Mending the Tear in the Internet Radio Community: a Call for a Legislative Band-aid

• Publication year: 2002
• Citation: Vol. 4 No. 2002

Allison Kidd⁰

I dream of Jeannie with the light brown hair

Floating like a vapor on the soft, summer air.

I sigh for Jeannie, but her light form strayed

Far from the fond parts round her native glade;

Her smiles have vanished and her sweet songs flown

Flitting like the dreams that have cheered us and gone.¹

"Jeannie with the Light Brown Hair" was the most popular song of 1941,² despite the fact it was written nearly ninety years earlier.³ In 1939, the American Society of Composers, Authors and Publishers ("ASCAP") increased the royalty rates it demanded of radio stations to prices so high the radio stations refused to pay.⁴ For ten months, radio stations aired only public domain songs like "Jeannie with the Light Brown Hair" and the works of previously unknown artists.⁵ That same year, Broadcast Music, Incorporated ("BMI") emerged to challenge ASCAP's monopoly and, in the process, introduced America to pop music.⁶

Today, Internet-based radio broadcasters are caught in a similar royalty rate fight. Like BMI, which once was a small and powerless organization, Internet radio broadcasters are making a name for themselves by introducing America to new forms of music. The number of daily listeners continues to swell.⁷ In 1999, the Arbitron Company, a premier media and marketing research firm, estimated that thirty-five percent, or approximately 29 million Americans, had tried streaming audio or video such as Internet radio stations.⁸ In early 2003, two Internet-only radio stations finished number one and two on a weekly industry rating of online listenership by receiving more requests for their broadcasts than traditional stations based in London and New York did for their simulcasts.⁹ Additionally, the Internet radio listening options continue to grow every day.¹⁰ Listeners can find the widest variety of programming among some of the newest and smallest webcasters. These stations offer news, talk, Motown, UK garage electronica, swing, and Hawaiian music, among other choices. While Internet radio programming, or "webcasting," may still be in its infancy, it has enormous potential.

The future of the smallest stations will depend on the structure of copyright law and payment of royalties. After convening a Copyright Arbitration Royalty Panel ("CARP") to suggest rates, the Librarian of Congress recently ordered webcasters to pay royalties so high that many would be put out of business.¹¹ Legislators reacted quickly and introduced the Internet Radio Fairness Act ("IRFA") to establish royalty rates that more webcasters could afford.¹² IRFA, which set royalty rates, was quickly usurped by the Small Webcasters Settlements Act ("SWSA"), which was signed into law at the end of the 107^th Congress.¹³ Under SWSA, webcasters must either negotiate their own royalty rate agreements by June 20, 2003, or pay the Librarian of Congress' controversial rates.¹⁴ While a private agreement was negotiated between webcasters and the recording industry in December 2002,¹⁵ many webcasters argue that the agreed upon rates still are too high for the smallest Internet radio stations.¹⁶ Furthermore, the terms and methods of negotiation used to achieve SWSA and the subsequent negotiated agreement have created a division in the webcaster community.¹⁷ The smallest webcasters face an impending summer payment deadline¹⁸ and still are displeased with their royalty options.

This Recent Development posits that Congress should pass legislation setting special hobbyist royalty rates and reforming the CARP system to ensure equal protection for the smallest webcasters' unique broadcasts, keeping in tune with the growth of Internet radio. The first part of this Recent Development describes Internet radio. The second part contains an overview of the relevant regulatory scheme.¹⁹ In its third part, this Recent Development paints a picture of a divided webcasting community and describes remaining problems related to royalty rates.²⁰ Finally, this Recent Development suggests legislative intervention to both assist webcasters whose interests have not been represented in the royalty rate disputes and address similar disputes in the future.

