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‘Net Radio Stations Fighting Increase in Song Royalties to Start July 15

Internet radio stations staged a day of silence on June 26 to protest proposed increases in royalties levied on Internet radio by the Copyright Royalty Board of the Library of Congress.

According to Savenetradio.org, the increase would push ‘Net radio royalties to 19 cents per song by 2010 from the 2005 level of 7 cents.

The change would be retroactive to Jan. 1, 2006.

Luis Kaloyan, president of Binational Broadcasting Co. Inc. , which previously owned XHRM 92.5FM , is concerned for X1FMRadio.com, his latest venture.

“It’s affecting jobs and this emerging industry,” Kaloyan said from X1FM’s National City headquarters.

The X1FM Web site is currently ramping up to launch and is in beta testing.

However, if the rate increase goes into effect July 15, Kaloyan said his investment and 40 jobs will be lost.

“My personal investment , which is big , will never have a chance ,” Kaloyan said, adding that station overhead costs $80,000 per month to operate, including payroll and bandwidth expenses, but not fixed costs, such as equipment and vehicles.

X1FM employees said that if the station drew only 500 listeners per month, expenses would increase by $70,000 per year. Nationwide, Kaloyan said that 70 million listeners tune in to Internet radio monthly.

Internet radio stations broadcast music through the Internet instead of via airwaves.

Based on a market of that size, X1FM said its expenses could jump by millions of dollars.

Bigwigs affiliated with The Digital Media Association, a national trade organization focused on online media such as MTV Online, Pandora.com and Yahoo!, also are participating in the day of silence.

“The giant companies will be all that’s left, but even they are participating in the day of silence,” said Kaloyan.


Over-regulated

Terrestrial radio stations pay lower royalty rates than satellite or Internet radio stations, but pay different fees for over-the-air broadcasts than for Internet simulcasts, according to Garrett Michaels, program director with FM 94.9.

Michaels added that the 94.9 simulcast was silenced in protest on June 26, as were the simulcasts of KSON 97.3 and KIFM 98.1, all owned by Greensboro, N.C.-based Lincoln Financial Media.

Under the new royalty rates, satellite radio broadcasters would pay 0.11 cents , that is, roughly one-tenth of a cent , per listener, per song.

Internet radio operators are hoping that an Internet Radio Equality Bill now under consideration in the House would put ‘Net fees on par with satellite fees.

“We agree we need to pay royalties,” Kaloyan said. “But we need to pay similar to what terrestrial and satellite pay we want to stay in business.”

Kaloyan said he believes the copyright board is responding to pressure from the recording industry, which is mired in low sales due to rampant Internet piracy.

SoundExchange is the main lobbyist for the Internet radio fee hike, and represents labels such as Sony BMG Music Entertainment and Warner Music Group. The group also collects and distributes royalties for its members.

In a SoundExchange news release dated May 11 , less than two weeks after the copyright board announced the fee increase , SoundExchange said the opposition was a corporate “money grab” by big operators such as Yahoo! and Clear Channel Communications. According to the release, those corporations and others could save $100 million in royalty payments between 2006 (retroactively) and 2010 without the fee hike.

“There are better, targeted ways to help the small Web-casting businesses without resorting to selling out to the likes of Clear Channel,” said John Simson, executive director of SoundExchange, in the release.

A May 22 SoundExchange release said that a new request would be put through to Congress to help keep rates low , a “subsidy” , for independent, non-commercial Internet radio stations through 2010.

Under the proposed “Small Web-caster Settlement Act,” small ‘Net radio stations would pay a royalty of 10 percent of gross revenue, up to $250,000 and 12 percent for revenue above that amount.

The release did not define small, but SoundExchange said that there is a revenue and usage cap “to ensure that this subsidy is used only by Web-casters of a certain size who are forming or strengthening their business.”

Representatives from SoundExchange were not available for comment by last week’s deadline.

X1FM representatives said that SoundExchange’s proposal does not provide a solution to the issue, but limits the size of independent Web-casters to revenues of less than $250,000.

“It doesn’t surprise me that this is happening,” Kaloyan said. “It’s a well-calculated move.

“If I were a satellite broadcaster, I’d be worried about the Internet. (Satellite radio broadcasters) aren’t moving units. Howard Stern went from 400,000 listeners to 38,000 since he’s been on satellite radio.”


A Different Approach

Local ‘Net radio station and Digital Media Association member-company Slacker.com claims that its business model will be unaffected by the increases, since it negotiates its own royalty deals with each record label.

A Slacker representative also said the company would not participate in the day of silence, as it would not be in the best interest of the station’s listeners.

“As a member of (the Digital Media Association), Slacker is certainly an interested party in the outcome of the final rate structure for online radio,” said Vice President of Marketing Jonathan Sasse in a statement.

“With that said, the Slacker business model remains very healthy even with the proposed changes to the CRB rates.”

Slacker is also developing a portable player that will stream the station, as well as a car kit that will receive the Slacker radio feed via satellite.


Editor’s Note: In the original version of this story, the proposed royalty rate was in error. The number has been corrected in this version.

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