Listening to the alternative channel on your favorite Web radio station, you hear a new Kid Rock track and you've got to have it. Just one click away, you can buy the whole album.
Selling music has never been so easy. For major labels, artists, and webcasters, the hard part is deciding how to divvy up the dough.
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As online radio stations grow into more than promotional channels and stake bigger claims in retail enterprise, the Recording Industry Association of America wants its fair share of the pie.
"RIAA is helping to build an entirely new business on the Web by making it easy to get licenses for webcasting," said Hillary Rosen, CEO of the RIAA in a speech last month. "I predict that within a few years webcasting will be a very powerful force in the outlet for music."
Currently, traditional radio stations pay the RIAA nothing for major label content, although they do pay fees to ASCAP (the American Society of Composers, Authors and Publishers) and other artists' rights organizations.
But webcasters can incorporate CD and merchandise sales with their radio streams -- and make money off the music, too.
"People like NetRadio and Spinner are trying to prove that, because of them, music sells," said Mark Hardie, an analyst with Forrester Research. "Therefore, [webcasters believe] they deserve a piece of the action."
The 1998 Digital Millennium Copyright Act stipulates that the RIAA and webcasters must negotiate a licensing fee for content streamed online. If they can't agree, an arbitration panel will determine the rates.
Either way, soon webcasters will have to cut the record industry in on their e-commerce business.
The Digital Media Association (DiMA) -- a party to some of the early webcasting negotiations with the RIAA -- reported on its Web site that the RIAA's initial request was about 15 percent of gross revenue, an amount it claims is neither fair nor reasonable. DiMA's board includes AT&T's a2b music unit, TCI, RealNetworks, MTV, and Spinner radio.
Webcasters also balked at the prospect of double-digit royalty payments.
"We now pay [music rights brokers] less than 5 percent of gross revenue combined," said Joe Pezzillo, a founder of Eclectic Radio Company, a webcaster and DiMA member. "We'd like [what we pay the RIAA] to be a comparable rate."
"Playing music on the Net helps artists and rights owners," said Seth Greenstein, general counsel for DiMA. "The fees ought to be on the low side, maybe even lower than [what is already paid to] BMI and ASCAP." In the meantime, media and Web companies are snapping up some of the biggest Web radio businesses. In the last year, Yahoo purchased Broadcast.com for about US$6 billion, AOL acquired Spinner, and MTV parent Viacom bought Imagine Radio.
Following several months of negotiations earlier this year, the RIAA filed an arbitration petition with the US Copyright Office in July. If the RIAA and webcasters don't agree on a licensing structure over the next several months, an arbitration panel will step in to mediate.
"We are continuing negotiations and are optimistic that we will be able to avoid arbitration. That is our goal," said Alex Walsh, a spokeswoman for the RIAA.
Whatever the outcome of the negotiations, webcasters will be responsible for compensating the labels retroactively to October 1998.
The RIAA has set an early royalty precedent by negotiating a license with Musicmusicmusic, which runs the RadioMoi.com webcasting service. Wolfgang Spegg, founder of Musicmusicmusic, wouldn't divulge the cost of the license fee. But he did confirm that it's a percentage of the company's gross revenue and that it's a fee he's willing to pay.
"It's foolish to try to work in an industry where you can't do business with the major players, [especially] in an industry where the majors own 80 percent of the content," Spegg said.
Brian Zisk, a founder of Green Witch Radio, which develops Icecast microcasting software, said the Musicmusicmusic deal may just be an RIAA "setup" to give the organization more leverage during the arbitration process.
It's not clear how the new royalty schemes will affect small-time Web microcasters who use software like Icecast and Shoutcast.
The RIAA declined to discuss details of the talks.
"The best way for these negotiations to proceed is to engage with the webcasters themselves, not in a public debate," the RIAA said in a statement.
It's not only the labels and radio stations that will be renegotiating online royalty fees. Artists themselves may try to control them.
"We can't assume that radio and TV [licenses] will apply to the Internet. Many of the savviest up-and-coming artists are realizing that new media rights are very valuable, and are not wrapping them up with these other rights."
"We're not sure where this [royalty and licensing debate] is going ... it takes the legal and rights discussion to a whole new level," said Steve Carley, COO of OnRadio, which provides programming content to more than 400 affiliate radio stations broadcasting over the Web. "You have to understand who owns new media rights."
