Jonathan Campbell
      Cyberspace Law Seminar
      Spring 2003
      Professor Nicholas Johnson
[20030331/20030402; First Final]

I. Introduction - What is Webcasting?
 Webcasting is the use of the Internet to transmit audio signals in a real-time manner, also known as a streaming audio signal.  In this way, webcasting is the Internet equivalent of radio broadcasting.  While it is possible to transmit video signals in this manner as well, the focus of this paper is on the use of webcasting to transmit audio signals, sometimes referred to as "Internet radio."  This article will examine the phenomena of Internet radio, its near-demise at the hands of federal regulators in 2002, and the Small Webcaster Settlement Act of 2002 (SWSA), which saved Internet radio, at least for the short term.  The reader should be aware that the law in this area is still evolving, and new developments are being published regularly.  Research for this article was completed by early March 2003, and certain fee negotiations were still ongoing at that time.  Therefore, some things will probably have already changed by the time you read this article.
 One important type of webcasting technology is the simulcast of standard radio transmissions.1  Simulcasters simply retransmit a radio broadcast over the Internet in real-time.  These simulcasts essentially extend the reach of the station, for those who live far outside the range of the radio transmission may still receive the identical programming over the Internet.
 Some webcasters also operate Internet-only stations.  These are distinguished by the fact that they operate solely through the Internet; they do not have a standard radio transmitter anywhere.2  Internet-only stations may offer several different music formats and styles from which the listener can choose, in effect giving the user the opportunity to "build" their own station.  Often, the webcaster will display the artist name, song title or album name, or other information during the play of each song.3  Sometimes, the webcaster will provide links to an online retailer of the music, to facilitate purchase of the album by the listener.4
 Regardless of whether the webcast transmission is Internet-only or a simulcast, receiving the signal is a simple process for the listener.  To receive a webcaster's signal, the listener usually will simply need to visit the webcaster's site and click on a link to hear the streaming audio signal.5  Sometimes, they may need to download software in order to access the signal.6  The streaming audio signal is then delivered through the user's Internet browser or through the downloaded software, which is usually available without cost.
 The typical American city has only 20-50 broadcast radio stations, while there are over 13,000 internet radio stations,7 providing far greater variety to the average individual than is available through standard FM or AM radio.  Because the Internet does not have the same limitations of spectrum scarcity that standard broadcast must deal with, it potentially could offer a virtually unlimited number of stations.8  This environment makes more competition and greater variety possible.  Further, since a single Internet radio station can reach anyone in the world with an Internet connection, there is potential for greater specialization and the reaching of niche markets, which could not be profitably done by standard broadcast.9
 While webcasting appears to hold great promise for the future, the legal environment remains treacherous.  Provisions of the Digital Millennium Copyright Act of 199810 set the stage for federal regulations that nearly forced webacasters out of operation in 2002.11  Only eleventh hour intervention from Congress prevented the implementation of regulations which would have put most webcasters out of business literally overnight.  While the Small Webcaster Settlement Act of 200212 provided protection for some small webcasters for the immediate future, the long-term prospects of the webcasting industry remain in doubt.

II.  Copyright Law As Applied to Broadcasting and Webcasting
 To understand what happened in 2002 and the legal challenges that webcasters face, one must first have a general grasp of copyright law as applied to music recordings and broadcasting.  While a thorough review of the interface of music copyright and broadcasting law is beyond the scope of this article,13 the following brief analysis is included to aid in understanding the issues facing the webcasting industry.
 Although it may seem counterintuitive, musical recordings involve two copyrights: the sound recording itself, and the musical work contained on the sound recording.14  "A musical work is the sequence of notes, and often words, that a songwriter or composer creates. . .A sound recording, in contrast, is a fixation of sounds, including a fixation of a performance of someone playing and singing a musical work."15  "Usually, the songwriter and/or the songwriter's publisher hold the copyright on [the] musical work."16  Royalties on the musical copyright are then collected when it is sold in sheet music form or licensed for public performance.17  The holder of the sound recording copyright receives fees when a copy of the recording is sold.
 Standard radio broadcasting is considered a public performance and does involve the musical work copyright.  Hence,  terrestrial radio broadcasters pay a fee to the owner of the musical work copyright.18  However, radio broadcasters have no duty to pay any fees to the owner of the sound recording copyright.
 For decades, the difference in legal obligations has been justified by the theory that broadcasting boosts the sales of recorded music.  "[R]ecord companies habitually flood radio stations with thousands of free copies of new sound recordings each year, hoping that the products will receive needed airplay."19  Because airplay provided by broadcasters is thought to increase exposure to and sales of recorded music, thereby increasing the revenue of the sound recording copyright owner,20 broadcasters do not have to pay royalties to the owner of the sound recording copyright.