I. Internet Radio

Internet radio is exactly what one might expect: radio broadcast over the Internet.²¹ Some stations broadcast only over the Internet, while others broadcast simultaneously over the Internet and an AM/FM stations.²² Internet radio broadcasts, or webcasts, transfer audio as data over the Internet.²³ The data is transferred in real time in the form of "streaming audio."²⁴ Listeners tune in to Internet radio stations transmissions already in progress. Unlike listening to a car radio, however, one will never travel outside the listening area of Internet radio.²⁵ One can just as easily listen to a station in Miami as one can in Moscow.²⁶ To try Internet radio for the first time, one need only a few basics, including a computer with speakers and a soundcard, an Internet connection, and the proper software.²⁷

Internet radio provides many more listening choices than traditional radio.²⁸ Starting an Internet radio station is virtually unregulated, as opposed to the heavily regulated communications industry in which traditional stations must operate.²⁹ Indeed, most stations are established and managed by "small businesses, community and college broadcasters and hobbyists."³⁰ When selecting a station, many Internet radio listeners look for the variety that only these small webcasters can provide.³¹

In addition to providing individual listeners with entertainment and news, Internet radio generates numerous other, often industry-wide, developments. For example, listeners frustrated with poor quality transmission of their favorite programs have an incentive to install higher-speed cable or DSL Internet connections.³² Webcasting is also a new outlet for advertising.³³ Eighty-two percent of webcasters now sell advertising time.³⁴ Additionally, software developers create new products to help users better manage and listen to Internet radio.³⁵ For example, the SonicBox allows listeners to hear Internet radio without sitting at a computer to do so.³⁶ In these ways, issues surrounding Internet radio not only affect the obvious stakeholders, such as webcasters, listeners, and the music industry, but also Internet service providers, software developers, and other technology companies.

II. Regulation of Radio

A. Regulation of Traditional Radio Stations

Radio was not yet popular when the first Copyright Act was passed in 1909.³⁷ The Copyright Act of 1909 recognized copyrights for music,³⁸ and shortly after its enactment, a concerned group of musicians formed the ASCAP as a royalty collection society.³⁹ In compliance with the Copyright Act, music halls, theatres, and other public venues paid royalties to the composers whose records they played.⁴⁰ However, while early radio stations paid royalties for the copies of records they purchased, they did not pay any additional royalties to broadcast those records.⁴¹ As a result, the number of radio stations ballooned, while the number of record companies fell dramatically.⁴² Around the same time, Billboard Magazine and ASCAP led the push to force radio stations to pay royalties for the right to transmit music.⁴³ In the 1920s, composer Victor Herbet sued a restaurant for playing his hit operetta song just down the street from where his show was performed.⁴⁴ A series of similar claims followed and, in 1922, ASCAP began collecting a $250 licensing fee from radio stations.⁴⁵ While the exact amount of the fee varied, radio continued to develop under this same royalty scheme for nearly fifty years.⁴⁶

In 1972, the Copyright Act of 1906 was amended to provide sound recording copyright holders protection once a work is put into a "tangible medium of expression."⁴⁷ In 1976, the legislature again amended the Copyright Act to require radio stations to pay royalties to the person owning the underlying musical composition, who usually is not the song's performer.⁴⁸ Radio stations did not pay artists a "performance royalty" under the 1976 Act because there were no performance rights for sound recordings at the time and legislators believed playing songs promoted record sales.⁴⁹

B. Regulation of Internet Radio Stations

1. The Digital Performance Right in Sound Recordings Act

In 1995, Congress addressed the issue of public performance rights in music for the first, but only for the digital transfer of music.⁵⁰ Representatives of the music community had alerted Congress to the growth in the use of digital technologies among listeners with high quality, recordable copies of copyrighted works.⁵¹ The representatives expressed concern about the adverse effects such technology had on the sale of tapes and CDs and the "[erosion of] copyright owners' ability to control and be paid for the use of their work."⁵² Congress enacted the Digital Performance Right in Sound Recordings Act ("DPRA") as a way to balance these industry interests with those of the technology sector. The goal of DPRA was to

. . . provide copyright holders of sound recordings with the ability to control the distribution of their product by digital transmissions, without hampering the arrival of new technologies, and without imposing new and unreasonable burdens on radio and television broadcasters, which often promote, and appear to pose no threat to, the distribution of sound recordings.⁵³

Though DPRA did not specifically address Internet radio technology,⁵⁴ which had not yet become popular, it did contain provisions that shape current webcasting law. DPRA amended the Copyright Act of 1976 to extend a limited public performance right to sound recordings,⁵⁵ meaning that the owner of the copyright in the sound recording would receive royalty payments for the first time. Under DPRA, webcasters who charge listeners for their services,⁵⁶ but not traditional or public radio stations,⁵⁷ were required to pay performance right royalties.⁵⁸ DPRA...