• by March 12, 2001

By Ken Liebeskind

A pending legal issue poses a severe threat to Internet radio.

Radio stations that stream their broadcasts online may be required to pay royalty fees to the recording industry for the music they play.

The U.S. Copyright Office ruled in favor of the Recording Industry Association of America (RIAA), which seeks the fees on behalf of its record company members. The National Association of Broadcasters (NAB), representing radio stations, filed suit in U.S. District Court in Philadelphia against the Copyright Office on Jan. 25 challenging the ruling. Judge Berle M. Schiller is hearing the case and scheduled to issue comments by April 6, although the case may not be decided by then.

For about 70 years, radio stations have paid licensing fees to ASCAP and BMI, which go to composers and lyricists of the music they play. But they have never paid fees to record companies, because "they generate millions for record companies through airplay of the music," says Dennis Wharton, a spokesman for the NAB.

But Congress has determined that streaming music online is different from playing it over the air, with fees being applicable. In 1998, it passed the Digital Millennium Copyright Act, which states that "performance rights for sound recording apply to Webcasts," says Seth Greenstein, an attorney at McDermott, Will & Emory in Washington D.C. who has been involved in the case. The issue actually goes back to 1995, when Congress determined that digital and satellite TV companies that broadcast music online should pays fees to record companies. The 1998 act applied the same standard to Webcasting.

"A particular recording of a song deserves protection the same way the music and lyrics do," says Hilary Rosen, president of RIAA. "Congress has closed that loophole by creating a performance right for digitally transmitted song recordings."

But radio stations disagree. "It is our position that streaming the radio broadcast signal over the Internet is exempt," says Richard Wolf, VP corporate counsel of Clear Channel Communications, the nation's largest radio broadcaster, with 1,100 stations. "Historically, stations haven't had to pay fees to record companies and we believe it's not the intention of Congress to change that just because we're broadcasting over the Net."

Clear Channel, Emmis Communications, Infinity Broadcasting Corp. and other radio broadcasters joined the NAB suit.

Three digital companies - DMX, Music Choice and Muzak - currently pay 6.5% of their revenue as fees to the recording industry. The rate was determined by the Copyright Office. Other Internet broadcasters pay fees negotiated with RIAA. An arbitration hearing will be held this summer to determine a standard fee structure.

The digital companies generate revenue from subscriber fees, while radio stations receive no money for the music they play, which makes the situations different.

Wharton says the issue has already had an impact.