SuitWatch -- March 7, 2007

Sponsor: Verio
What's Linux with a Lineage? What's Linux with a Lineage? Verio Linux VPS delivers root access, advanced FairShare technology for better performance & support that's actually supportive.  And it's all from Verio, the pioneer of Virtual Private Server technology, with over 500,000 customers.  Test-drive Verio Linux VPS at: http://www.verio.com/ljemail

---

Internet Radio on Death Row

Internet Radio has been sentenced to death.

In a move that recalls the Vogons' decision to destroy Earth to clear the way for a highway bypass in space (from Douglas Adams' Hitchhikers Guide to the Galaxy), the judges comprising the Copyright Royalty Board have decided to destroy the Internet radio industry so the Recording Industry won't be inconvenienced by something it doesn't know, like or understand.

The sentence is detailed in a 115-page PDF titled "Determination of Rates and Terms for Webcasting for the License Period 2006-2010 in [Docket No. 2005-1 CRB DTRA] Digital Performance Right in Sound Recordings and Ephemeral Recordings".  (Here's the URL: http://www.loc.gov/crb/proceedings/2005-1/rates-terms2005-1.pdf).  It begins,

This is a rate determination proceeding convened under 17 U.S.C. 803(b) et seq. and 37 CFR 351 et seq., in accord with the Copyright Royalty Judges' Notice announcing commencement of proceeding, with a request for Petitions to Participate in a proceeding to determine the rates and terms for a digital public performance of sound recordings by means of an eligible nonsubscription transmission or a transmission made by a new subscription service under section 114 of the Copyright Act, as amended by the Digital Millennium Copyright Act ("DMCA"), and for the making of ephemeral copies in furtherance of these digital public performances under section 112, as created by the DMCA, published at 70 FR 7970 (February 16, 2005).  The rates and terms set in this proceeding apply to the period of January 1, 2006 through December 31, 2010. 17 U.S.C. 804(b)(3)(A).

Daniel McSwain of Kurt Hanson's Radio And Internet Newsletter (RAIN), summarizes the findings this way:

The Copyright Royalty Board (CRB) has announced its decision on Internet radio royalty rates, rejecting all of the arguments made by Webcasters and instead adopting the "per play" rate proposal put forth by SoundExchange (a digital music fee collection body created by the RIAA).

RAIN has learned the rates that the Board has decided on, effective retroactively through the beginning of 2006.  They are as follows:

     2006 - $.0008 per performance
     2007 - $.0011 per performance
     2008 - $.0014 per performance
     2009 - $.0018 per performance
     2010 - $.0019 per performance

A "performance" is defined as the streaming of one song to one listener; thus a station that has an average audience of 500 listeners racks up 500 "performances" for each song it plays.

The minimum fee is $500 per channel per year.  There is no clear definition of what a 'channel' is for services that make up individualized playlists for listeners.

For noncommercial webcasters, the fee will be $500 per channel, for up to 159,140 ATH (aggregate tuning hours) per month.  They would pay the commercial rate for all transmissions above that number.

Participants are granted a 15 day period wherein they have the opportunity to ask the CRB for a re-hearing.

Within 60 days of the final determination, the decision is supposed to be published in the Federal Register, along with any technical corrections that the Board may wish to make.

Within 30 days of publication in the Federal Register, it can be appealed (but only by the participants) to the U.S. Court of Appeals of the District of Columbia.

In the FAQ unpacking that, Kurt Hanson adds,

According to the comScore Arbitron ratings report for November 2006, the AOL Radio Network had a average audience ("AQH") between 6AM and Midnight of 210,694 listeners.  Multiplied by about 16 songs per hour, 18 hours per day, and 31 days per month, plus adding an additional 10% to account for overnight (Mid-6AM) listening, suggests that AOL played about 2.1 billion songs that month.  At the CRB's royalty rate ($0.0008 per play), I'm guessing that would create a royalty obligation to SoundExchange for the month of November of about $1.65 million.  Annualized, that's about $20 million for 2006.

