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"The future [of Internet radio] will either be good or nonexistent, depending on the rates that are set by the Panel Independent webcasters can be priced out of existence."
——Alan Wallace, media marketing consultant
CARP READY TO BITE?
With Ruling Expected on Royalties, Online Radio Awaits Its Future
With the Copyright Arbitration Royalty Panel (CARP) expected to rule this week, the eyes of the online world turn once more to webcasting.

Rights holders and online radio sites have been far apart on the issue of royalties to be paid for online music. Some of the conflict has centered on how "interactivity"—i.e. consumers' ability to control content—should affect the rates.

The CARP was mandated by the Digital Millennium Copyright Act (DMCA; aren't you enjoying all these abbreviations?) of 1998. With both sides having made their case, the panel will shortly submit a recommendation to the Librarian of Congress, who has a window of a few days to approve or amend it.

"This panel has done a lot of groundwork," relates RIAA head Hilary Rosen. "I'd be surprised if the librarian tinkers a lot with the panel's recommendation."

"We're hoping a fair number comes down and it doesn't get mired in endless litigation following that," says John Jeffrey, Exec VP of Live365. "The BMI and ASCAP filing that said the record-industry royalty shouldn't be higher was, we hope, a significant factor in the ruling."

The PROs' filing, on 2/6, touches on the ongoing dispute over whether performance or mechanical rates should make up a larger portion of the royalty, with both sides claiming artists could get shortchanged if the other side's rate is greatest.

"The arbitrators seemed to be very intelligent and very interested in a fair number," Jeffrey adds. "We're hopeful that their conclusions will be something both sides can live with, so we can move along and get our business done. It would also provide more certainty in the advertising and investment communities for our business. We want everyone to see that this is a stable business, and the rate will help that to be understood."

It's something of a watershed moment for online radio, which took multiple wallops with the bursting of the dot-com bubble, 9/11 and the general economic slump, which has shriveled ad revenues in general and online spending the most. Meanwhile, satellite radio services are spending a fortune on broadcast spots and other splashy campaigns, while media congloms are able to leverage their various holdings to boost the appeal of their channels to advertisers.

For Rosen, these economic issues loom largest in determining the medium's future.

"The jury is out on it as a business because of the advertising issues generally," she notes. "It's hard to analyze it in a vacuum. It certainly fills a need for consumers who want more playlists, more variety and sub-genres. I think you'll begin to see it more the way AOL and MTV are offering it, as one offering among many. Broadcasters who are doing online simulcasting are doing it to grow their audiences."

Does this mean smaller netcasters will get squeezed out by the media conglomerates that can offer advertisers multiple venues for branding?

"I think in the online world generally, you have a problem with attracting eyeballs," Rosen owns. "All small Internet companies are going through this—do we try to be the destination or associate with a larger portal?" Still, she opines, "It's a viable business. It depends what your goals are. Bandwidth costs are going to be more expensive than copyright fees."

Alan Wallace, a marketing consultant with a background in online radio, is even more upbeat about the medium's prospects. "Internet radio is still a very viable industry," he asserts. "There are a lot of early adopters in the business who've been beaten up, as early adopters tend to be, but it's still got an incredible future. That future will either be good or nonexistent, depending on the rates that are set by the Panel."

Furthermore, Wallace insists, "Independent webcasters can be priced out of existence." He takes issue with the claim that bandwidth costs will not be the primary overhead problem for online radio providers.

"Streaming costs have come down dramatically in the past year," he claims. "They'll still be more expensive than broadcasting by tower, but each listener's benefit is the additional ad revenues they bring—unless it's a subscription model. I don't expect the music subscription services to have their business models completely worked out in 30 days, either.

"There is a learning curve; we're just waiting to see how long it is," adds Wallace. "Eventually, somebody's going to figure it out—and it'll be called an overnight success."

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