than double by 2010. For music sites run by tax-exempt nonprofit organizations, the board set a flat $500 annual fee per radio channel for a certain number of listening hours per month -- which stations such as KCRW far exceed.

“Unless we can find an alternative to paying the published rates, there’s no feasible way we can continue,” said Bill Goldsmith, who operates an online rock-music station called Radio Paradise in Paradise, Calif. He estimated that he would owe $650,000 in royalties under the new fee structure in 2007 -- 25% more than he expected to pull in this year from listener donations.

KCRW general manager Ruth Seymour called the ruling draconian. She said the station, one of the largest National Public Radio affiliates in Southern California, could owe more than $350,000 for 2006 and 2007.

“Do I build a gate, where you can only listen online if you’re a subscriber?” she said. “I’m opposed to that idea. I’m a public broadcaster, after all.”

Seymour said she was optimistic that National Public Radio and the Corporation for Public Broadcasting could negotiate a better deal with the recording industry. Such separate royalty agreements are possible, though difficult to negotiate. An attorney representing small Internet broadcasters said they would try to do the same.

Internet radio supporters also can appeal the board’s decision or ask Congress for help.

All broadcasters have to pay royalties to composers and publishers, but traditional radio broadcasters -- arguing that airtime is free promotion -- have long been exempted from paying royalties to artists and record labels whose songs they play on the air. Laws passed in the 1990s governing digital recordings, however, required Internet and satellite radio operators to pay those so-called performance fees.

Faced with increased royalty fees, Internet broadcasters in 2002 persuaded Congress to create an exemption that allowed small online radio operators to negotiate a lower fee based on a set 10% to 12% of their revenue, not on how many songs they broadcast. That guaranteed that Internet broadcasters would not have to pay more in fees than they collected in revenue.

In 2004, Congress created the Copyright Royalty Board, a three-judge panel under the auspices of the Library of Congress, to deal with such issues. Because that board established the new higher performance fees, lawmakers may be reluctant to step in this time.

The board’s top judge said its guidelines allow it to consider only economic factors -- not issues such as educational opportunities at college radio stations and the increased diversity of music that Internet stations may provide.

“Congress apparently made a determination for an interim specified period of time to assist a nascent industry, and that period of time has passed now,” Chief Copyright Royalty Judge James S. Sledge said in an interview.

David Oxenford, an attorney who represented independent commercial Internet broadcasters, predicted that a formal appeal to the board or federal courts would be difficult to win.

“This would shut down the entire medium,” said Kurt Hanson, who runs AccuRadio.com and publishes the Radio and Internet Newsletter.

SoundExchange, an organization created by the recording industry to collect and distribute Internet and satellite music royalties, dismissed talk of an Internet radio apocalypse.

The organization’s executive director, John Simson, said the new fees simply leveled the playing field for Internet radio and forced websites to adequately compensate the artists and record labels providing the music.

“This is money that they’ve earned from valuable recordings they’ve created,” Simson said.

Simson said the hundreds of Internet radio services include corporate giants such as Yahoo and Clear Channel Communications Inc. that can afford the higher fees. Those companies declined to comment Tuesday.

KCRW has helped eclectic artists such as the Shins, Arcade Fire and Damien Rice break out in recent years. Seymour wondered why the recording industry would want to endanger such a tastemaker.

“I can’t believe they want to kill the golden goose,” she said.

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jim.puzzanghera@latimes.com

josh.friedman@latimes.com

Puzzanghera reported from Washington, Friedman from Los Angeles.