Here at RAIN, we're guessing that Pandora has an audience approaching that size.  (Pandora founder Tim Westergren claims that Pandora now accounts for 1.5% of all Internet traffic.) Such a royalty obligation might exceed the total proceeds of all their recent rounds of venture capital plus all their sales revenues to date.

Since Last.fm is based in the U.K., another possible outcome is that Pandora dies and Last.fm becomes the "social music networking" player.

Kurt Hanson was one of the Parties to the Proceedings, making arguments before the judges on behalf of webcasters.  Here's a full list of Parties, from the Decision:

Bonneville International Corp., Clear Channel Communications, Inc., National Religious Broadcasters Music License Committee ("NRBMLC"), Susquehanna Radio Corp.; (iii) SBR Creative Media, Inc. ("SBR") and the "Small Commercial Webcasters" (this designation was adopted by the parties): namely, AccuRadio, LLC, Digitally Imported, Inc., Radioio.com LLC, Discombobulated, LLC, 3WK, LLC, Radio Paradise, Inc.; (iv) National Public Radio, Inc. ("NPR"), Corporation for Public Broadcasting-Qualified Stations ("CPB"), National Religious Broadcasters Noncommercial Music License Committee ("NRBNMLC"), Collegiate Broadcasters, Inc. ("CBI"), Intercollegiate Broadcasting System, Inc., ("IBS"), and Harvard Radio Broadcasting, Inc. ("WHRB"); (v) Royalty Logic, Inc. ("RLI"); and (vi) SoundExchange, Inc. ("SoundExchange").

DiMA, Radio Broadcasters, Small Commercial Webcasters, SBR, NPR, CPB, NRBNMLC, CBI, IBS and WHRB are sometimes referred to collectively as "the Services." The Services are Internet webcasters or broadcast radio simulcasters that each employ a technology known as streaming, but comprise a range of different business models and music programming. DiMA and certain of its member companies that participated in the proceeding (namely: AOL, Yahoo!, Microsoft and Live 365), Radio Broadcasters, SBR and Small Commercial Webcasters are sometimes referred to collectively as "Commercial Webcasters." NPR, CPB, NRBNMLC, CBI, IBS and WHRB are sometimes referred to collectively as "Noncommercial Webcasters."

On the Rebuttal side was SoundExchange, which describes its background this way:

SoundExchange®, Inc. is a dynamic, 501(c)(6) nonprofit performance rights organization embodying hundreds of recording companies and thousands of artists united in receiving fair compensation for the licensing of their music in the new and ever-expanding digital world.  Modern technology makes all of our lives a little bit simpler and SoundExchange takes full advantage of its accuracy and efficiency to license, collect and distribute public performance revenues for sound recording copyright owners (SRCOs) and artists for noninteractive digital transmissions on cable, satellite and webcast services.

Prior to 1995, SRCOs in the United States did not have a performance right.  This meant that, unlike their counterparts in most of Europe and other nations around the world, recording companies and artists were not entitled to receive payment for the public performance of their works.  Users of music, the digital music service providers, freely performed these works at will, without a dime being paid to the rightful owners of those recordings or the featured artists who performed the songs - the recordings which created the backbone of their business.

The Digital Performance in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 changed that by granting a performance right in sound recordings.  As a result, copyright law now requires that users of music pay the copyright owner of the sound recording for the public performance of that music via certain digital transmissions.  The U.S. Copyright Office recognized the benefits of SoundExchange's administration of these royalties, and so has designated SoundExchange as the administrative entity for subscription services' statutory license fees.  You may find SoundExchange's Notice of Designation as Collective Under Statutory License here.

The Rebuttal side -- the RIAA, essentially -- won, hands down.  And then some.

Here's the problem.  Absurd as it may seem on the face of things, what you see in the three paragraphs above is the re-framing of music on radio as "public performances".  How come? Well, when the recording industry (that is, the RIAA) saw the Internet coming along in the mid-1990s, they knew radio would move there.  And they took advantage of the opportunity to do with Internet radio what the industry failed to do with terrestrial over-the-air analog radio: charge fees for every "performance" for every listener.

