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CARP 'Sound of Silence' Ruling Under Fire

When is a tiny fraction of a cent an expensive proposition?

It seems minute. Almost trivial but, to 10,000 Webcasters running Internet ratio stations, the Copyright Arbitration Royalty Panel (CARP) ruling that sets royalty fees at 14/100 of a cent per performance, retroactive to October 1998, is a kick to the stomach.

And, with a May 21 deadline looming for the Copyright Office to accept the CARP recommendation, Webcasters have launched a last-minute battle to have the fee rejected or modified.

At the forefront of the Save Internet Radio campaign is Kurt Hanson, a Chicago-based publisher who believes the ruling would effectively bankrupt all but a handful of Internet radio stations.

In an interview with InternetNews.com, Hanson argued that the rates proposed by CARP would effectively silence thousands of Webcasts. "It would affect about 10,000 Webcasters, if you include stations simulcasting on the Web and the one-man operations that are broadcasting through Live365 and Shoutcast.

But, it's not only the mom-and-pop operations at risk. If the Library of Congress Copyright Office accepts the recommendations, Hanson believes it would be an equally big problem for all of the broadcast radio stations that are simulcasting their signals on the Internet. "It may in fact cause big operators like Viacom to shut down their streams at MTV.com and VH1.com," he said.

Here's how the 14/100 of a cent per performance royalty rate would translate for a Webcaster with about 500 listeners per day: 500 listeners x .0014 dollars x 15 songs per hour x 24 hours = $250 per day or $90,000 per year, retroactive to 1998.

Already, some Webcasters are disappearing or frantically retinkering business models. MediAmazing, for instance, has dumped its free streams and implemented pay-per-listen broadcasts while Cablemusic.com and LiteRock 101.9 have shut off their services entirely.

Kevin Shively, who runs Beethoven.com, an Internet-only station streaming classical music to about 100,000 unique visitors monthly, insists the CARP is against the spirit of the Digital Millennium Copyright Act (DMCA) of 1998.

"Congress says in the DMCA that they want to grant Webcasters the opportunity to create viable businesses. This (CARP) recommendation does not come close to encouraging business. For most Webcasters, the rate is more than 100 percent of revenues," Shively said.

Because classical music pieces are longer than the average song, Beethoven.com powers about seven streams per hour. "Even with that, it would cost us around $4,000 per month in royalties alone. And, based on how the ruling is structured, that cost will increase if we grow. So, this ruling is anti-business. As you grow, your profit margins are going to go down. That's not what Congress envisaged in the DMCA legislation," Shively argued.

Operating in an environment where advertising dollars have dried up, Webcasters are nervously scurrying to Washington to get the CARP ruling either overturned or modified.

"At the very least, we want modifications to the fee structure," Shively said, noting that the momentum has switched to the side of Webcasters. Already, a letter of support has been co-sponsored by Reps. Rick Boucher (D-VA) and Chris Cannon (R-Utah) addressing concerns to the Library of Congress about the CARP recommendations.

The 'Save Internet Radio' drive also includes letter-writing campaigns by hundreds of affected Webcasters decrying the exorbitant royalty rate.

"Congress always felt that three percent of revenues was a fair royalty to pay composers of music," Hanson noted, noting that the CARP arbitrators effectively came back with a figure that was higher than the recording industry was asking for.

"The record companies were asking for 15 percent of revenues, which is exorbitant in itself. But, the rate they came back with works out to be more than 100 percent of revenues, in most cases," Hanson said.

By comparison, traditional terrestrial radio stations pay nothing to the Recording Industry Association of America (RIIA), another sore point for the Internet-only Webcasters.

"We don't buy into the argument that we should be treated any differently than terrestrial radio. Internet radio is no different. We do promote the sale of recordings by airing them over the Internet," said Beethoven.com's Shively. Because traditional radio airplay can help push the sales of recordings, there are no royalty agreements between the stations and the RIIA.

The RIIA, for its part, is also unhappy with the CARP ruling, arguing in an appeal that it "frustrates the Congressional objective."

"(The ruling) has undercut the Congressional objective to encourage voluntary agreements rather than expensive, destructive and time-consuming litigation. Given the CARP's conclusions, its rationale for those conclusions, and the highly adversarial manner in which it has mischaracterized the RIAA negotiations, the CARP has provided little incentive for future negotiations," RIIA said, adding that the recommendation established "an unacceptably high bar limiting the circumstances under which voluntary agreements may be considered in CARP proceedings."

While both sides argue about the fairness of the CARP recommendation (RIIA was asking for fees of .0014 per performance, or ten times what the arbitrators granted), the Webcasting community is collectively crossing fingers with the May 21 deadline for a decision looming large.

"If we can't get the CARP ruling dismissed and some type of royalty structure must be imposed, we feel it should be done based on a percentage of revenues. The market demands that that's what works for both sides in the long run. It would also remove the high barrier to entry that the 'per listener/per performance' structure would create," Shively said.

It's a high stakes battle indeed. And it all starts with the value of a tiny fraction of a cent.