Internet Radio has been sentenced to death.

In a move that recalls the Vogons' decision to destroy Earth to clear the way for a highway bypass through space (a thankfully fictional premise of Douglas Adams' Hitchhikers Guide to the Galaxy), the judges comprising the Copyright Royalty Board have decided to destroy the Internet radio industry so the Recording Industry won't be inconvenienced by something it doesn't know, like or understand.

The sentence is detailed in a 115-page .pdf. titled "Determination of Rates and Terms for Webcasting for the License Period 2006-2010 in [Docket No. 2005-1 CRB DTRA] Digital Performance Right in Sound Recordings and Ephemeral Recordings". (Here's the URL: http://www.loc.gov/crb/proceedings/2005-1/rates-terms2005-1.pdf) . It begins,

This is a rate determination proceeding convened under 17 U.S.C. 803(b) et seq. and 37 CFR 351 et seq., in accord with the Copyright Royalty Judges’ Notice announcing commencement of proceeding, with a request for Petitions to Participate in a proceeding to determine the rates and terms for a digital public performance of sound recordings by means of an eligible nonsubscription transmission or a transmission made by a new subscription service under section 114 of the Copyright Act, as amended by the Digital Millennium Copyright Act ("DMCA"), and for the making of ephemeral copies in furtherance of these digital public performances under section 112, as created by the DMCA, published at 70 FR 7970 (February 16, 2005). The rates and terms set in this proceeding apply to the period of January 1, 2006 through December 31, 2010. 17 U.S.C. 804(b)(3)(A).

Soma-FM, a collection of eleven independent music stations out of San Francisco, put this up on its home page:

The new fees are a staggering increase over our previous annual royalty rate of about $22,000 to over $600,000 for 2006. And the fees are even higher in 2007. Based on our current listenership, they'll be over $1 million dollars for 2007! (Which is 3-4 times what we hope to raise in 2007.).

Bill Goldsmith of Radio Paradise told Kurt Hanson, "This royalty structure would wipe out an entire class of business: Small independent webcasters such as myself & my wife, who operate Radio Paradise. Our obligation under this rate structure would be equal to over 125% of our total income. There is no practical way for us to increase our income so dramatically as to render that affordable." Kurt adds, "And Radio Paradise is perhaps the most-successful webcaster in its class! For most operators, this rate looks as if it would be >150-200% of total revenues."

Bill was a primary source for the many pieces I wrote for Linux Journal about the fight between Internet radio and the RIAA. (To find them, just search for CARP or Goldsmith in Linux Journal here.) It was Bill who also presided over KPIG's online streams from their birth in the mid-1990 to their death-by-CARP in 2002. Today the Linux-powered Radio Paradise is a paragon of Everything Radio Ought to Be. It is loved by its listeners, by the artists it plays, by the many communities of interest and passion it serves. And, like Soma-FM, it is sentenced to drown drown by escalating costs.

Daniel McSwain of Kurt Hanson's Radio And Internet Newsletter (RAIN), summarizes the CRB's decision:

The Copyright Royalty Board (CRB) has announced its decision on Internet radio royalty rates, rejecting all of the arguments made by Webcasters and instead adopting the "per play" rate proposal put forth by SoundExchange (a digital music fee collection body created by the RIAA).

RAIN has learned the rates that the Board has decided on, effective retroactively through the beginning of 2006. They are as follows:

2006 - $.0008 per performance

2007 - $.0011 per performance

2008 - $.0014 per performance

2009 - $.0018 per performance

2010 - $.0019 per performance

A "performance" is defined as the streaming of one song to one listener; thus a station that has an average audience of 500 listeners racks up 500 "performances" for each song it plays.

The minimum fee is $500 per channel per year. There is no clear definition of what a 'channel' is for services that make up individualized playlists for listeners.

For noncommercial webcasters, the fee will be $500 per channel, for up to 159,140 ATH (aggregate tuning hours) per month. They would pay the commercial rate for all transmissions above that number.

Participants are granted a 15 day period wherein they have the opportunity to ask the CRB for a re-hearing.

