New rules on royalties are stifling British Internet radio stations while allowing foreign rivals to broadcast into the UK unhindered. Wendy M. Grossman reports.
Sometimes the technology works perfectly; it's the law and economics that get in the way. UK-based radio listeners won't have noticed, but since April 1 many British-based radio stations have begun switching off their Internet streams to listeners based outside the UK.
The reason: collection societies warned they would begin policing such streams and requiring payments. As most British commercial radio stations derive relatively little revenue from streaming to listeners outside the UK, most have elected to discontinue that part of their service rather than pay for a licence to continue.
So a flowering medium that crosses borders effortlessly is suddenly being stifled - at least by its UK practitioners, though not by those beyond - with potential ramifications for all concerned.
"We opted to block streams to non-UK listeners," says Nick Piggott, the digital content manager at GCap Media, owner of Capital Radio and other stations. "We don't do a lot of overseas streaming, and we didn't feel it was a great hardship if we switched it off, compared to the potential cost in licensing fees and legal paperwork terms. We're a UK broadcaster. We don't earn any revenue for ads delivered outside of the UK, so in strict cost terms, a stream that leaves the UK costs us money we can't recoup. If you compound that by having to pay further royalties, it's not an attractive model."
Until the Internet, radio was governed by physics. A transmitter could only reach so far, and it was possible to carve up the world into geographical regions, each with its own radio stations and way of doing business. While there has always been overspill into adjoining nations over land borders, the amount has been limited.
The Internet, however, puts a radio station located in Dubai next to one in London on a more or less equal footing in terms of competing for listeners. But all of radio's business models are based on the idea that geographical regions are meaningful. It's not alone in this: all business models for the distribution of intellectual property - whether it's books, movies, music, or software - are based on the same idea.
The Net Age
Kevin Marks, a digital media expert now working at Technorati, describes this as "an attempt to apply territoriality to the net, which is a big mistake. Having worked in the rights field before, what works in the net age is rights by language, not by territory." A radio station in Paris, for example, may find a large Internet audience in areas as distant as Quebec and Ivory Coast. But when it comes to music - or, more generally, content that the station hasn't generated itself - it may not have the legal right to distribute its output outside of France. This is the situation that UK stations have found themselves in.
In the UK and most of the rest of the world - other than the US - radio stations pay two kinds of licence fees to broadcast music. The first is performers' rights, administered by Phonographic Performance Limited (PPL), which collects the fees and distributes the revenues to performers whose recordings are played on the air. Thus every time BBC Radio 3 plays a recording of the cellist Yo-Yo Ma performing Bach, it owes him a tiny slice of revenue.
The second is composers' and songwriters' rights, which are administered by the Mechanical- Copyright Protection Society (MCPS) and the Performing Right Society (PRS). If the BBC instead broadcasts Ma playing a composition of his own or a work that is still under copyright (Bach's are not), an additional tiny slice of revenue is owed to the composer whose work has been broadcast. If Ma decides to record a copyrighted piece and release it commercially, he is automatically granted what's known as a "mechanical licence", and he owes royalties based on the number of CDs pressed. Those royalties are collected by the MCPS. (Recorded speech is copyrighted, too, by the person who said it and the organisation that recorded it.)
Mechanical licences are probably the simplest to deal with, since every recording artist knows whose material he is performing, and arranges payments accordingly. When it comes to radio stations broadcasting continuously, the realities of administration mean that stations are granted blanket licences - they pay an annual fee based on their revenues, whether that's from advertising (commercial radio) or the public licence fee (the BBC). In general, British radio stations pay between 8% and 12% of their overall revenues in licence fees.
Virgin Radio, for example, which has 4.2 million listeners in the UK and 1.3 million online, pays a little more than 10% of its revenues. "We paid over $2m [£1.1m] to rightsholders last year to allow us to play music," says James Cridland, managing editor for Virgin Radio, "and we think it's well spent because we play some very good music and that makes our radio station as well listened to as it is. But it is a considerable sum of money and it's considerably more than a similar sized station in the US would be paying." American stations typically pay only 3% to 4% of their revenues in licence fees.