III. The Digital Millennium Copyright Act
 At the dawn of the Internet era, there was no special rule for webcasters regarding copyrights, and their legal obligation to pay fees for the use of copyrighted works was presumably equivalent to that of standard radio broadcasters.  This scenario began to change with the passage of the Digital Performance Right in Sound Recordings Act of 1995.21  This law recognized a public performance right for the sound recording copyright owner for the first time.22  Under this new law, subscription service webcasters23 became required to pay fees on the sound recording copyright as well as the musical copyright.24  Three years later, the Digital Millennium Copyright Act of 199825 (DMCA) changed the status for non-subscription webcasters as well, requiring all webcasters to pay royalties for the sound recording copyright.  The precise rates were to be determined later by federal agency action and would be retroactive to 1998.26  Part of the reason for passing this legislation was to bring the United States into compliance with international copyright agreements.27
 As there are many diverse owners of sound recording copyrights, negotiating payment with each of them would be an impossibly complex process.  Therefore, the DMCA designated the Recording Industry Association of America (RIAA) as a clearinghouse for the royalty payments for all of its member record labels.28  The RIAA's member labels effectively dominate the American music market, controlling approximately 90% of music sales.29  The recording industry set up a new organization, SoundExchange, to handle collection and distribution of these royalties for the RIAA and other record labels.30  By complying with certain terms of the DMCA, webcasters could qualify for an automatic, statutory license, thereby allowing them to make all their payments to one entity.31  These terms included a long list of provisions and restrictions that traditional, radio-only broadcasters do not face, such as:
"[the webcaster] would not be allowed to play, in any three-hour period, (1) more than three songs from a particular album, including no more than two consecutively, or (2) four songs by a particular artist or a boxed set, including no more than three consecutively.  [P]rior announcements [of upcoming songs] would not be permitted.  Advance song or artist playlists could not be published. . .[webcasters could not] announce the time a song would be played."32

 On one hand, the automatic license provision did simplify matters by allowing the webcaster to make all royalty payments to a single party.33  On the other hand, webcasters would be restricted in the types of programming they could offer and limited in the requests they could take from listeners, and would need to plan their playlist carefully to ensure compliance with the automatic license provisions of the DMCA.  The nature of Internet radio allows it to be highly interactive, and these provisions worked to restrict innovation in the use of this new technology.
 Perhaps the biggest difficulty created by the DMCA was that while it provided for the payment of fees to the sound recording copyright owner, the fee rates for the automatic license provision were not determined the DMCA itself.34  Rather, the responsibility for setting the rates fell to the United States Copyright Office.35  The process fell into trouble quickly, as disagreement between the RIAA and webcasters developed from the very beginning.  In addition to widespread disagreement over the appropriate rates, "[t]he RIAA wanted webcasters to tag each listener with a unique user identifier, as well as to submit detailed records of user information such as country of origin and local time zone",36 raising serious concerns about consumer privacy.37
 Due to the inability of the parties to reach a resolution, the Copyright Office created a Copyright Arbitration Royalty Panel (CARP) composed of three arbitrors to resolve these issues and set royalty rates.38  The proposed rates were released by the CARP on February 20, 2002 and were listed as follows:39

Type of DMCA-Compliant Service   Performance Fee
        (per song)

Webcasters & Commercial Broadcasters
AM/FM Simulcast      0.07¢
All other transmissions    0.14¢

Non-Commercial Broadcasters
AM/FM Simulcast     0.02¢
Other Internet transmissions   0.05¢
Transmissions on other channels  0.14¢

Minimum Fee
$500 per year per license

 While the fee of 0.14¢ per song may not appear prohibitive at first glance, an examination of how the fee would work in practice proves that it would devastate many commercial webcasters, whether they be Internet-only or simulcast.  For an Internet-only station with 500 listeners per day, the fee calculation would be as follows:  500 listeners, multiplied by 0.14¢ per song, multiplied by 15 songs per hour, multiplied by 24 hours, results in a fee of $250 per day or $90,000 per year.40  Further, the fees were retroactive to 1998.41
 To make matters worse for webcasters, the more successful they become, the heavier a burden the fees would impose.  For instance, using the same numbers as before but assuming 5,000 listeners per day (not at all impossible, given the Internet's world wide reach), the webcaster would owe fees of $2,520 per day, or $919,800 per year, with the rates retroactive to 1998.42
 According to Kevin Shivley, the manager of Beethoven.com,43 the rates would work out to be more than 100% of revenues for most webcasters.44  While there is some debate over whether such predictions are accurate, for an actual simulcast station in a top-20 market, the rates proposed by the RIAA worked out to 51% of revenue.45  Remember also that these fees are in addition to the fee paid to artists and composers for use of the musical work copyright, which amounts to approximately 4% of revenues.46   As one researcher commented, "It begs the question, if the rates proposed by the RIAA would put the 80-year, established, fully-consolidated, profitable RADIO industry out of business, how could they possible [sic] make sense for the fledging Webcasting business?"47  Adding insult to injury, the RIAA remarked that they were "disappointed that the rate set by the Arbitrators is substantially below the rate we requested...".48  Apparently, a rate that had webcasters facing bankruptcy was not enough to please the RIAA.
 Although the fee for simulcasters was only 50% of that charged Internet-only stations, the effect was still severe, and the difference in fees worked to create a split among industry players.49
"Imagine the furor created now when a radio broadcaster, accustomed for decades to paying only one set of licensing fees. . .for a [terrestrial] broadcast, is now told that, if it desires to broadcast the very same music over the Internet, it must also now pay two licensing fees. . .[T]he web-only stations. . .feel no sympathy for their traditional brethren, who must now pay the piper for dabbling in Internet broadcasting, as well."50