Within 60 days of the final determination, the decision is supposed to be published in the Federal Register, along with any technical corrections that the Board may wish to make.

Within 30 days of publication in the Federal Register, it can be appealed (but only by the participants) to the U.S. Court of Appeals of the District of Columbia.

In an FAQ following that list, Kurt Hanson adds,

According to the comScore Arbitron ratings report for November 2006, the AOL Radio Network had a average audience ("AQH") between 6AM and Midnight of 210,694 listeners. Multiplied by about 16 songs per hour, 18 hours per day, and 31 days per month, plus adding an additional 10% to account for overnight (Mid-6AM) listening, suggests that AOL played about 2.1 billion songs that month. At the CRB's royalty rate ($0.0008 per play), I'm guessing that would create a royalty obligation to SoundExchange for the month of November of about $1.65 million. Annualized, that's about $20 million for 2006.

Here at RAIN, we're guessing that Pandora has an audience approaching that size. (Pandora founder Tim Westergren claims that Pandora now accounts for 1.5% of all Internet traffic.) Such a royalty obligation might exceed the total proceeds of all their recent rounds of venture capital plus all their sales revenues to date.

Since Last.fm is based in the U.K., another possible outcome is that Pandora dies and Last.fm becomes the "social music networking" player.

Kurt Hanson was one of the listed Parties to the Proceedings, on behalf of whom arguments were made before the CRB judges on behalf of webcasters. Here's the full list, copied from the CRB's Decision:

Bonneville International Corp., Clear Channel Communications, Inc., National Religious Broadcasters Music License Committee (“NRBMLC”), Susquehanna Radio Corp.; (iii) SBR Creative Media, Inc. (“SBR”) and the “Small Commercial Webcasters” (this designation was adopted by the parties): namely, AccuRadio, LLC, Digitally Imported, Inc., Radioio.com LLC, Discombobulated, LLC, 3WK, LLC, Radio Paradise, Inc.; (iv) National Public Radio, Inc. (“NPR”), Corporation for Public Broadcasting-Qualified Stations (“CPB”), National Religious Broadcasters Noncommercial Music License Committee (“NRBNMLC”), Collegiate Broadcasters, Inc. (“CBI”), Intercollegiate Broadcasting System, Inc., (“IBS”), and Harvard Radio Broadcasting, Inc. (“WHRB”); (v) Royalty Logic, Inc. (“RLI”); and (vi) SoundExchange, Inc. (“SoundExchange”).

DiMA, Radio Broadcasters, Small Commercial Webcasters, SBR, NPR, CPB, NRBNMLC, CBI, IBS and WHRB are sometimes referred to collectively as “the Services.” The Services are Internet webcasters or broadcast radio simulcasters that each employ a technology known as streaming, but comprise a range of different business models and music programming. DiMA and certain of its member companies that participated in the proceeding (namely: AOL, Yahoo!, Microsoft and Live 365), Radio Broadcasters, SBR and Small Commercial Webcasters are sometimes referred to collectively as “Commercial Webcasters.” NPR, CPB, NRBNMLC, CBI, IBS and WHRB are sometimes referred to collectively as “Noncommercial Webcasters.”

On the Rebuttal side was SoundExchange, which describes its background this way:

SoundExchange®, Inc. is a dynamic, 501(c)(6) nonprofit performance rights organization embodying hundreds of recording companies and thousands of artists united in receiving fair compensation for the licensing of their music in the new and ever-expanding digital world. Modern technology makes all of our lives a little bit simpler and SoundExchange takes full advantage of its accuracy and efficiency to license, collect and distribute public performance revenues for sound recording copyright owners (SRCOs) and artists for noninteractive digital transmissions on cable, satellite and webcast services.

Prior to 1995, SRCOs in the United States did not have a performance right. This meant that, unlike their counterparts in most of Europe and other nations around the world, recording companies and artists were not entitled to receive payment for the public performance of their works. Users of music, the digital music service providers, freely performed these works at will, without a dime being paid to the rightful owners of those recordings or the featured artists who performed the songs - the recordings which created the backbone of their business.

