There is a crisis facing internet radio: new mandatory royalty rates are so high that they will force most or all independent internet radio stations off the air.

Since the passage of the DPRA and its successor, the DMCA, internet radio has been required to pay high royalties for internet music broadcasts. Higher than satellite radio pays, and much much higher than over-the-air broadcasters pay (which is nothing, since they're legally exempted by copyright law).

You would think that royalties would be set based on the types of "music transmissions" - for example, a subscription on-demand music service would pay more than a traditional radio service that plays the same music programming to a group of listeners.

I mean, you would think that AM/FM, Satellite and Internet radio stations would all pay the same kinds of royalties, right? But no! Due to DPRA and DMCA, digital transmission services (e.g. over the internet or digital satellite) are treated very differently. This is because back in the 90s, when the DMCA was passed, people equated "digital" with perfect, and the record labels were freaking out. After all, the labels thought that home taping was killing music... and that was just cassettes. Imagine, they though, what will happen when people can make unlimited perfect digital copies of our music!

So the RIAA successfully lobbied for legislation in the DPRA that said any digital transmissions of sound recordings (i.e. music) would require royalty payments to be made.

Yet the DPRA is based on a fundamentally flawed assumption -- the assumption that "digital transmission" allows unlimited perfect digital copies of the original work.

Internet radio stations do not distribute perfect digital copies of the original copyrighted performance; instead, they use formats such as MP3 and WMA. Such broadcasts are drastically "compressed" and (I'm sure you know) nowhere near a perfect digital copy. Most broadcasters also segue songs together, and make announcements over the beginnings and ends of songs. It's just like over-the-air radio, and in many cases, the audio quality of the internet broadcast is slightly inferior to an analog FM broadcast!

So over the years, internet radio broadcasters have had to pay royalties to playback music that they don't otherwise have explicit permission from the copyright owner to play. This is called the "compulsory license", and it's paid to an organization that was spun out of the RIAA called SoundExchange. SoundExchange collects royalties and is supposed to distribute them to artists.

So far, so good. We've been paying 10% of our gross revenues. (10% for first $250,000; 12% in excess of that.) We feel a bit cheated because the over-the-air guys don't have to pay at all, and the satellite guys only pay about 7.5%. Still, we can work with it. Some smaller stations can't handle the minimum annual fee of $2000, so they join aggregators like LoudCity or Live365 to reduce their royalty costs.

But every 5 years, the royalties get adjusted. And for the 2006-2010 period, it was quite an adjustment.

In March of 2007, the CRB (Copyright Royalty Board) released the rates for 2006-2010. Not only have they have gone up drastically - by 2010, the rates will be 150% higher than the 2005 rates. In addition, and more problematic for independent web radio stations: the way royalties are computed has changed: stations can no longer pay based on our gross revenue but have to pay based "aggregate tuning hours". For SomaFM, this means our royalties for 2006 will be increased retroactively from about $20,000 to about $600,000. That's more than 3 times what we made in 2006. And our royalties for 2007, based on our current audience size, will be over $1 million dollars, and over $1.5 million by 2009. That's if our audience size stays the same.

Now SoundExchange says these rates are fair. Since the hearings were closed to the public, we don't know everything that was presented to come up with these supposed fair rates. But we have heard that the rates were based on mis-information, including the fact that the numbers were based on on-demand music subscription services. The bottom line is that the new rates are so high that US-based internet radio as we know it will go away. Even big players like Pandora have said they don't have a viable business plan with these new increases in royalties.

So a coalition of net broadcasters have gotten together, started a site called SaveNetRadio.org and working together with the trade association DiMA, the Digital Media Association and a DC lobbying firm and have succeeded today in getting a bill introduced in the house that would legislate the royalties paid by interent broadcasters are on par with those paid by other services, like satellite radio. The bill is called the "Internet Radio Equality Act", it was introduced on April 26th by Representatives Jay Inslee (D-WA) and Donald Manzullo (R-IL).

The Internet Radio Equality Act would:

1. Annul the CRB decision and set royalty rates at 7.5% of revenues – the same rate that satellite radio pays – for 2006-2010; and

2. Change the rate-setting standard currently used by the CRB to determine Internet radio royalties, and substitute the standard that applies to most other statutory licenses, including satellite radio, jukeboxes and sound recordings.

So now it is up to you, and up to Congress to pass this bill. Get on the phone, call your congressman/woman and ask them to support the "Internet Radio Equality Act" introduced by Representatives Inslee and Manzullo.

It doesn't take long to call. If your representative is already aware of it, they'll just want to take your name and address (to verify you are a constituent) and will tally your call for support. If they're not aware of it, you might need to explain it to them. But SaveNetRadio.org has some basic "talking points" to help you out with that.

We are at a critical juncture for internet radio. If this bill doesn't get passed, independent net radio will be forced off the air; and the only net broadcasters will be those who can afford to treat their internet radio operations as a "loss leader"- and that means the same big companies that run all the AM and FM stations out there. Is that what you want to see happen to net radio?