• by Ken Liebeskind , September 23, 2002

The Webcasting fee crisis, which everyone says threatens the future of Internet radio, has already served to decimate it, with nearly 2,000 Internet radio stations signing off in the past year, after the fees were approved.

According to BRS Media, which tracks the industry, there are now 3,941 Internet radio stations broadcasting online, compared with 5,710 a year ago. "It began last summer and the drop continued from then on," says George Bundy, chairman/CEO of BRS Media. The company has been tracking the number of stations for six years and he says that prior to last year the number had increased every time.

A variety of stations have signed off. It's not just the Internet only stations like SomaFM, but many terrestrial stations, too, and even a high school radio station in Texas, Bundy says.

Terrestrial stations began signing off prior to the Webcasting fee crisis, when the AFTRA fees were levied. Those fees, payable to on air talent whose commercials were played on Internet radio, forced many stations off the air. "There was a significant drop, but then a number came back online with ad insertion software. We thought the numbers would rebound, but then the Webcasting fee issue came to a head and we saw the drop continue."

Many terrestrial chains, including Bonneville, Cox, Emmis, Entercom, Infinity and Susquehanna Radio Corp., in addition to the National Association of Broadcasters, sued the U.S. Copyright office and the Librarian of Congress last year in an effort to exempt streaming from the digital performance right fees that had been authorized by the Copyright Act. A judge in a Pennsylvania court ruled against them but they appealed the decision and arguments for the appeal are due in November, according to a spokesman for the NAB. The stations don't want to begin paying fees in October because if they win the appeal later "they'll never get their money back," Bundy says.

Bonneville stations are among those that have stopped streaming due to the Webcasting fees, Bundy says.

Another development is that U.S. stations now represent less than half the stations online. Due to the drop in U.S. stations, international stations represent well over 50% of the total, BRS reports.

With the first payment of the Webcasting fees due Oct. 20, many more stations may sign off, but Bundy says it's too early to say what will happen. "Who knows what can happen in this roller coaster ride," he says. Webcasters are protesting and Congress may act to save small Webcasters from paying the fees. But even if nothing happens, the coming of Oct. 20 may not force Webcasters off the air because "you still owe the fees even if you stop," Bundy says. "That magical date isn't so significant, but we'll continue to see a downturn if there isn't a resolution soon."