The governance of physics meant that radio in the US could develop as its own ecosystem, much the way Australia has kangaroos and no one else does. And so it did: where much of the rest of the world favoured public-service broadcasting, US radio was predominantly commercial, growing up hand in hand with commercially recorded music. In the US, radio stations do not pay performers' rights to broadcast music. Instead, airplay on terrestrial television and radio is considered promotion. Performers are "paid" in increased sales of their recordings. Only songwriters and composers get royalties from airplay.
If American stations are asked to pay for a performance licence, the ensuing arguments are likely to echo the current ones over network neutrality. Who should pay? The medium that delivers the audience - radio - or the organisation that wants the audience delivered - the artist (and record label)?
The upshot for the moment, however, is that online Virgin Radio competes with dozens of American stations such as WVBR-FM, Cornell University's student-owned, student-operated radio station in Ithaca, New York. WVBR does some special programming that isn't duplicated anywhere else (for example, the 40-year-old Bound for Glory show that features folk singers in live performance every Sunday night), but much of the time its playlist is more or less the same as Virgin Radio's. Online, they are competitors, even though WVBR's home base is a town of 30,000.
"It's odd that we have to stop broadcasting outside the UK," says Cridland, "yet we can still have all of these non-UK stations broadcasting into the UK." On the other hand, he quotes an industry magazine: if the PPL somehow managed to stop foreign stations from broadcasting into the UK we would become the only country other than China to prevent access to overseas media sources.
Don't think that's impossible. Peter Leathem, director of legal and business affairs for PPL, says that "we are currently in dialogue with a number of US service providers". The PPL is, he says, prepared to sue. It's not clear, however, what jurisdiction the PPL would have in doing so: its remit is the UK.
Gavin Starks, managing director of the non-profit webcasting company exequo.org, says that in the past such negotiations have proceeded amicably, though he believes that ultimately there will simply have to be a global licence.
At the dawn of web radio, no one had a licence and "the PPL could have insisted that a whole bunch of people shut down, but it didn't". Instead, after several years, a licensing system was hammered out that drew on the framework decided in the US. There, the demands of the songwriters' collection societies looked likely to drive webcasters out of business until, in November 2002, Congress stepped in and mandated more reasonable rates.
Here, the PPL's rate for web-only broadcasters (that is, not traditional radio stations simulcasting their output) is .000503p per listener per track per stream. It sounds cheap, but Tom Lousada, founder of the Association of Streaming Media Companies (Asmec), points out that a web-only station with 5,000 listeners would be paying approximately £1.7m in rights fees annually, an economic model that is clearly not sustainable.
"If you applied this model to traditional broadcasting, the jump in what you'd have to pay is astronomical as a percentage of revenue. It wouldn't be allowed," says Lousada. That apparently cheap rate also rises sharply as soon as any interactivity is added to the stream, such as allowing listeners to tailor the stream they listen to or time-shift.
Part of the problem is that all of the definitions of what radio is are also based on physics. Internet radio is different: it may mean shuffling tracks, personalisation, downloading. It is a long, long way from our grandparents' radio. Today's new services are just the first experiments in what could become a dramatically changed medium. Podcasting, arguably the next step, is even more fraught with licensing troubles. How do you define the audience for a podcast? How much importance should incidental music used to top and tail the podcast have?
Mark Stephens, a media lawyer with Finers Stephens Innocent who has represented many of the collection societies in such discussions, says that when it comes to podcasts he thinks the situation will eventually evolve the way performing rights have. "Individuals who podcast will be given a licence in the same way as you go into a hairdresser's or a pub and see a PRS sticker on the door. The amount of money that is made will be made by having, for example, 1,000 people all paying £100 a year for a licence."
For the moment, however, such licences do not exist. Theoretically, it ought to be a great opportunity for independent musicians to get hired by corporations to create the house sound. After all, live musicians might work out cheaper.
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