The Digital Performance in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 changed that by granting a performance right in sound recordings. As a result, copyright law now requires that users of music pay the copyright owner of the sound recording for the public performance of that music via certain digital transmissions. The U.S. Copyright Office recognized the benefits of SoundExchange's administration of these royalties, and so has designated SoundExchange as the administrative entity for subscription services' statutory license fees. You may find SoundExchange's Notice of Designation as Collective Under Statutory License here.

The Rebuttal side won, hands down. And then some.

You might ask, Why is music on Internet radio framed as "public performances"? Well, when the recording industry (that is, the RIAA) saw the Internet coming along in the mid-1990s, they knew it would open infinite opportunities for radio, which had previously been confined to the AM and FM bands. So they took advantage of the opportunity to do with Internet radio what they couldn't do with terrestrial over-the-air analog radio: charge fees for every "performance" for every listener. They also saw in digital broadcasting an advantage that analog broadcasting never had: accountability -- at any level of granularity. If they could create a regulatory regime around charging per-recording/per-listener fees, one of two things would happen: A) They would obtain a revenue stream from the new online radio business; or B) the online radio business would fail and its threat to the status quo would be squashed.

When the DMCA became law in 1998, however, it left fees and accounting requirements open to resolution through something called the Copyright Arbitration Royal Panel, or CARP. When the Library of Congress (LOC) finished the CARP process in mid-2002, the imposed fee structure was so steep, and the reporting requirements so labyrinthine, that many Internet radio stations were quickly silenced. Only a last-minute intervention by Congress, led by retiring North Carolina senator Jesse Helms, saved the industry from being killed entirely. That compromise spared small operators by charging them 10% to 12% of their revenues, rather than by song and listener count. This still killed the open streams of many larger operators (including those of KPIG, the first commercial station on the Web), but it did allow others to live. In other words, the RIAA managed to cripple but not quite kill the Internet radio baby in its cradle. That job was left up to the Copyright Royalty Board, a three-judge panel created by Congress in 2004 and working under the Library of Congress. This was the panel that delivered the Decision last Friday. In an LA Times story yesterday, Jim Puzzanghera and Josh Friedman wrote,

Because that board established the new higher performance fees, lawmakers may be reluctant to step in this time.

The board's top judge said its guidelines allow it to consider only economic factors — not issues such as educational opportunities at college radio stations and the increased diversity of music that Internet stations may provide.

"Congress apparently made a determination for an interim specified period of time to assist a nascent industry, and that period of time has passed now," Chief Copyright Royalty Judge James S. Sledge said in an interview.

David Oxenford, an attorney who represented independent commercial Internet broadcasters, predicted that a formal appeal to the board or federal courts would be difficult to win...

SoundExchange, an organization created by the recording industry to collect and distribute Internet and satellite music royalties, dismissed talk of an Internet radio apocalypse.

The organization's executive director, John Simson, said the new fees simply leveled the playing field for Internet radio and forced websites to adequately compensate the artists and record labels providing the music.

"This is money that they've earned from valuable recordings they've created," Simson said.

Simson said the hundreds of Internet radio services include corporate giants such as Yahoo and Clear Channel Communications Inc. that can afford the higher fees. Those companies declined to comment Tuesday.

KCRW has helped eclectic artists such as the Shins, Arcade Fire and Damien Rice break out in recent years. Seymour wondered why the recording industry would want to endanger such a tastemaker.

"I can't believe they want to kill the golden goose," she said.

Neither should Congress.

This decision has much to offend both free-speech-loving Democrats and free-market-loving Republicans. Especially the latter. You're not going to find a better example of government interfering with free markets — or preventing them outright — than with this one.

You also won't find businesses (or organizations, in the case of public radio stations and other nonprofits) that are doing a better job than Internet radio of help recording artists get paid for their work. For proof, go to Radio Paradise and click on any song on its long playlist. You'll get album cover art, links to the artist's website, tour info, and much more, including six different ways to buy the song. Go to Soma-FM, click on any playlist and any artist. You'll get sent to an Amazon page where you can buy the music. Go to NPR's Music page, and you'll find Available for Purchase: Featured Music in prominent display.