Both webcast-only and simulcast stations began to terminate operations in face of the impending fees.51  "[In 2002] alone the number of radio webcasters has declined by thirty one percent (31%), with US stations accounting for the majority of this steep decline. Prompted by the current copyright issue, well over one thousand US stations quit broadcasting online."52  The fact that the majority of stations failing were U.S. stations is evidence that our proposed fees were not wisely chosen.
  Why were such high fees proposed?  Part of it may be because "[w]hen Congress passed the Digital Millennium Copyright Act (DMCA) in 1998, they instructed the Librarian of Congress to set a rate based strictly on what a willing buyer and willing seller would pay."53  As two U.S. legislators pointed out, such an approach cannot be expected to be successful in such a fledgling industry.

"The 'willing-buyer/willing-seller' standard requires that the CARP establish royalty rates for Internet radio based on market transactions between the record labels and the Internet broadcasters. There has only been one such transaction in the marketplace since the law was passed, and that contract was terminated prematurely by the webcaster. Therefore, the CARP did not have enough information on viable contracts from which to make a rate determination."54
 
 There are more basic issues at work as well.  Most probably, the changes created by the DMCA were an example of overreaction to fears of widespread copyright violations fueled by the Napster debacle.  Webcasters send a streaming digital signal, and in theory, this signal could easily be pirated.  The Internet has been referred to as "the world's biggest copying machine"55 and fear of its inherent ability for pirating abounds.  No doubt the risk is real, and becomes more so as technology advances.  In 1994, when download speeds were generally limited to 14,400 baud and sixty to ninety minutes were required to download the average popular song, more than 7,000 members of the CompuServe community copied a single song during an eight day period.56  Today's transmission speeds vary, but depending on the type of service, can be more than a million baud, making the downloading of music files easy and fast.  Further, the very nature of digital technology, with its ability to make an unlimited number of exact copies without generational degradation, does truly present a tremendous challenge to sound recording copyright owners.57
 The theory behind the sound recording fees created under the DMCA is based on the concern that by transmitting a digital signal, webcasters will facilitate uncontrolled copyright violation.  Napster certainly demonstrated that digital technology carries this risk in some circumstances.  However, this mistrust of the digital revolution is misplaced when it is applied to webcasters.  The streaming signal sent by most webcasters is not saved on the user/listener's computer. Further, the DMCA implicitly recognized that unsaved copies incidental to the transmission should be non-compensable.58  While the DMCA provided that certain ephemeral recordings made by a webcaster could be compensable, it specifically exempted those situations where one was made if the webcaster making the ephemeral recording was otherwise duly licensed and if the recording was used only for making the webcast, along with other conditions.59  Ephemeral recordings made by the listener's computer for purposes of receiving the streaming the signal are not exactly the same thing as ones made by the webcaster's server, but since they are not saved on the user's computer and have no commercial value other than to facilitate the webcast, the same analysis should apply.
 Webcasters do not operate as Napster did, where full sound files were traded and downloaded extensively.60  Webcasters do not give access to a searchable mass of downloadable files at all, but only stream a signal in real-time.  While it could be possible to record this signal, it could only be done in real-time, which would be time-consuming and would require the active involvement of the user to edit out commercials and other announcements.  Napster allowed a user to seek out the exact files they wanted whenever they wanted, and copy them quickly and efficiently.  Webcasting is not the same technology, it is not susceptible of the same misuse, and it should not be treated as having these same risks.
 Further, many niche markets are greatly underserved by standard broadcasters.61  Radio stations that carry bluegrass or reggae, for instance, are difficult to find, and for those living outside the range of large-city radio stations, broadcasts of many less popular musical formats simply do not exist.  Since webcasting reaches worldwide, it gives the opportunity for copyright owners and musicians alike to greatly expand exposure to all types of musical works.  There exists a tremendous opportunity for all involved in the music industry, including sound recording copyright owners, to expand the markets for their music if they will work in cooperation with webasters.

