In recent years, Internet radio has emerged as an oasis in a desert of bland corporate broadcasting and ever-shrinking playlists. Connecting to the World Wide Web via streaming-media software like Real Audio and Windows Media Player, listeners can access creative, diverse content like never before—from a teenager’s basement recordings to the simulcasted signal of an FM station in Indonesia.

But webcasting in the U.S. is about to be forever changed. Already, at WEVL.org, the home page for Memphis’ popular community radio station WEVL-89.9 FM, this announcement is the first thing you see: “Important News! WEVL has discontinued live audio streaming on the Internet.” Likewise, at the site for Middle Tennessee State University’s student-run station WMTS-88.3 FM (mtsu.edu/~wmts), a pop-up window reads, “SAVE INTERNET RADIO!!!”

Such statements are becoming increasingly prevalent across the Web, with the Librarian of Congress poised to rule by May 21 on a proposal that would establish rates and requirements for the streaming of music over the Internet. It’s these looming rates and requirements—arrived at by a congressionally mandated, three-person Copyright Arbitration Royalty Panel (CARP)—that have all but the most well-funded corporate webcasters fearing for their future.

“If this did go through, it would definitely jeopardize our webcasting,” says Jake Doris, general manager of Vanderbilt University’s WRVU-91.1 FM, which currently simulcasts its signal at WRVU.org. “Because I don’t think we could afford, as a nonprofit radio station, two-hundredths of a cent per song per listener.”

Doris is referring to the currently proposed “per-performance” royalty rates for sound recordings—$.0014 for commercial, Internet-only streams; $.0007 for Internet simulcast of a traditional, over-the-airwaves commercial station; $.0005 for noncommercial, Internet-only streams; and $.0002 for Internet simulcast of a noncommercial over-the-air station. These rates essentially split the difference between the Recording Industry Association of America’s (RIAA) suggested rates of $.004 to $.006, and webcasters’ ideal fee of $.00014. The fees may sound small at first glance, but they are not based solely on how many songs are streamed by a station; they are multiplied by the number of listeners on the receiving end. In that light, it’s easy to see how fractions of a cent can compound very quickly.

Take Steve Wolf, the founder and operator of the Nashville-based Internet-only station WOLF-FM (wolffm.com). He says listeners spend 1.3 million hours a month tuning into his 24-hour-a-day broadcast of hits from the ’70s, ’80s and ’90s. Although his station has yet to turn a profit despite advertising sales, WOLF-FM would, by his calculations, owe $292,723.60 for 2002 alone. The total jumps to “somewhere around half a million dollars” when applied retroactively to the station’s first Internet broadcast in early 1999. Indeed, any station webcasting since the passage of the Digital Millennium Copyright Act in 1998 would be subject to back pay at the proposed rates. If the Librarian of Congress were to approve the CARP proposal as is on May 21, all royalty fees—current and retroactive—would be due in full sometime in mid-July.

“If you go to any small business with four employees or less and say, 'All right, suddenly you owe us $300,000. You have to write us a check right now,’ they’re going to shut down,” Wolf says. “It’s going to kill ’em. And I believe the rates and the reporting system that the RIAA has wanted to put in place were not designed to be fair or to compensate the artists—they’re merely to squash the competition out.”

This whole process started in 1995, when Congress passed legislation granting a new, specific type of performance right to copyrighted sound recordings. Before that, recording artists were ineligible for royalties when their songs were performed publicly (as over broadcast radio). Instead, only the songwriters and/or publishers of the underlying musical works received royalties, while the performers themselves were left to rely on the promotional value of radio to spur record sales. Despite repeated attempts by the RIAA—a powerful lobbying organization representing the major record labels—to enact a song performance right for radio play, the equally powerful broadcaster lobby prevented such legislation. But when digital transmission technology showed its potential in the ’90s, the RIAA successfully convinced Congress to enact the Digital Performance Right in Sound Recordings Act of 1995 (DPRA), which assigned a performance right to all copyrighted songs transmitted digitally—via a service such as XM Satellite Radio, for instance.

Still, the new law didn’t specifically address webcasting, then only an emerging technology. So three years later, when Congress enacted the wide-ranging Digital Millennium Copyright Act (DMCA), it mandated that webcasting was indeed subject to the new digital performance royalty. That law allowed webcasters who adhered to certain guidelines to begin broadcasting copyrighted works with a statutory license, paying flat royalty rates per song without having to negotiate with each copyright owner individually. The flat fees hadn’t been established; they were to be negotiated in the wake of the new copyright law.

Although 26 statutory license agreements were signed between individual webcasters and the RIAA (working on the behalf of copyright owners), the Copyright Office convened the Copyright Arbitration Royalty Panel to establish the aforementioned royalty rates for the thousands of other eligible licensees. Since the release of the panel’s 143-page report in February, there has been growing concern among Internet broadcasters who consider the fees, and the complex recordkeeping requirements that go with them, as simply unbearable.

“Here’s Internet radio, basically a new technology that’s still finding itself—it’s a blossoming industry,” Wolf says, “and here’s the big bad-ass record labels coming along wanting to control it. They see the same opportunity that we do. They don’t want to outright kill us, they just want to make it impossible for stations like mine to exist. Then they will run it themselves.”

