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Ruling Doesn't Worry Web Radio Suppliers

8/20/2001 02:00:00 AM Eastern

A U.S. District Court ruling could prompt thousands of AM and FM stations to turn off their Internet streaming services, but suppliers of Internet audio receivers say they aren't worried.

Of the 12,000 commercial and public AM and FM stations operating in the United States, about 3,000 to 4,000 stream their over-the-air content over the Internet, according to the National Association of Broadcasters (NAB).

Even if all of these stations turn off the Internet lights, suppliers claimed, there's still enough Web-based audio content to stimulate demand for Internet audio receivers due from such CE companies as Harman Kardon, Kenwood, Philips and Thomson.

iM Networks, which aggregates streaming content for CE devices, agreed with the CE suppliers' assessments, although CEO Scott Smith said the decision might create a short-term "hiccup" in the number of AM/FM stations that stream their programming.

The court decision, issued by the U.S. District Court for the Eastern District of Pennsylvania, upheld a U.S. Copyright Office decision requiring local radio stations to pay royalties to music companies and to performing artists when the stations stream their over-the-air programming over the Internet. The stations are exempt from paying those royalties on their over-air broadcasts.

The NAB, which is considering an appeal, said many of the streaming AM/FM stations might discontinue their streaming services rather than pay up. "It's not a new revenue stream for broadcasters," said an NAB spokesman. "Many stations lose money to start the service."

The stations launched the services, he said, to "service listeners who might be traveling or who might be living or working in areas with high-rise buildings [that impede reception]," he continued. The stations "are not changing the content," he added.

The cost of rebroadcasting rights could go higher, NAB warned, if the ruling encourages song writers and music publishers to seek compensation.

"A number of stations," the spokesman said, already dropped their streaming services after the Copyright Office issued its ruling in December.

NAB president Edward O. Fritts said broadcasters already pay more than $300 million annually in music licensing fees to compensate songwriters and music publishers for analog over-the-air broadcasting rights. "Any additional fee to compensate record companies would be unfair and unreasonable, and for that reason, we are reviewing our options," he said.

In its ruling, the district court agreed with the Copyright Office that the 1998 Digital Millenium Copyright Act (DMCA) didn't extend broadcasters' royalty exemption to streaming. "It strains credulity to suggest that Congress intended to exempt AM/FM streaming, which is global in nature, while simultaneously limiting retransmissions to specific FCC-defined geographic areas. While plaintiffs have argued that [public performance] exemptions are intended to apply to third-party retransmissions, and not streaming conducted by original AM/FM broadcasters, such an argument is not convincing."

For their part, major CE suppliers aren't convinced the court decision, if upheld, will reduce the salability of their planned streaming audio devices. "Any music anyone could want is already available from Internet-only broadcasters," said Kenwood sales and marketing VP Bob Law. "The biggest negative would be receiving local news and sports" by residents who may be traveling or may have moved to other locales, he said. Even then, however, AM and FM stations might pony up and pay "because they're under pressure to compete against satellite and Internet broadcasters," he noted.

Philips, which plans September shipments of a shelf system built around the iM Networks iM Tuning Service, believes consumer demand will spur many AM and FM stations to continue streaming. "There will be broadcasters who will be willing to pay," particularly larger stations "who see a sufficient audience," said Tom de Groot, marketing director for digital audio components. iM Networks has agreements with about 800 streaming sites to offer licensed content to users of iM-equipped CE devices.

Smith of iM Networks said he believes an "early effect" of the decision will be that "terrestrial stations will stop streaming until the issue is resolved," but he quickly pointed out his belief that "long term, it will be resolved to everyone's satisfaction."

Ultimately, he said, the streaming sites, music companies and artists will negotiate licensing fees that will be "very reasonable," given that music companies and artists are eager to use the services to promote their products.

Smith said the streaming content aggregated by iM for the Philips device, which limits its support to MP3 streams, includes "very few AM or FM stations." Nonetheless, about a third of the stations licensed by iM for use in CE devices are AM and FM stations that support MP3, Windows Media and Real Audio streams. "If they go dark, we'll replace them with Web-only services," he said.

Even if the vast majority of AM and FM stations refuse to stream in the future, he added, "I don't think it will have a big impact on us."

One significant audience that might be lost is the sports fanatic seeking stations that stream local sports events, but even then, he said, sports "is not critical to us right now."

On top of its Philips agreement, iM has negotiated license agreements with two major OEM suppliers of CE devices, but Smith declined to reveal their names.

For its part, Indianapolis-based OpenGlobe said a decision by broadcasters to drop streaming services would have little impact on sales of products incorporating its digital media management platforms, which have been adopted by Compaq, Kenwood and RCA.

"Internet radio is just one feature of a total platform" that includes hard-drive-based audio recorder and server and A/V-library management," said marketing VP Rob Hudson. He also doesn't foresee a "huge impact" on sales of devices whose sole purpose is to stream Internet radio, as long as they also delivered "diversified sources" of audio content.

Hudson doesn't expect the worst to happen, however. "I think the major stations that can afford to will continue to stream over the Internet," he said. The service strengthens customer loyalty by giving people the ability to listen to a station while they're driving to work and while they're in an office building that blocks reception, he said. Web-based competition will also drive stations to stay on-line, he said.

For its platform, OpenGlobe currently offers the Radio Free Virgin service, which features Web-only genre-specific music played continuously without DJs. Users can also select a URL of their choice. In the future, OpenGlobe plans to add branded Internet radio stations to the menu appearing on its products.

For his part, iM's Smith said he doesn't believe licensing terms for AM/FM stations will be costly. The majority of Web-only Web-casters, he pointed out, haven't yet negotiated licensing terms with record companies, artists, composers or publishers, but those that did haven't found the terms to be "prohibitive." That, he said, bodes well for future agreements between AM/FM stations as well as the artists and record companies.

Currently, Web-casters that haven't negotiated license terms are operating under a statutory license given under the DMCA. "Under DMCA, if you comply with the rules, you get a statutory license, but you must still negotiate license terms," Smith noted.