III. Congress Steps In with the Small Webcasters Settlement Act
 Fortunately, webcasters and simulcasters did not sit back and allow themselves to be put out of business.62  After the announcement of the royalty schedule on February 20, 2002, a flurry of activity began in the webcasting industry, including the goal of sending one million faxes from users of webcasting and simulcasting to legislators.63  Over 15,000 faxes were sent in a single day.64  Websites such as Save Internet Radio65 and Save Our Streams66 were launched to help coordinate webcaster efforts against the royalty schedule, and webcasters joined forces to make their voices heard.67
 In June 2002, the Librarian of Congress responded to these concerns by cutting the proposed rates by 50%, to 0.07¢ per song.68  Unfortunately, this rate was still high enough to bankrupt the majority of small webcasters, largely due to the fact that it remained based on a fee-per-performance rather than a percentage of webcaster revenue.69  Small webcasters continued to feel ignored after this decision, such as Michael Monahan of atlantabluesky.com, who stated, "Even with my small devoted audience, this rate is far beyond my ability to pay, and they know that. . .This decision breaks my freaking heart."70  At the same time, the RIAA voiced opposition to the rate reduction, as they felt that the lower rates meant that copyright owners would be put in the position of "subsidizing" major webcasters, and that "[t]his decision will certainly reinforce the steadfast opposition of copyright owners to compulsory licensing."71   The fact that a one-size-fits-all approach is unlikely to be successful in a new industry apparently did not weigh heavily with the RIAA.72
 As both sides were unhappy with the decision of the Library of Congress, appeals were filed by various parties (including webcasters, simulcasters, and the RIAA) with the U.S. Court of Appeals in Washington, D.C.73 during the fall of 2002.  Many believed that webcasters had little chance of success with the lawsuits, as "[a] streaming transmission over the Internet clearly constitutes a digital transmission performance of the sound recording transmitted and of any musical work contained in that sound recording."74  Fortunately, Some members of Congress were also taking note at this time.  U.S. Representative Jay Inslee publicly expressed concern that the rates set by the CARP would harm the growth of this new industry and would work against almost everyone involved, including artists, record labels, and consumers.75  Representative Inslee and others publicly questioned the viability of rates based on a hypothetical buyer and seller in this new and rapidly evolving market.76
 In addition to the action in federal court, efforts to overturn the royalty structure by Congressional legislation began in the fall of 2002 in the form of H.R. 5469, originally known as the Small Webcaster Amendment Act.  The efforts initially met with opposition, and an early version of the bill passed the House but was blocked in the Senate in mid-October,77 falling dead without coming to a vote.78
 On November 15, 2002, however, the webcasters fared better, when the House and Senate unanimously passed a revised version of the bill79, known as the Small Webcaster Settlement Act of 2002.80  President Bush signed the SWSA into law in December 2002.
 In order to determine whether the SWSA will prove an effective basis for the long-term growth of webcasting, it must be examined for what it resolves and what it leaves unsettled.   One extremely positive development is that the SWSA specifically did away with the concept of basing royalties on a hypothetical price between a willing buyer and seller, and instead supported recognition of the nature of webcasting as an emerging business technology and the need for compromise:
"It is the intent of Congress that any royalty rates, rate structure, definitions, terms, conditions, or notice and recordkeeping requirements, included in such agreements shall be considered as a compromise motivated by the unique business, economic and political circumstances of small webcasters, copyright owners, and performers rather than as matters that would have been negotiated in the marketplace between a willing buyer and a willing seller."81
 

 The agreement provided specific protection for small webcasters through 2004.  Webcasters qualify for this protection if their annual revenues fall below $1.25 million.82  These small webcasters will pay either 8% of revenue or 5% of expenses, whichever is higher, for the "retroactive period" of 1998-2002.83  "For 2003 and 2004, small webcasters would pay 10% of the first $250,000 in revenue, then 12% of additional revenue -- or 7% of expenses, whichever is higher."84
 In sum, the provisions mean that those webcasters whose annual revenues fall below $1.25 million "may now be licensed to stream copyrighted music by paying a percentage of revenues or expenses."85  Even for those webcasters who exceed this limit, the SWSA is still a positive development, for it states Congress's intent that a compromise solution be reached, and that the approach of attempting to emulate a hypothetical buyer and seller be abandoned.
 However, the SWSA did leave much unresolved.  For those webcasters who do not fall under $1.25 million in annual revenue, the fee rates remain undecided, and are left to the negotiation of the parties, albeit with the express instructions of Congress for "compromise".86  It appears that so far, agreements will be difficult to reach.87  The parties involved must "brief the Copyright Office by March 5 [of 2003] on their efforts to hammer out a compromise on royalty payments."88  If an agreement cannot be reached, the issue of rates for those webcasters with revenues over $1.25 million per year will be back in arbitration with another CARP panel.89  Should that occur, it may turn into a battle of attrition between sound recording copyright owners and those webcasters with gross revenues of over $1.25 million.
 In contrast, other digital mediums that compete with webcasting have not faced the same difficulty in the negotiation of fees.90  Early in 2003, "Music Choice, a partnership of Microsoft Corp., Motorola Inc. and other companies, agreed to pay royalties for transmitting music through digital cable TV and satellite systems."91  The royalties amount to of 7 percent of their gross revenue for 2002 and 2003, and 7.25 percent for 2004 to 2007.92  Note that this negotiated agreement followed a percentage of revenue approach, not the per-song fee approach originally proposed for webcasters.  "By reaching an agreement with recording companies and unions that represent musicians, the subscription services avoided costly arbitration proceedings that have plagued Internet radio services."93
 These privately negotiated rates are less than the rates than provided for small webcasters in the SWSA,94 and these providers did not have to engage in costly proceedings to make the deal happen.  Exactly what these facts mean for webcasters is unclear.  It could stand as evidence that the battle in 2002 opened the eyes of copyright owners to the enormous potential of digital music, and they will now be willing to negotiate similar terms for webcasters.  It also may mean that copyright owners favor certain mediums over others, and will continue to drive a hard bargain with webcasters.
 Webcasters can hope that at a minimum, the deal with Music Choice stands as solid evidence that the fee-per-song approach proposed by the CARP in February 2002 is unworkable, and such an approach ought to be considered dead on arrival.  The terms of the deal negotiated with Music Choice are at least roughly comparable to those of the SWSA.  If an agreement can be negotiated for webcasters that provides for a similar fee schedule as the deal with Music Choice, then webcasters will at least be competing on a level playing field, and should have a reasonably solid base from which to operate.
 It is inevitable that if webcasters are successful and their businesses expand, they will outgrow the protections of the SWSA, and the Act's protections are not indefinite.  Barring a major change in the law, it is only a matter of time before the fate of all webcasters, large and small, depends upon negotiation with sound recording copyright owners.  Therefore, the SWSA should be seen not as a permanent solution, but only as breathing space that allows webcasters time to reorganize and prepare for the regulatory challenges that lie ahead.
 It should also be mentioned that the SWSA only affected the potential fee rates.  In order to avoid negotiating with each sound recording copyright owner individually, webcasters still are required to meet the automatic license provisions of the DMCA.95  Limits on the numbers of songs that can be played by a particular artist within a given time period remain, and so webcasters are still treated differently than traditional broadcasters.96  As a policy matter, this is an unwise restriction of competition in a developing technology.  Further, it restricts the ability of webcasters to fully exploit the interactive ability of the new technology, hence it works to prevent the full development of this industry.  Full promotion of this new technology will not be achieved by institution of artificial restrictions.
 Lastly, the sound recording copyright is a relatively new legal development, only developed in the early 20th century.  The U.S. Supreme Court expressly rejected the concept of a copyright in sound recordings in 1908,97 and the concept did not gain acceptance until decades later. Perhaps the digital era provides a good opportunity to reexamine the goals of copyright law and to question whether or not a copyright interest in sound recordings takes our society in a direction we want to go.  However, given that the concept of sound recording copyright is now embedded in the copyright law of other nations,98 we should not expect rapid change in this area.  The reality is that webcasters will almost certainly continue to be faced with fees for the use of sound recording copyrights.  Yet, our Constitution commands that copyright law be used to "promote the Progress of Science and useful Arts. . ."99, and so Congress must be willing to step in with further action if copyright owners should use their powers against the public interest.  It should be possible to provide compensation to copyright owners without bankrupting webcasters.
 
