Staying Afloat in the Internet Stream: How to Keep Web Radio from Drowning in Digital Copyright Royalties

I. INTRODUCTION II. COPYRIGHT LAW AND MUSICAL RECORDINGS A. Early Regulations B. The Birth of the Internet C. Digital Performance Right in Sound Recordings Act D. The Digital Millennium Copyright Act E. Bonneville Int'l Corp. v. Peters III. THE DEATH OF INTERNET RADIO? PROPOSED ROYALTIES AND NEW SOLUTIONS A. The CARP Panel Recommendations B. The Librarian of Congress's Approach C. The Small Webcaster Settlement Act D. The State of Net Radio After the SWSA E. Internet Radio, Reinvented F. Challenges and Changes to the New System IV. WHY ALL NONINTERACTIVE, NONSUBSCRIPTION TRANSMISSIONS DESERVE THE SAME COPYRIGHT PROTECTION A. Congress Enacted the DPRA to Address Concerns with Interactive Services . B. Streaming Radio Stations are Developing a Symbiotic Relationship with the Recording Industry . V. CONCLUSION I. INTRODUCTION More than 20 years ago, WOXY-FM, an independently-owned station based on Oxford, Ohio, launched its modern rock format, making it one of the first stations of its kind in the country. (1) Also known as "97X--The Future of Rock and Roll," the station had garnered a small, but loyal, audience in its listening area. (2) Those who tuned in on their radios, however, comprised just a portion of WOXY's fan base. Following the advent of the World Wide Web, the music of 97X reached a much broader group of listeners, making it one of the most popular stations on the Internet. (3) On May 13, 2004, WOXY's Internet and radio listeners heard its transmissions for the last time. When WOXY's owners sold their broadcast license to the Dallas-based First Broadcasting, they did so with the intent of continuing the Web transmission. (4) Due to the costs of webcasting, however, 97X's Internet streams died on the same day that the broadcast stopped airing. According to the station's owners, the costs of running an Internet station exceeded those of operating the traditional station. (5) Ironically, it was WOXY's online popularity that may have also been its downfall. Unlike AM/FM radio stations, who pay a fairly fixed amount for the right to play songs, webcasting fees are assessed based on the number of people who listen to a station. (6) Although the station's owners hope to return to the Internet eventually, for now, the Future of Rock and Roll has fallen silent. WOXY is not the only station unable to afford an Internet transmission. In June of 2002, the Librarian of Congress issued new royalty rates for Internet radio stations, also known as webcasters. Commercial stations choosing to transmit music via the Net would now be required to pay $.0007 per musical performance. (7) For a station with 1,000 listeners, that could total more than $1,000 per hour, crippling small and independent webcasters who generated little or no revenue. Unable to garner the advertising base necessary to help pay royalties, many webcasts, including simultaneous Internet transmissions of AM/FM radio stations, went silent in the months leading up to, and following, the Librarian's recommendations. (8) Although many stations could not afford operation costs, the new royalties did not usher in the complete annihilation of Internet radio. In fact, Web stations continue to draw more and more listeners each year, with many of the most successful stations being owned by Internet mega-companies like Yahoo! and America Online ("AOL") that can afford to pay the costs of webcasting. The success of such stations, however, should not be a sign that all in the webcasting world is fine and well. Many stations that lack the financial base and advertising power to pay existing royalties have been unable to survive. (9) Losing these stations also signals the loss of the diverse, independent spectrum of voices that helps make the Internet such a unique medium. This Note traces the rise, the fall, and the reinvention of the Internet radio industry. …