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‘96 pc of Net Radio’ to close after backroom deal screws grassroots 'casters

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The Internet Radio community is in turmoil. The Webcasters trade body looks likely to split over the issue of performance royalties, with many grassroots webcasters resigning in disgust at the HR.5469 bill now before the Senate.

HR.5469 isn't what many 'casters had expected.

The smallest, non-profit webcasters accuse a cabal of thirteen small commercial operations of misleading Congress and the public by negotiating a deal which saves the wealthier stations from performance royalties, while many smaller operations, college stations and amateurs - the core of the grass roots broadcasters - will go to the wall. (The bill exposes educational and religious terrestrial stations to performance royalties, too.)

And privately, even members who support HR.5469 agree that it will "seal the fate of this industry to be dominated by big webcasters," according to correspondence seen by The Register.

For years the RIAA has been keen to add performance royalties and onerous reporting requirements onto webcasters. Terrestrial radio in the US doesn't pay performance royalties, but that changes with the bill: exposing radio stations to a revenue contribution for the first time. However all broadcasters are already obliged to pay publishing royalties to ASCAP and BMI, and most webcasters readily comply.

The RIAA argues that net radio can't be treated like its terrestial sibling, because it supposedly allows a "perfect digital copy" to be made of the recording, which you might find difficult to imagine when so many net casters transmit at 32kb.

Back room deal

Many webcasters have already resigned in protest from the body that's supposed to represent them: the Internet Webcasters' Association. The IWA was founded in 1996, has the ear of regulatory and technical bodies, international affiliates in Europe and Asia, and operates under a charter.

But the deal with the Recording Industry Association of America (RIAA) was struck not by the IWA, but by "Voice of Webcasters" (VoW) behind closed doors in a backroom deal. It was the VoW group which picked up the gauntlet and tried to negotiate a settlement with the RIAA before the royalty rates - which cost some hundreds of thousands of dollars - become due in nine day's time. The first that many webcasters knew of this was when many pages of amendments were added to a revised HR.5469 - it was expected to be just a couple of paragraphs long - minutes before it hit the floor of the House.

Over the weekend, many stations called on Congressional representatives to support the bill. What they didn't know was that VoW, a body representing 13 of the wealthier small netcasters, was cutting a deal with the RIAA.

So behind the closed doors, the two paragraph measure intended to buy the nascent industry a six month breathing space before royalties became due, was mushrooming into a thirty page royalty plan. Net casters only found out minutes before the Congress vote, giving them little time to react.

"That's what's appalled and disgusted so many people," says Ann Gabriel, who resigned from the IWA this week. "The thirteen [VoW members] were trying to save their own behinds by not having to pay retroactive royalty rates; but it set a yoke around the neck of (other) people."

"I don't much care for the bait-and-switch,"says blind bluegrass webcaster Frank Coon. Coon runs Hound Dog Radio, a bluegrass and country station from Stone Mountain, Georgia.

"For the smaller commercial webcasters, it's a good deal," he said. "But it doesn't do anything for the other 96 per cent," Coon told The Register.

"If something isn't done by the 20th, a good 96 per cent of Internet Radio will go dark," he added.

Coon is completely visually impaired. The former country musician says he borrowed equity against his house to march on Capitol Hill recently, lobbying representatives to give the 'casters a break. With 200 listeners, Hound Dog Radio is too large to be considered a hobbyist, he tells us, but not large enough to afford the rates.

Roll over Beethoven

Some of the most senior IWA executives who so far have kept their counsel in public, have another story to tell in private, and paint a doomy picture for small webcasters.

Beethoven.com's Kevin Shively, himself a VoW member who backed the RIAA-deal, now thinks its ruinous:

"This bill, while obviously saving some companies from extinction, creates a dangerous environment for the future of our industry. In fact, it makes it so difficult to profit from this industry that I have to seriously consider whether it is the right field to be in."

" I simply am fearful that those that survive as a result of this will do so under circumstances which seal the fate of this industry to be dominated by big webcasters, while populated by small ones eking out a living without any real hope of ever becoming a significant threat to anyone," he wrote in a posting to the CARP list.