V. Conclusion
 The Napster phenomena created a backlash by copyright holders, and this backlash threatens both webcasters and, perhaps paradoxically, the copyright holders themselves.  "It has been suggested that if the only way a record company can make money is by controlling copying, it will not survive in the digital age."100  While there may be some merit to arguments that past approaches to copyright are obsolete in the digital era, the possibility of doing away with sound recording copyright does not appear to be a realistic one in the near future.  Regardless of whether the concept of a sound recording copyright can endure in the long run, it is in everyone's best interest to encourage webcasting now.
 There are reasons to feel positive about the future of webcasting.  Certainly, the fact that Congress passed the SWSA unanimously shows there is strong legislative support for compromise among the parties, and the SWSA did address some of the most immediate concerns of small webcasters.  Whether or not the Act will prove to be a firm foundation for future development of webcasting remains to be seen.  Much may revolve on the general state of copyright protection on the Internet.  The RIAA and other copyright holders appear to be fully prepared to peruse their interests most vigorously, and should not be expected to allow the Internet and digital technology to invade their business.  If widespread copyright violations continue, we should expect that the RIAA and copyright holders will fight back on all fronts, catching webcasters in the foray whether guilty or not.  While the Small Webcaster Settlement Act of 2002 provided a limited reprieve, copyright holders maintain a powerful lobby in Congress, and the SWSA will not shelter webcasters if copyright holders feel threatened by webcasting technology.
 The technology of traditional FM radio limits its geographic reach, making it difficult to serve niche markets.  In contrast, with a worldwide audience, it certainly appears that webcasting could make it possible to reach even highly specialized musical tastes.  Ignoring this opportunity, and even attempting to strangle it, will not improve prospects for sound recording copyright owners or anyone else in the music industry.  While there may be some risk of copyright infringement inherent in webcasting, these risks do not justify cutting off the tremendous opportunities that exist for everyone, including musicians, copyright owners, and the buying public.
 The fact that sound recording copyright owners were able to negotiate a workable deal with digital cable music providers shows that copyright owners do perceive the need to expand music delivery beyond traditional radio broadcast, and are not so paralyzed by fears of piracy as to be unable to see the potential created by new technology.  "Webcasting affords an opportunity for niche operators to meet the need of otherwise unmet markets, bringing programming that would otherwise never see the light of day."101  Decreased listenership and increased frustration with a growing load of commercials on traditional radio102 means that it is to the copyright owners' advantage to promote new channels of music delivery, including webcasting.  If webcasters are put at a disadvantage, they will surely not reach their full potential, and the rest of the music industry, including copyright owners and consumers, will be the worse for it.