For small, poorly funded stations, potentially more threatening than the rates are the 18 pieces of information broadcasters will have to provide for each song played. These elements range from the obvious to the obscure: copyright owner information, album title, time of transmission, time zone of transmission’s origin point and even the retail album’s bar code.

“The whole reporting requirements were theoretically to allow copyright holders to know what’s being played,” says Brian Zisk, technology director of the Future of Music Coalition, a Washington, D.C.-based nonprofit organization created to address music-technology issues and advocate for artists. “And this whole thing where you’ve got to enter dozens of items around each song, which the labels have—they have the public information in a big database, but they’re keeping it private.... It’s just not fair.”

According to John Simson, executive director of SoundExchange, the royalty collection agency created by the RIAA and its member record labels, his organization is currently working with smaller, noncommercial stations to iron out any wrinkles: “We’ve made a very concerted effort to engage noncommercial stations, whether they be college or community broadcasters, both on the rates and on the recordkeeping requirements,” Simson says. “Because I think they’ve been concerned—especially places that have no full-time employees. For some of them, it’s really more an issue of the recordkeeping than the rates.”

Further compounding the royalty issue, though, is a license requirement for making “ephemeral copies” of sound recordings—duplicates of sound files necessitated by the technical aspects of webcasting (e.g., alternate file formats). One ephemeral copy is allowed at no charge, but webcasters would have to pay a licensing fee for subsequent copies. “They really shouldn’t be charging for ephemeral copies in the first place,” Zisk says. “It’s like saying you license the blueprint to build a house, but every time you want to look at the blueprint, it’s an extra charge.”

At question too is the CARP’s methodology for determining the royalty fees in the first place. Congress mandated the panel to “establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.” To this end, the recording industry suggested that the panel use its 26 negotiated deals with webcasting companies as basis for market rates. In its report, however, the panel argued that the recording industry’s approach was not only unfair, but self-serving.

“Before negotiating its first agreement,” the report stated, “RIAA developed a strategy to negotiate deals for the purpose of establishing a high benchmark for later use as precedent, in the event a CARP proceeding were necessary.” Therefore, the panel disregarded 25 of the agreements and focused instead on the remaining one: a deal with Internet powerhouse Yahoo! The CARP found that “the Yahoo!-RIAA negotiation was the only one to reflect a truly arms-length bargaining process on a level playing field between two major players of comparable skill, size and economic power.”

Still, many argue it may not have been the best indicator of the hypothetical marketplace. “At the time, Yahoo! was trading at $130 a share,” Zisk says. “It’s now trading at $15.... The supposed market deal was made when the potential for this stuff was much greater than it is today.”

Exactly what a fair rate would be is the subject of intense debate. For example, Future of Music executive director Jenny Toomey likes the high rate—for some webcasters. “We want a rate that clearly establishes the value of artistic labor, and that’s what we think this rate does,” she says. “But we also need diversity. And if this rate is prohibitively expensive for small webcasters and will...just have the effect of putting small webcasters out of business, and hobbyists out of business, well that’s not what we want.

“[Artists] need exposure, and they also need a fair rate for the use of their music. So I think what we need to do is put in a bottom and a ceiling. We need to keep a very high rate for those clearly commercial, well-funded interests that are building out business models. Then we need a hobbyists’ license down at the floor.”

Webcasters, including Steve Wolf, are looking for rates similar to those for blanket licenses they procure from the performing rights organizations representing songwriters, composers and music publishers. Those fees usually approach 3 percent of gross revenue per year. “We’ve said that there needs to be a rate, but it has to be a fair rate,” Wolf says.

The arbitration panel ultimately dismissed all percentage-of-revenue alternatives, finding that such an approach “could result in a situation in which copyright owners are forced to allow extensive use of their property with little or no compensation.”

SoundExchange’s Simson, meanwhile, thinks the panel reached an equitable compromise in its proposal. “My sense is [the rates] weren’t what we asked for, but these three obviously smart people who looked at everything and looked at all the different deals and the business models, this is what they thought was fair.”

If the rates are truly fair, why have some stations already ceased webcasting? “I think a lot of people have stopped out of fear,” Simson says. “I think there’s been a lot of misinformation. There were things posted, for instance, on the Live365 Web site, that overstated somebody’s royalty obligation 10 times.”

Interestingly enough, while the final rates could make or break some of the city’s independent or smaller stations’ ability to webcast, the ongoing discussion is moot for many of Nashville’s larger radio stations that simulcast over the Web. For example, WKDF-103.3 FM, WYYB-93.7 FM, WRLT-100.1 FM and WSIX-97.9 FM are all affiliated with Yahoo!, whose deal already arranges for payment of these stations’ digital performance royalties. Meanwhile, WPLN-90.3 FM and WMOT-89.5 FM are both affiliated with National Public Radio, which also negotiated a settlement with the RIAA—the result of which largely formed the basis for the panel’s determination of rates for noncommercial stations. But many of these same station executives are still keeping one ear to the ground.

“If I were an independent station manager, I’d be on the front line wondering exactly what’s going to happen to us,” says John High, WMOT’s director of broadcasting. “I will tell you that my personal professional opinion is, from afar, this issue has got to be revisited if streaming is going to become a viable process for broadcasters or webcasters or the convergence of those two.”