Shively hadn't responded to our email at press time. [He does, in some depth, in our follow-up].

But the compromised Bill has some surprising backers. SomaFM and KPIG are urging listeners to support the revised, RIAA-negotiated venture.

"There's a ton of potential in this bill for hobbyists," urged Rusty Hodge, of SomaFM. "And with the $2000 fee, YOU CAN GET ADVERTISING."

SomaFM, which went off the air in June, describes itself on its website as "Listener Supported, Commercial Free [our emphasis] Internet Radio."

"You don't think you could get a record/music store to pay $6 a day for a few audio ads?" he continues.

"Not for three listeners," responds Brian Hurley, who runs the Detriot Industrial Underground station. Even a couple of hundred listeners is too small to interest advertisers, agrees Coon. Hurley points out that a typical audience for a small netcaster is a dozen listeners.

Most surprising of all, Kurt Hanson of Hanson Consulting, which provides advice and consultancy to net radio stations, has been praising HR.5469 on his RAIN newsletter as the best workable compromise. RAIN had been a stalwart news source for small webcasters, and Hanson's volte face puzzled several of the webcasters we interviewed.

Coup: How the VoW grabbed the reins

"Part of our group jumped ship and saved their own skins, not following up, not remembering the group they represent," wrote one net caster on the VoW-hosted mailing list.

So who is VoW, and how did it arrive at the negotiating table with the RIAA? And how did it agree to such an un-fraternal deal that sends their fellow broadcasters to the wall?

VoW envangelist RadioIO's Mike Roe, who hosts the list, describes VoW as "a loose affiliation" of "small commercial webcasters who shared a common goal: to save small commercial webcasting - nothing more, nothing less."

Ethen Evans, VP of Engineering for Lightningcast, which develops advertising technology for broadcasters that inserts targeted adverts into video or audio streams, suggests that VoW simply picked up the gauntlet.

"They seized the initiative. They started negotiating - and ended up in charge," he told us.

VoW members clubbed together and hired a lawyer, working largely on a pro bono basis. David Oxenford, says Evans, did a "fabulous job" for his clients, but was under pressure from Congress to arrive at a deal. The powerful Chairman of the House Judiciary Committee James Sensenbrenner told them 'I want a deal', he says, and threatened to write his own compromise if the parties failed to agree.

The VoW members wanted to cut the royalties due October 20. But they've left a vast number of grassroots casters facing a perilous future.

"You have one volunteer pro bono lawyer, effectively, in Oxenford - going against a huge group of professionals. He was negotiating under time pressure from Congress but negotiating with very little leverage. The RIAA didn't have any strong reason to settle quickly, but Oxenford was trying to save a certain set of webcasters he was trying to help."

The 13 webcasters who were negotiating with the RIAA, with Oxenford as their attorney, were desperate to seal a deal before the October 20 deadline. So they cut and ran.

"Rule One of negotiations is that you're prepared to walk away," notes Evans. "If you put him up against a billion dollar industry, then if it works out in favor of the small guy they make a movie about it and call it 'Erin Brockovich'."

Although Lightningcast isn't a webcaster, it too is affected by the bill, which contains a suggestion that could lead to the RIAA taking a slice of future advertising revenue, too. Evans doesn't think the Bill will pass the Senate, and looks for more positive legislation in the next session - such as return of the Internet Radio Fairness Act - to provide a more just settlement.

But he also concedes that Congressional appetite may be exhausted by then. If HR.5469 passes, it will leave the net radio landscape unimaginably different. If it doesn't, it still leaves webcasters feeling betrayed.

Much of the serendipity of Internet Radio now derives from tuning the dial at random - much as you can with short wave terrestial radio - and hearing wonderful and unexpected things. The passage of HR.5469 would, at a stroke, reduce the spectrum from thousands to a few dozen commercial players.

Every new technology medium seems to enjoy a delicious moment, between being born as a vehicle for human creativity controlled by no one, into a Pigopolistic advertising channel, controlled by very few. If you care about Internet radio, and you're American, assail your Senators today. If you don't, that moment will have already have passed. ®

[Follow-up]

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