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Static online

Radio on the Web has hit a wall of static. What began as a promising way for stations to extend their brand online (and pick up a few extra bucks along the way) has turned into a legal and financial minefield.

To start with, like all Internet-related businesses, advertising on radio sites has gone into the tank. Paul Maloney, editor of the online Radio and Internet Newsletter, says, "We saw heavy spending in 1999 and early in 2000, but revenues for most sites began to see a downturn in the second half of last year. This continues today. When there's confusion, people tend to play it safe and do nothing."

Web radio also suffers from the fact that most PC users still access it through dial-up services, at bit rates of no more than 56 kb/s. That's fine for text and graphics but too slow for audio streams. Faster broadband access—cable modems and DSL—is coming, but, according to James DePonte, of PricewaterhouseCoopers, only 8.2 million of the 54.3 million Internet homes will have it by the end of this year.

Ad dollars and bandwidth aside, however, what concerns broadcasters most is the uncertainty surrounding royalty payments that a court has ruled that they must pay to the record companies for streaming content they already play on air.

The Radio Industry Association of America (RIAA) thinks that radio Webcasters should pay record companies up to 15% of their revenue to compensate artists whose songs are played online. Stations counter that they already pay fees to broadcast the same music. With little revenue from the Web, they say, the additional costs make Webcasting prohibitive for many small to midsize companies.

The courts have sided with the record industry, and an arbitration panel is trying to figure out what the music licensing fees should be. Hearings should wrap up in a few weeks, with a final decision expected early next year. The fees would apply retroactively to October 1999.

Commercial actors also want a piece of the online action. Their union, the American Federation of Television and Radio Artists (AFTRA), has claimed that members are not getting their due when radio spots featuring them get a second run on the Web.

Webcasting "is not a high priority at this point," said Richard Parker, of Kelly Communications, owner of four stations. "The investment in time and technology for a non–revenue-producing aspect of our business that's in litigational uncertainty is just not worth it to us."

A group of owners representing nearly 200 stations, including Bonneville, Emmis, Corus Entertainment and Jefferson-Pilot, have joined in the Local Media Internet Venture (LMIV) to answer the challenge of online competitors.

LMIV President Jack Swarbrick hopes that the RIAA will put a cap on the fees. "This issue has put such a damper on the streaming environment that I think everyone involved needs to be very careful that we don't kill the distribution channel that could mean additional revenue for us all."