Dear _______________:

I am writing you to express my strong fear that the U.S. Copyright Office may be about to make a decision on May 21st that will bankrupt and effectively destroy the Internet radio industry.

Let me begin by clarifying that this issue is not about Napster -- in fact, quite the opposite. Internet radio is a perfectly legal new medium that offers wonderful benefits for musicians and record companies as well as for consumers. (Record company revenues from CD sales may well be at risk in this "digital millennium," but, if so, that would be due to the phenomena of MP3 file sharing and CD burning, not due to Internet radio.)

Internet radio is a young but fast-growing medium. Tens of millions of Americans have sampled it, according to a study available at www.Arbitron.com, and the number of loyal Internet radio listeners in the U.S. is in the millions and growing at over 100% per year, according to studies available at www.Measurecast.com. Internet radio is a medium that does NOT deserve to be bankrupted and shut down in just a few weeks.

When Congress passed the Digital Millennium Copyright Act (DMCA) in 1998, it seems to have been led to believe that because Internet radio is "digital," record company revenues were at risk because consumers could make "perfect" copies of the music they hear. In 2002, it's clear that was a misrepresentation of the facts: First, people do not make copies of the music played on Internet radio. Second, even if they could, Internet radio is almost always delivered in a reduced-quality format, much lower than that of CDs or even FM radio. Thus, any copies made would be "perfect" copies -- but of a low-quality original! (It's a misrepresentation of what "digital" means.)

As required by the DMCA, however, the Copyright Office is nonetheless obligated to set a "sound recordings performance royalty" rate for Internet radio. But the Copyright Arbitration Royalty Panel (CARP) that was convened last summer has reached a conclusion that is probably far more draconian than anything Congress intended.

For most Webcasters, the critical issues in front of the Librarian of Congress are:

(#1) The CARP arbitrators set a royalty rate that's far, far higher than the royalty rate paid by broadcasters and webcasters to composers (based almost exclusively on a single deal during the height of the dotcom craze between Yahoo! and the RIAA).

(#2) The CARP arbitrators recommended a fixed price per song streamed per listener, rejecting a alternative "percentage of gross revenues" royalty concept that both sides had previously been willing to accept, and

(#3) The Copyright Office has proposed recordkeeping and reporting requirements, precisely as requested by the RIAA, that are wildly beyond the abilities of most webcasters to fulfill.

Regarding the first two points above: The RIAA initially asked webcasters for a royalty of 15% of gross revenues. Webcasters initially countered by offering approximately 3% of gross revenues, in the range of the royalty they pay to composers. They could not come to terms, so the two sides went to arbitration in front of the CARP. The CARP's recommendation to the Copyright Office, however, is not a percentage of gross revenues at all, but rather a price per song per listener -- at a price that, even if webcasters could eventually achieve the same advertising success that broadcasters have achieved, would work out to a royalty rate of 20% of gross revenues! (That's a third more than the RIAA asked for!) Worse yet, in the current advertising environment, the CARP's proposed rate equates to a royalty rate closer to 200% to 300% of gross revenues!

Worse yet again, the royalties are retroactive to October 1998. For a popular independent webcaster that has had, say, an average audience of 1,000 listeners (fewer than a single small-market broadcast radio station) for the past three years, the bill for retroactive royalties would be $525,600, or a retroactive royalty rate of 500% to 1000% of their gross revenues to date. Without the option of a "percentage of gross revenues" royalty rate, this retroactive obligation alone will bankrupt or force the shutdown of the vast majority of webcasters.

It's hard to imagine that this is what Congress had in mind when it passed the DMCA.

How did the CARP arbitrators come up with such a high proposed royalty rate? Because they were instructed to set the rate based on the principle of what a "willing buyer" and "willing seller" would agree to...and there was only one such arrangement, between the RIAA and Yahoo! The financial situation of Yahoo! was unique, as they had just paid over $5 billion to acquire an Internet radio division (Broadcast.com). Furthermore, it was a deal put together at the height of the "dotcom" boom. The agreement made by Yahoo! with the RIAA does not reflect current market conditions and it should not serve as a representative rate baseline for an entire industry today.

As mentioned above, the Copyright Office has also proposed complex reporting requirements from webcasters, almost exactly as requested by the RIAA (18 pieces of information for every song that's played and 7 pieces of information on every listener that listens). Imposing this requirement would require significant additional expense that would force many smaller webcasters off the air and add an unnecessary financial burden to the larger ones, with no apparent benefit to any one.

In conclusion, if the Librarian sets a royalty rate along the lines of the CARP recommendation (and sets the reporting requirements as proposed), Internet radio as an industry will be effectively dead by the end of May.

I respectfully urge you to communicate to the Librarian of Congress that you and your fellow legislators, in passing the DMCA, did NOT intend for the royalty rate to be set so high (and reporting requirements so complex) that it would bankrupt the fledgling Internet radio industry.

Many of your constituents and I will greatly appreciate your attention to this concern.

Sincerely,

____________________