Internet Radio: The Case for a Technology Neutral Royalty Standard

Abstract

Since its debut in the mid-1990s, internet radio (or "webcasting") has grown rapidly and now attracts more than 69 million listeners every month — more than a quarter of all U.S. internet users. Internet radio listeners can select virtually any conceivable genre of music and listen to their selection anywhere they have an internet connection.

All digital radio providers — internet radio, digital cable radio, and satellite radio — must pay a royalty for the performance of the sound recording. This royalty is imposed by § 114 and § 112 of the Copyright Act and the rate is determined by the Copyright Royalty Board (CRB). In 2007, the CRB issued a rate determination that threatens to shut down internet radio. The royalties required by the decision would demand internet radio operators to pay rates approaching or even exceeding 100% of revenue. Meanwhile, for the sound recording performance royalties for the other forms of digital radio — cable radio and satellite radio — the CRB adopted rates of 6-15% of revenue. Thus, the current copyright regime has a strong bias in favor of certain technologies providing digital radio (cable radio and satellite radio) and against another (internet radio), resulting in disproportionately high royalties for internet radio. While a variety of agreements between webcasters and SoundExchange adopted under the Webcaster Settlement Acts of 2008 and 2009 have delayed the onset of industry crushing royalties, the threat continues to hang over internet radio’s future.

In this paper, I provide an overview of internet radio and the current copyright royalty regime, and I present and critique the recording industry’s argument that internet radio is a threat. I then analyze the economic impact of current royalty rates on internet radio and contrast it with the impact of the royalties for the other forms of digital radio. After showing the devastating impact of the current royalty rates, I analyze the source of the royalty rate inequities. I demonstrate that the disparate treatment of the different forms of digital radio has resulted from the statutory imposition of two standards for determining digital radio royalties: "§ 801(b)(1)" vs. "willing buyer, willing seller." I then make constitutional and policy arguments for having a single, technology neutral standard for determining the royalties for digital radio. I conclude by demonstrating that the standard that should be adopted is the § 801(b)(1) standard, and I propose amendments to the Copyright Act to effectuate the change. Amending the Copyright Act to apply a consistent, technology neutral standard would ensure that all forms of digital radio continue to thrive and would ensure that the music keeps playing for the 69 million Americans who tune in to internet radio every month.

Keywords: internet radio, webcasting, 801(b)(1), section 801(b)(1), willing buyer, willing seller, copyright, digital radio, radio, satellite radio, royalties, copyright policy, Copyright Act, DMCA, CRB, Copyright Royalty Board, section 114, section 112, performance royalties, sound recordings