Music-go-round: Webcasters reach tentative agreement with RIAA, DiMA.

In early April, just days after Neil Blake launched a new subscription-based model of his radio station, BlakeRadio.com, the Recording Industry Association of America (RIAA) and the Digital Media Association (DiMA), a nonprofit trade group, submitted a joint-royalty rate proposal to the U.S. Copyright Office. If approved, the proposal, which represents months of negotiations between record companies and DiMA, on behalf of the Webcast industry, would keep both sides from going through an expensive and lengthy arbitration process to determine appropriate royalty fees. With both sides agreeing to hammer out their differences, the joint proposal indicates a significant breakthrough or, at the very least, some breathing room for Web entrepreneurs like Blake. Like other new industries, Webcasters are venturing into a somewhat ungoverned territory. The Internet allowed almost anyone with some technical know-how to broadcast copyrighted sound recordings. But five years ago, as a way to adapt old copyright laws into the new digital media environment, Congress passed the Digital Millennium Copyright Act (DMCA). As a result, Webcasters are now obligated to pay a royalty rate for the music they broadcast. Prior to the Small Webcaster Settlement Act, signed late last fall by President George W. Bush, the recording industry and Webcasters remained deadlocked on the issue of appropriate royalty rate fees owed.

"What you have are industries which work together on a daily basis but have different views on the value of this enterprise," says Jonathan Potter, executive director of DiMA. "It's comparable to building a home. The bricklayer might feel as if he's more important than the carpenter, but ultimately, everyone wants to put out a quality product. At the end of the day not everyone is going to want to pay royalties, but everyone is going to be relieved that we've been able to move forward."

Despite the steps taken so far, Potter says there are still outstanding issues that need to be addressed to transform digital media into a viable competitor against traditional media sources. Under the latest proposal, new commercial Webcasters like Blake would have more than one option in choosing how to pay royalties over the next two years. Six months into the new business model, Blake already believes that the best option for the station would be to enter into a blanket revenue-based agreement (see "Let the [Web] Music Play," Techwatch, June 2003). "If you're making money, it seems to me that the proposal is fair because I believe that artists should be compensated. But with this option, there's also an additional $5,000 licensing agreement fee now. So for a company that's not generating any revenue, that's a lot of money." he adds.

It might be several months before Blake sees a profit, but already his radio station's Internet message board reads like a gathering of the United Nations (even in Baghdad, listeners are tuning in).

Some former fans, disgruntled that the station is now charging $9.95 for its premium channels, are also writing in to complain. But, counters Blake, "That breaks down to 32 cents a day. Even though we have very little money in our advertising budget, we're doing better than I thought we would. We may even do print ads in the future. Like any business, the key is marketing your product."

Monthly Usage of Internet Audio Has Tripled
Percentage of Americans who have listened to Internet audio

Jan. 2000    5%
Jan. 2001   10%
Jan. 2002   12%
Jan. 2003   17%

SOURCE: ARBITRON INC./EDISON MEDIA RESEARCH

Note: Table made from bar graph.