 
1For an example of a simulcast webcaster, visit http://ksui.uiowa.edu/, and click on "Listen to KSUI".  This is an NPR station, affiliated with the University of Iowa, which simulcasts its radio transmissions over the Internet.  You will need the Real Player software to listen to this station, which is available for download at  http://www.realnetworks.com/products/media_players.html.
2Examples of Internet-only webcasters include http://www.spinner.com and http://www.live365.com.
3Spinner.com operates in this manner.
4For example, Spinner.com provides a links to online retailers cdnow.com and amazon.com for the purchase of recordings.
5To sample some of the choices available on the web, visit http://www.netradiosearch.com. This website provides links to many American and Canadian based webcasters, arranged by music format and geography.
6For instance, spinner.com requires the user to download their software before the user can listen to their programming.  The software is free.  Some simulcasters also use external software, such as Real Player, in order for the user to hear their programming - see http://wsui.uiowa.edu/ for an example of a webcaster using this type of external software.   Free versions of this software are also generally available for free.
7"A typical American city has 20 to 50 broadcast radio stations.  According to BRS Media, which has been compiling a directory of Internet radio stations since 1995, the online listener now has access to more than 13,000 sites."  Sue Cummings, Internet Radio Offers A Wide Choice to a Slim Audience, N.Y. Times, Oct. 25, 2002, at 35, as cited in R. Anthony Reese, Copyright Law and Internet Music Transmissions: Existing Law, Major Controversies, Possible Solutions, 55 U. Miami L. Rev. 237 at n. 4.  However, other data received from BRS Media suggested that the total number of webcasters was considerably less than 13,000.  "[W]hile the current number of radio stations broadcasting their signal on the Net sits at 3940, that number is significantly lower than the all time high of 5710 stations from last year".  BRS Media's Web-Radio Reports a Steep Decline in the Number of Stations Webcasting, http://www.businesswire.com/cgi-bin/f_headline.cgi?bw.091202/222550201 (September 12, 2002).  There seems to be some uncertainty about the total number of webcasters in operation.
8R. Anthony Reese, Copyright Law and Internet Music Transmissions: Existing Law, Major Controversies, Possible Solutions, 55 U. Miami L. Rev. 237, 238 (2001).
9See Mark Lane, All Lute, All The Time - The Short, Happy Life of Web Radio, http://www.news-journalonline.com/2002/Jul/17/FOOTNOTE.htm (July 17, 2002).  Mr. Lane notes that there are webcasters who specialize in all lute music, all Baroque, all bluegrass, and other highly distinct formats.
10Pub. L. No. 105-304, 1 112 Stat. 2860 (1998).
11Visit Silenced By Royalties, http://www.kurthanson.com/archive/news/091202/index.asp#story2 (September 12, 2002) for a partial list of webcasters that had ceased operations as of September 2002.  For the story of one station that stopped their simulcasts, see KPIG Stops Streaming!, http://www.kurthanson.com/archive/news/071902/index.asp (July 19, 2002).
12Public Law 107-321, 107th Congress.
13For an in-depth analysis of music and copyright, see Reese, supra n. 8.  Mr. Reese's article serves as an excellent primer on the different forms of musical copyright, and is a highly valuable resource for anyone wishing to increase their understanding of the issues facing webcasters.
14Id. at 240.
15Id. at 240-241.
16Kimberly L. Craft, The Webcasting Music Revolution Is Ready to Begin as Soon as We Figure Out the Copyright Law: The Story of the Music Industry at War with Itself, 24 Hastings Comm. & Ent. L.J. 1, 4 (2001).
17Id.
18Id. at 5, Reese, supra note 8, at...
19Craft, supra n. 17, at 6.
20This is one frequently mentioned reason for broadcasters' exemption from paying royalties to sound recording copyright holders.  The Recording Industry Association of American maintains that at least part of the reason for the exemption is that the broadcasting industry maintains a powerful lobby in Congress.  This may be true, but it does seem likely that there is a symbiotic relationship between radio broadcasters and sound recording copyright owners.  Id. at 6, Id. at 9.
21Reese, supra n. 8, at 246-247.  See also Pub L. No. 104-39, 1, 109 Stat. 336, 336 (1995).
22Reese, supra n. 8, at 246-247.  See also Pub L. No. 104-39, 1, 109 Stat. 336, 336 (1995).
23Subscription service webcasters include satellite radio and other fee-for-service music providers.  These are not the focus of this article, but they are an important part of the webcasting industry.
24Craft, supra n. 17, at 6-7.
25Pub. L. No. 105-304, 1 112 Stat. 2860, 2860 (1998).
26Craft, supra n. 17, at 16.  For a brief summary of events leading up to the crisis in 2002, visit http://www.ruf.rice.edu/%7Ewillr/cb/sos/, and click on the "History & Links" option.
