Copyright Office May Require Internet Radio to Pay Royalties

Published October 10, 2008

The U.S. Copyright Office accepted comments until September 2 on a Notice of Proposed Rulemaking to determine whether royalties should be required for musical compositions distributed through real-time webcasting such as Internet radio.

Depending on the commentary received, the Copyright Office may amend its regulations to clarify the scope and application of Section 115 of the compulsory license to make and distribute “phonorecords” by means of digital delivery.

Debate Over Meaning

According to the Federal Register, U.S. copyright laws grant certain rights to copyright owners, such as record companies, including the right to make and to authorize others to make reproductions of or distribute a copyrighted work.

In 1995 Congress passed the Digital Performance Right in Sound Recordings Act, which amended sections 114 and 115 of the law to “include the right to distribute or authorize the distribution of a phonorecord by means of a digital phonorecord delivery (DPDs).”

Congress directed that rates and terms for DPDs should distinguish between instances where reproduction is incidental to transmission and DPDs in general. “This language has led to endless debates as to what constitutes incidental DPD,” according to the Federal Register.

Changing Concept

The Internet has changed the entire concept of royalties, analysts note. Payments for digital downloads, for example, were the essence of the Writer’s Guild of America strike against the Association of Motion Picture and Television Producers in late 2007 and early 2008.

The issues there were much the same as in the Internet radio royalty dispute. Writers wanted minimum payments for writing materials used on the Internet and in other nontraditional media, plus compensation for reuse of material on the Internet and other nontraditional media.

Unresolved Issues

Internet radio’s issues are similarly unresolved, says Steve Titch, a telecom analyst for the Reason Foundation in Los Angeles. The Recording Industry Association of America (RIAA) petitioned the Copyright Office in late 2000 to issue rules on the matter. The RIAA asserted it is unclear whether Section 115 permits all of the reproductions necessary to make on-demand streams or limited downloads, and if it does, what royalty rates apply.

“It’s a digital rights management issue,” Titch said. “It’s nice to be able to listen to news [or other content] from other towns. But you don’t necessarily have the right. The Internet enables you to do things you couldn’t do before.”

Though listeners can get content from places they couldn’t before, content providers aren’t getting any additional compensation for the wider distribution. Copyright owners are therefore seeking to get additional compensation for content distributed over the Internet.

“I think the complaint [by the copyright owners] is an overreaction,” Titch says. “They have the right to come back to the table. [Internet distribution] can bring in additional advertising revenue, so [copyright holders] have an interest in how things will work out.”

Harm to Vendors

Joshua Barsch, owner of, a social networking site in Rapid City, South Dakota that streams heavy metal music from its site, said the current action by copyright holders to seek additional compensation could hurt companies such as his both financially and professionally.

“I view it as a bad business decision by the entertainment conglomerates,” Barsch said. “The Internet is one of the best distribution channels around. [The entertainment industry] is making a mistake by going for a quick revenue grab.”

Barsch says music copyright holders would actually sell more of their music by allowing content to be streamed on the Internet, as that gets artists and bands publicity at a much lower cost than typical press promotions. Barsch says giving up a small potential royalty up front would allow these content providers to make more in the long run.

Many Internet radio stations run on a shoestring budget, Barsch notes, and are only marginally profitable if at all. He says they would be forced to shut down if required to pay royalties.

“It’s just like Gillette, which gave away razors in order to sell the blades, or Kodak, which gave away cameras in order to sell the film,” Barsch says.

Phil Britt ([email protected]) writes from South Holland, Illinois.