This is the marketplace at work, today. It is exactly these kinds of market activities — independent businesses, helping make music consumers into music customers — that the RIAA and SoundExchange are working so hard to prevent, and that Judge Simson dismisses as a "nascent industry" that he'd rather see bulldozed to make room for the few Big Boys who can afford to pay.

And there is no guarantee that Yahoo or Clear Channel will keep streaming, either. Remember that they have been allied with the small webcasters in this dispute. And that, if Kurt Hanson's numbers are right, AOL alone will owe $20 million retroactively for last year alone. With those up-front costs, and rates rising over the coming years, what are the chances they'll just give up on the whole thing? Rather high, I would guess.

Now, you might ask, Why would the RIAA stand so opposed to a class of businesses that should be allies rather than enemies?

You'll find the answer in a long section of a piece I wrote in 2002, after the first CARP decision was turned into law by the Library of Congress (LOC), which oversees copyright:

Clearly these webcasters have faith in something. Could it be the marketplace?

Unlike the commercial radio stations we hear on the old-fashioned airwaves, Internet radio stations' primary market relationship isn't with advertisers; it's with listeners. In many cases (Radio Paradise is a good example), the listeners are the primary source of revenue. This business model is similar to that of noncommercial (public) radio, only the market relationship is much more direct and efficient. Internet radio stations don't need to stop programming to hold marathon whine-fests begging listeners to call phone volunteers and pledge money to qualify for a mug or a t-shirt. Listeners simply click on a PayPal or an Amazon link, and after a few more clicks they've made a payment.

This market relationship is entirely voluntary, of course. There are still plenty of free-riding listeners. But there are good-faith buyer/seller relationships involved, and it is easily conceivable that, over time, these relationships will call forth the technologies required to support natural valuation, pricing and payment mechanisms. Given the resourcefulness, entrepreneurial spirit and technological know-how of many internet broadcasters, the emergence of a real and functioning "willing buyer/willing seller" marketplace is bound to occur.

But this was not obvious to the CARP, the RIAA, the LOC or other parties to the proceedings, for the simple reason that the most resourceful webcasters were busy rolling their own solutions without much help from commercial software or hosting companies (with a few notable exceptions, such as Shoutcast and Live365).

But missing market clues was built into the DMCA in the first place. That's why the DMCA provided these instructions (now burned into copyright law):

One of those parties was Yahoo!, which paid $5.7 billion for Mark Cuban's Broadcast.com in 1999. In those days Yahoo! had big plans for internet radio. Yahoo! was also by far the largest entity on the webcasting side of the arbitration process, and the one spending the most money to develop the "space". So it made some kind of sense for the CARP to base its "willing buyer/willing seller" thinking on Yahoo!'s plans.

But the results are grandiose and absurd. Worse, the results are now law. Here's the relevant excerpt from the Final Determination:

Fine. Except now it's July 2002, and Yahoo! is out of the broadcasting business. (Go to Broadcast.com and see what it says before your browser gets redirected away.) In fact, Yahoo! was already out of that business when the LOC reviewed the CARP recommendations for the final time between May 20 and June 20, 2002. Yet the LOC let those recommendations stand.

Think about it. Yahoo!'s original "deal" — the CARP's starting point for imagining a real-world market — is worse than unproved: it never happened. The CARP might have learned something if Yahoo! had tried and failed, but its efforts were stillborn. Without Mark Cuban's entrepreneurial savvy to guide them, and without sky-high stock valuations to encourage and fund all kinds of expensive market experiments, Yahoo! simply gave up and wrote the whole thing off.

Meanwhile, internet radio is being regulated on the basis of Yahoo!'s abandoned ambitions.

The feeble quality of the CARP/LOC due diligence work was fully revealed by Mark Cuban's e-mail to Kurt Hansen of RAIN, the Radio and Internet Newsletter, after the LOC's Final Determination. Here's the full text of that e-mail:

So the real plan was to squash the little guys and play rope-a-dope with regulators by funneling many streams into only one, so Yahoo! would spread the cost of one stream across hundreds or even thousands. Nice, huh? How come the CARP panel didn't pick that up in its "far ranging inquiry"? Mark Cuban's a talkative guy. Did they even bother to ask him about it?

