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Labels to Net Radio: Die Now

You’d think the record companies would love Internet tunes—instead they’re trying to kill them

By Steven Levy
NEWSWEEK  

    July 15 issue —  Jim Atkinson is cannon fodder in the digital-music wars. Five years ago he and his wife, Wanda, began 3WK, a virtual radio station that streams tunes of their beloved alt/indie rock to listeners over the Internet. Unlike broadcast radio, which requires astronomical investments in licenses and broadcast equipment, a Webcaster needs only software and a server.

THE RESULT IS A rich universe of more than 10,000 alternative Web stations, many of which cater to narrow if not bizarre tastes: from Hawaiian ukulele music to Tanzanian drumming.
       It’s the exact opposite of broadcast radio, where the vast majority of stations are owned by a few media giants, who restrict playlists to the lowest-common-denominator ears. In the Webcast world, however, it’s possible for Jim and Wanda Atkinson to run one of the more popular sites—and one day, they hope, a profitable ad-supported business—by playing the tunes of, say, Dashboard Confessional. Possible, that is, until Oct. 20.

        That’s the day the bill comes due for a government-imposed performance fee brought about by pressure from the recording industry. The fees, retroactive to 1998, “would put us out of business along with 90 percent of the industry,” says Jim Atkinson. It would be the day Web music dies—and a classic instance of an Old Economy industry leveraging its power to kill a promising alternative.
       
‘JUST PLAIN NUTS’
       The rationale for a performance fee seems reasonable: why shouldn’t artists get some coin when Webcasters play their music? But in the words of our Senate majority leader (used in a different context), this particular scheme is “just plain nuts.” Instead of instating the kind of royalty already paid to songwriters by both broadcast and Web radio—about 3 percent of revenues—the tariff on digital music is based on the number of listeners. So it’s possible for the fee to exceed revenues, especially in a fledgling business where ads are scarce. Atkinson estimates his 2001 revenue at only around $10,000. But the bill he will receive for 2001 performance rights will be about $17,000.

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       Kurt Hanson, publisher of Radio and Internet Newsletter, has calculated that the Oct. 20 bill due for all Webcasters represents several times the total revenue of the entire industry. The folks at the Recording Industry Association of America defend this on the ground that without music, you have no Internet radio. This is like the government’s deciding to tax you three times your gross income, because you really, really benefited by living in the U.S.A. Meanwhile, for broadcast radio there’s no performance fee at all. Why? “The NAB [National Association of Broadcasters] lobby is very powerful,” says John Simson, who heads SoundExchange, the recording industry’s organization that will collect the royalties.
        The apparent irony is that Webcasting seems like something that the record labels would want to nurture, not smother in the cradle. There’s no Napster problem: Web radio uses streaming technology—real-time transmissions that can’t easily be downloaded and stored. Just like real radio, it’s free exposure for artists, especially ones that have difficulty getting air time in the cookie-cutter world of FM radio. And Webcast listeners find it easy to buy what they like: musical cuts are clearly identified, and often there are direct links to allow an instant CD purchase. (Atkinson claims that he’s generated more than $20,000 in CD sales.)

        But SoundExchange’s Simson says that the labels don’t view Webcasting as a promotional tool like broadcast radio. He says there’s no evidence that Internet radio boosts record sales. (He should call Atkinson.) He also worries that the narrow focus of Webcasts might poach sales: if someone can stream an “all Bruce all the time” Web radio station, he says, their Springsteen craving might be forever satisfied. Seems to me, though, that anyone who tunes in to that station would snatch the Boss’s new CD the day it hit the stores.
       
ECOLOGICAL THREAT?
       So why are the record labels taking such a hard line? My guess is that it’s all about protecting their Internet-challenged business model. Their profit comes from blockbuster artists. If the industry moved to a more varied ecology, independent labels and artists would thrive—to the detriment of the labels, which would have trouble rustling up the rubes to root for the next Britney. The smoking gun comes from testimony of an RIAA-backed economist who told the government fee panel that a dramatic shakeout in Webcasting is “inevitable and desirable because it will bring about market consolidation.”
        The record industry, with the help of Congress and the Copyright Office, may indeed make a shakeout inevitable. But I doubt that Jim Atkinson and his fellow independent Webcasters find the prospect of their extinction terribly desirable. Nor do the 77 million Americans who have at one time tuned in to Web radio and perhaps found something not featured on the lobotomized playlists of broadcast radio. If enough of those outraged listeners stream their objections to legislators, maybe Internet radio can be saved.
       
       © 2002 Newsweek, Inc.

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