Copyright Cartel

Last month, Internet radio stations celebrated when the Library of Congress rejected the steep performance fees that the Copyright Arbitration Royalty Panel had proposed they pay. Last week, the celebrations stopped: The new fee structure was announced, and while it was only about half the size of the original proposal, it's still high enough to force a lot of stations to go dark. (SomaFM, for example, says that to stay on the air, it would have to pay $500 a day.) The new rules will go into effect in September.

These are not the payments that AM, FM, and Internet stations already pay to songwriters. The new fees will be given to the record industry, and they will not be paid by stations that broadcast only on the AM or FM dial. This new rule is a byproduct of the Digital Millennium Copyright Act (DMCA), which says the fees must "most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller."

It now appears that there's more to the story than that.

The arbitration panel modeled its fee structure on an earlier, voluntary royalty deal that the Recording Industry Association of America (RIAA) had negotiated with Yahoo!, which owns broadcast.com. Now broadcast.com founder Mark Cuban, who today owns the Dallas Mavericks, has revealed to Kurt Hanson's Radio and Industry Newsletter that his company forged that deal with an eye on its effect on other webcasters: "The Yahoo! deal I worked on…was designed so that there would be less competition, and so that small webcasters who needed to live off of a 'percentage-of-revenue' to survive, couldn't."

Cuban had left Yahoo! by the time the final deal was signed, but he's "been told that there weren't dramatic changes" from the plan he had worked on. Now small commercial webcasters won't simply have to compete with the company that made that bargain--they'll be required by law to follow the same terms. (This is fine with the bigger webcasters, who are now, in effect, a government-enforced cartel.)

Meanwhile, the RIAA negotiated anotherdeal last December, this one with the Corporation for Public Broadcasting. Under this arrangement, the CPB--i.e., the taxpayer--will pay all past fees due (under the DMCA, labels may charge retroactive fees going back to 1998) and all future fees through December 2003. Neither the CPB nor the RIAA will reveal the details of this arrangement. The Copyright Arbitration Royalty Panel won't tell either.

This arrangement will not apply to noncommercial stations that don't take CPB money, a category that includes a host of small college stations, independent community stations, and--perhaps most devastatingly--Web-only stations run by amateurs. They have a choice: Cough up the bread, or get off the Net.

Fortunately, none of this will affect online audio news and commentary. But on the music side, Internet radio, which once faced a bright future, may soon be smothered in its crib.