They also smartly saw in digital broadcasting an advantage that analog broadcasting never had: accountability -- at any level of granularity.  If they could get that, one of two things would happen: A) the new business would pay them money; or B) the new business wouldn't happen and its threat to the status quo would be squashed.

So they wrote requirements for per-performance fees, and highly granular accounting, into the DMCA.  Fees were not specified, however.  The DMCA left that up to something called the Copyright Arbitration Royal Panel, or CARP.  When the CARP process ended in a victory for the RIAA in mid-2002, the imposed fee structure (which was retroactive, even) was so steep that many Internet radio stations were quickly silenced.  Only a last-minute intervention by retiring senator Jesse Helms (whom I believe was acting on behalf of friends in the religious broadcasting community) saved the industry from being killed outright.  A compromise fee structure still killed many station streams (including KPIG, the first commercial station on the Web, which is now available only by subscription through Real), but allowed others to live.  In other words, the RIAA managed to cripple but not quite kill the Internet radio baby in its cradle.

Perhaps chief among the survivors is Radio Paradise, the creation of Bill Goldsmith, who also presided over KPIG's streaming from its birth to its death-by-CARP.  Bill was a primary source for the many pieces I wrote for Linux Journal about the fight between Internet radio and the RIAA.  (To find them, just search for CARP or Goldsmith in Linux Journal here: http://www.linuxjournal.com/search.) Today the Linux-powered Radio Paradise is a paragon of Everything Radio Ought to Be.  It is loved by its listeners, by the artists it plays, by the many communities of interest and passion it serves.

And now it too is now sentenced to die.  As Bill Goldsmith told Kurt Hanson, "This royalty structure would wipe out an entire class of business: Small independent webcasters such as myself & my wife, who operate Radio Paradise.  Our obligation under this rate structure would be equal to over 125% of our total income.  There is no practical way for us to increase our income so dramatically as to render that affordable." Kurt adds, "And Radio Paradise is perhaps the most-successful webcaster in its class! For most operators, this rate looks as if it would be >150-200% of total revenues."

Naturally, the Save Our Internet Radio Blog quickly appeared, at http://saveourinternetradio.com.  Please follow it.  Read the FAQ, and The View From Paradise: Bill Goldsmith's detailed and eloquent plea for help.  Here's his case:

I'm Bill Goldsmith, and my wife Rebecca and I have spent the last seven years of our lives pouring our hearts, minds, and financial resources into Radio Paradise.  We are now faced with the very real possibility that all of our efforts will have been in vain, and that the thousands of people who are devoted listeners to our station will have it snatched out of their lives.

Bill & Rebecca Goldsmith have been in love with radio all of my life, and spent 30-odd years dealing with the conflict between my vision of radio as an art form and my FM-station employers' vision of radio as a conduit for advertising.  I have watched the medium that I love turn from an essential part of the process of connecting those who love making music with those whose lives are touched by it into a mindless background hum of advertising and disposable musical sludge.

With the advent of the Internet, we were finally able to bring to life the radio station I had always wanted to work for (and listen to): commercial-free, passionate, and embracing a wide universe of musical treasures, from the classic rock artists I grew up with to the latest indie discoveries, with a liberal sprinkling of world music, electronica, jazz, even classical.  We have slowly built up a loyal audience and have been able to support ourselves while living our dream.

An Exciting - But Fragile - New Era for Radio

The Internet has changed radio in a profound way.  Instead of a business that required investments so huge (millions of dollars for even a small-market FM station) that a programming focus on the lowest common denominator and an extreme aversion to risk or experimentation was an unavoidable consequence, a radio station with a global reach was now within the grasp of anyone with the talent and determination to make it happen.

Every day we hear from listeners who are profoundly touched by our efforts - by the music we play, by the way we assemble the songs into meaningful sequences that are more than the sum of their parts, by our passion for what we are doing, and our commitment to never contaminating the music with advertising.  And our station is but one of many who have attracted that kind of passionate following, and provided that kind of outlet for radio artists like myself.