27Id. at 15.  "Congress's primary goal in drafting this revision of the Copyright Act was to allow the United States to participate in two new WIPO treaties, the Copyright Treaty and the Performances and Phonograms Treaty, which updated international copyright standards on Internet technology security and anti-piracy measures."  Id.
28Id. at 15.  The automatic license provided for in the DMCA is not available to non-interactive webcasters and simulcasters - it did not apply to pay-for-service digital music providers, such as a satellite radio.  Those types of services remain separately regulated and are not discussed in this article.
29Id. at 7.
30http://www.saveinternetradio.org/90seconds.asp.  This website has recently been unavailable.  See also the Digital Millennium Copyright Act, Pub. L. No. 105-304, 1, 112 Stat. 2860, 2860 (1998).
31Id.  See also Reese, supra n. 8, at 248-249.
32Craft, supra n. 7, at 16-17.  For instance, a webcaster that wanted to run an "Ella Fitzgerald hour" could not do so without losing their statutory license for that transmission.  Reese, supra n. 8, at 249.  Other restrictions were also imposed on the type of webcaster that could qualify for the automatic license, and requirements that the webcaster take affirmative measures to protect the copyright owner's rights.
33Id. at 15-16.
34Id.
35Id.  See also Shannon Hale, The Digital Performance Right in Sound Recordings Act of 1995:  Will the Compulsory Licensing Requirements Really Satisfy the Clearinghouse Function for Copyright Holders? 2001 Syracuse L. & Tech. J. 5 (2001).
36John Newton, DMCA Could Lead to "Mass Exodus From The Internet By College Radio" Warns Student Broadcast Group, http://www.musicdish.com/mag/?id=5765
(April 18, 2002).
37Id.
38Nate Brown, Stream On: New Legislation Threatens to End Internet Broadcasting For Small Radio Stations, http://www.spectatoronline.com/2002-04-10/news_feature.html (April 10, 2002).  See also Kurt Hanson, http://www.saveinternetradio.org/90seconds.asp. (accessed in February 2003, website is unavailable as of 3/26/2003).
39Eric de Fontenay, CARP Defies A Century of Public Policy, http://www.musicdish.com/mag/?id=5707 (April 5, 2002).
40Ryan Naraine, CARP 'Sound of Silence' Ruling Under Fire, http://www.internetnews.com/ec-news/article.php/1000981.(March 29, 2002).
41Id.
42Supra n. 26.
43http://www.beethoven.com.  Beethoven.com is an example of an Internet-only webcaster.
44http://www.internetnews.com/ec-news/article.php/1000981
45Craft, supra note 13, at 33.
46Catherine Greenman, Royalty Fees Threaten Web Stations, http://www.nytimes.com/2002/04/18/technology/circuits (April 18, 2002).  Other sources say the rate paid by traditional broadcasters has historically been around 3% of revenues per year.
47Craft, supra n. 17, at 33, citing Dave Rahn, Webcasters Royalty Update - Custom Channel's Obesrvations, http://www.customchannels.net. (accessed Aug. 8, 2001.)
48Fontenay, supra n. 39. (emphasis added).
49Craft, supra n. 7, at 6-7.
50Id.
51BRS Media's Web-Radio Reports a Steep Decline in the Number of Stations Webcasting, http://www.businesswire.com/cgi-bin/f_headline.cgi?bw.091202/222550201 (September 12, 2002).  For a partial list of the stations that were shutting down at this time in the face of these fees, see Silenced By Royalties, http://www.kurthanson.com/archive/news/091202/index.asp#story2 (September 12, 2002).
52BRS Media's Web-Radio Reports a Steep Decline in the Number of Stations Webcasting, http://www.businesswire.com/cgi-bin/f_headline.cgi?bw.091202/222550201 (September 12, 2002).
53Inslee Calls Decision Unfair, Weights Legislation to Lower Fees, http://www.kurthanson.com/archive/news/062002/index.asp.(June 20, 2002).
54Id.
55Stephen Summer, Music on the Internet: Can Present Laws and Treaties Protect Music Copyright in Cyberspace?, 8 Currents Int'l Trade L.J. 31, 33 (1999).
56Stephen Summer, supra n. 55, citing Kenneth D. Suzan, Comment: Tapping to the Beat of a Digital Drummer, Fine Tuning U.S. Copyright Law for Music Distribution on the Internet, 59 Alb. L. Rev. 789, 798.
57Summer, supra n. 55, at 32.
58Craft, supra n.7 at 18-19.
59Id.
60Napster was a legal and technological phenomena in itself, and one could easily fill many volumes with analysis.  For one case dealing with Napster's operation and copyright violation, see A&M Records, Inc. et. al. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001).  Another related case is Recording Industry Association of America v. Diamond Multimedia Systems, Inc., 180 F.3d 1072 (9th Cir. 1999), which was an attempt to prevent the distribution of MP3 players due to risks of copyright violation.  For an article exemplifying the (sometimes legit) fears of digital technology and copyright violations, see Note: The Digital Performance Right In Sound Recordings Act of 1995: Will the Compulsory Licensing Requirements Really Satisfy the Clearinghouse Function for Copyright Owners?, 2001 Syracuse L. & Tech. J. 5 (2001).
61Fontenay, supra n. 39.
62See http://www.kurthanson.com for information and updates on legal issues facing the webcasting industry.  Kurt Hanson is a webcaster and activist for the industry, and publishes an online newsletter dealing with developments in webcasting.  An online archive of these newsletters is available on his website, allowing one to examine developments in webcasting and simulcasting.