The Internet's paradigm-shifting gift to radio programmers and music lovers - at least those in the US - is now in danger of being taken away by the misguided actions of the US Copyright Board.  The performance royalty rates released by the Copyright Board on March 1, 2007 are not just extreme, not just burdensome.  They are a death sentence for all US-based independent webcasters like Radio Paradise, SOMA-FM, Digitally Imported, and many others.

After reading this, and many other posts and comments, I also read through the CRB's lengthy decision and came away with two conclusions:

1) The problem isn't with the CRB.  They aren't the Vogons here.  Those would be the RIAA, which was behind the insane and market-hostile copyright laws on which the CRB judges base their decisions.  Those laws date back to the 1930s and beyond, but are most out-of-whack ones are in the terribly ill-considered DMCA.

2) There are two ways to fight this.  One is to yell loud and hard at congresspeople about What's Wrong with this whole thing.  The other is to amend or rescind (or whatever -- I am not a lawyer, but a lawyer will know what I'm talking about) the DMCA so the familiar practice and business of playing music on radio is no longer unrealistically mis-characterized as "performances".  We need to work with congressfolk on that one too.  And for that we'll need big help from the legal community.

While wrapping up this SuitWatch I just got an email back from Bill Goldsmith.  Here's most of it:

DS: This seemed to come out of the blue.  Did you know it was coming?

BG: We knew a decision was coming.  We expected it to be wrong-headed, but not THIS out of touch with reality.

DS: Were you, or anybody in the online radio community, involved in this?

BG: Yes.  We were represented, along with radioio, 3wk, digitally imported, and others, by the very capable Mr. David Oxenford.  We paid him a token retainer, but mostly he worked pro bono.  We filed an extensive set of exhibits, depositions, etc. that were totally ignored by the CRB.

DS: I'm reading the .pdf now, and it's clear that the original literal intentions of the DMCA (that this is all about "performances" and not anything like "radio") prevailed.  This tells me we need to unf*ck copyright law.  Perhaps this is more do-able now than in 1998 or 2001.

BG: Yes! That's the only solution for this situation.  The fiction that we are engaged in something fundamentally different than analog broadcasting has to be smashed.  Radio is radio.  As I wrote in the blog post:

"Is there, in truth, a fundamental difference in the experience of an online listener to Radio Paradise and someone who was listening to identical programming on an FM station? Every one of our listeners - indeed, anyone who has ever clicked on a webcast as background music while working - knows the answer to that question.  No! There is no difference whatsoever.  Radio is radio, whether it comes in digital or analog form."

As for the recording angle, I would challenge any random group of RIAA lawyers, copyright judges, or members of Congress to listen to a digital recording of our radio station and a high-quality cassette recording of an analog FM station and tell which was which.  I guarantee that they could not.  The differences in quality are too subtle for all but the most discerning listener to notice.

He adds, "I'm a DJ, & coder, & writer, & lots of other things - but not a lawyer or politician.  I'm open to any & all suggestions.  Right now all I can do is make noise & hope somebody's listening."

I've been listening to Radio Paradise for the duration.  I also listen, every day, to dozens of online stations from all over the world.  I'm sure I'll continue to listen to music stations from the U.K., the Netherlands, France, Japan and elsewhere.  But right now I see little hope for continuing to listen to music stations from the U.S.  Unless the laws here are changed.

Internet radio is a canary in the coal mine of the insane Net-hostile Regulatorium that stretches from the cableco/telco duopoly to the copyright oligarchs who are strangling what Professor Lessig calls Free Culture.  That Regulatorium should be the enemy of every free-market Republican free-speech Democrat.  It's slowing down the U.S. and its businesses as competitors on the World Wide Marketplace we call the Net.  And it's killing the values and cultures that keep our people free.

Will this decision to execute the Internet radio canary motivate us to do what we should have been doing more of for the past ten years? That's up to you and me.

Because if we don't do something, she's gonna die.

-- Doc Searls is Senior Editor of Linux Journal, a Visiting Scholar with the Center for Information Technology and Society at UC Santa Barbara, and a Fellow with the Berkman Center for Internet and Society at Harvard University.

---

To remove yourself from this list, see http://www.ssc.com/mailing-lists.

---