63Paul Maloney, Webcasters Hope Their Listener's Voices Can Save Internet Radio, http://www.kurthanson.com/archive/news/071002/index.asp.(July 10, 2002).
64Id.
65http://www.saveinternetradio.org.   Since early March 2003, this site has not been available.  It may have been removed since the emergency seems to be over, at least for now.  However, the website was run by webcaster Kurt Hanson, and much of the information still exists in archive format on his website, http://www.kurthanson.com.
66http://www.ruf.rice.edu/%7Ewillr/cb/sos/.  This website focuses on serving non-commercial webcasters and simulcasters.
67See the newsletter archives available at http://www.kurthanson.com for details on efforts made by webcasters.
68Librarian Cuts Internet-Only Royalty In Half, Decision Based on Same Yahoo! Deal That CARP Used, Rate Still > 100% of Revenues for Many Webcasters, http://www.kurthanson.com/archive/news/062002/index.asp (June 20, 2002).  A summary of the decision is also available on the Copyright Office's website,  http://www.copyright.gov/carp/webcasting_rates_final.html.
69Supra note 68.
70Id.
71Id.  The full statement by Cary Sherman, President of RIAA, was as follows:  "The import of this decision is that artists and record labels will subsidize the webcasting businesses of multi-billion dollar companies like Yahoo, AOL, RealNetworks and Viacom. The rate, which cannot be squared with the decision of the arbitration panel, simply does not reflect the fair market value of the music as promised by the law. This decision will certainly reinforce the steadfast opposition of copyright owners to compulsory licensing."  RIAA's apparent opposition to compromise is ominous for the future of internet radio.
72As evidence of the unworkability of the regulations, see BRS Media's Web-Radio Reports a Steep Decline in the Number of Stations Webcasting, http://www.businesswire.com/cgi-bin/f_headline.cgi?bw.091202/222550201 (September 12, 2002).
73Paul Maloney, Labels, Webcasters File to Appeal Librarian's Royalty Ruling, http://www.kurthanson.com/archive/news/080802/index.asp (August 8, 2002).
74Reese, supra n. 8, at 251.
75U.S. Rep. Jay Inslee Criticizes RIAA Position On Royalty Appeal, http://www.kurthanson.com/archive/news/080802/index.asp (August 8, 2002).  Rep. Insley stated: "The fact that all parties have appealed this decision demonstrates clearly that the standard used to determine royalty rates is not working, and Congress must act expeditiously to correct it.  If the RIAA's preference for the original CARP's decision prevails, it could severely dampen the growth of the Internet as a medium for music broadcasting.  Internet radio is the only broadcast medium that artists have to receive compensation for their work.  Undermining Internet radio, which is what prohibitively high royalty rates would do, is shortsighted and bad for the artists, bad for consumers, bad for webcasters, and even bad for the labels. Congress erred when it created the "willing buyer-willing seller" standard for determining rates, and we will continue our work to change the standard and ensure that we have a "fair but not free" Internet royalty rate."  Id.
76 Id.
77 SWAA Dead In Senate, http://www.kurthanson.com/archive/news/101802/index.asp#story3 (October 18, 2002).  The bill was H.R. 5469 and at the time it was known as the Small Webcaster Amendment Act.
78 Id.
79 Kurt Hanson, Congress Passes SWSA! http://www.kurthanson.com/archive/news/111502/index.asp#story1 (November 15, 2002).
80Public Law 107-321, 107th Congress.  The Act's text and history may be viewed at http://thomas.loc.gov/cgibin/bdquery/z?d107:HR05469:|TOM:/bss/d107query.html.  A summary of the Act is also available at http://thomas.loc.gov/cgibin/bdquery/z?d107:HR05469:@@@D&summ2=m&
81Section 4(c), Public Law 107-321, 107th Congress.  See also supra n. 79.
82Copyright Office Publishes SWSA in Federal Register, http://www.kurthanson.com/archive/news/123002/index.asp (December 30, 2002).
83Id.
84Id.
85Id.
86Supra note 73.
87 David McGuire, Web Radio Royalty Debate Resumes, http://www.washingtonpost.com/ac2/wpdyn?pagename=article&node=&contentId=A40911-2003Feb7&notFound=true (February 7, 2003).
88Id.
89Id.
90Music Choice Agrees to Pay Royalties,
http://seattlepi.nwsource.com/business/107608_tbrf07.shtml (February 7, 2003).
91Id.
92Id.
93Id.  This is important, because many webcasters are small operations that can ill afford protracted legal battles.
94See supra pages 21-22.
95See supra pages 8-9.
96Id.
97White-Smith Publishing Company v. Apollo Company, 209 U.S. 1 (1908) (holding that musical rolls used in player pianos were not copies within the meaning of the Copyright Act).
98See supra n. 7.
99U.S. Const., Art. I, § 8.
100Summer, supra note 24, at 39, citing...
101Fontenay, supra n. 39.
102Bob Bellin, "Internet 10" Study's Perceptions Don't Equal "Reality" For Radio, http://www.kurthanson.com/archive/news/032403/index.asp (March 24, 2003).
 
 

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