Now it's five years later, and we have another crazy decision, based on law built on bad guesses at the height of he dot-com bubble, about what the Internet radio business might become.

Here's what Mark Cuban blogged after the latest news came down:

Friday was a sad day , no, make that a shocking day in the webcasting community. On Friday, the Copyright Royalty Board finalized the webcasting royalty rate based on a cost per play, with a 500 dollar minimum per channel , while also completely eliminating any percentage of revenue options. In a nutshell it was the day the internet music died.

But they're not dead yet. The Save Our Internet Radio Blog quickly appeared, serving as a clearing house for news and a gathering ground for activism around the crisis. One of the first posts is The View From Paradise: Bill Goldsmith's detailed and eloquent plea for help. He begins,

I’m Bill Goldsmith, and my wife Rebecca and I have spent the last seven years of our lives pouring our hearts, minds, and financial resources into Radio Paradise. We are now faced with the very real possibility that all of our efforts will have been in vain, and that the thousands of people who are devoted listeners to our station will have it snatched out of their lives.

Bill & Rebecca Goldsmith have been in love with radio all of my life, and spent 30-odd years dealing with the conflict between my vision of radio as an art form and my FM-station employers’ vision of radio as a conduit for advertising. I have watched the medium that I love turn from an essential part of the process of connecting those who love making music with those whose lives are touched by it into a mindless background hum of advertising and disposable musical sludge.

With the advent of the Internet, we were finally able to bring to life the radio station I had always wanted to work for (and listen to): commercial-free, passionate, and embracing a wide universe of musical treasures, from the classic rock artists I grew up with to the latest indie discoveries, with a liberal sprinkling of world music, electronica, jazz, even classical. We have slowly built up a loyal audience and have been able to support ourselves while living our dream.

An Exciting - But Fragile - New Era for Radio

The Internet has changed radio in a profound way. Instead of a business that required investments so huge (millions of dollars for even a small-market FM station) that a programming focus on the lowest common denominator and an extreme aversion to risk or experimentation was an unavoidable consequence, a radio station with a global reach was now within the grasp of anyone with the talent and determination to make it happen.

Every day we hear from listeners who are profoundly touched by our efforts - by the music we play, by the way we assemble the songs into meaningful sequences that are more than the sum of their parts, by our passion for what we are doing, and our commitment to never contaminating the music with advertising. And our station is but one of many who have attracted that kind of passionate following, and provided that kind of outlet for radio artists like myself.

The Internet's paradigm-shifting gift to radio programmers and music lovers - at least those in the US - is now in danger of being taken away by the misguided actions of the US Copyright Board. The performance royalty rates released by the Copyright Board on March 1, 2007 are not just extreme, not just burdensome. They are a death sentence for all US-based independent webcasters like Radio Paradise, SOMA-FM, Digitally Imported, and many others.

Here's some of my own email dialog with Bill:

DS: This seemed to come out of the blue. Did you know it was coming?

BG: We knew a decision was coming. We expected it to be wrong-headed, but not THIS out of touch with reality.

DS: Were you, or anybody in the online radio community, involved in this?

BG: Yes. We were represented, along with radioio, 3wk, digitally imported, and others, by the very capable Mr. David Oxenford. We paid him a token retainer, but mostly he worked pro bono. We filed an extensive set of exhibits, depositions, etc. that were totally ignored by the CRB.

DS: I'm reading the .pdf now, and it's clear that the original literal intentions of the DMCA (that this is all about "performances" and not anything like "radio") prevailed. This tells me we need to unscrew copyright law. Perhaps this is more do-able now than in 1998 or 2001.

BG: Yes! That's the only solution for this situation. The fiction that we are engaged in something fundamentally different than analog broadcasting has to be smashed. Radio is radio. As I wrote in the blog post:

"Is there, in truth, a fundamental difference in the experience of an online listener to Radio Paradise and someone who was listening to identical programming on an FM station? Every one of our listeners - indeed, anyone who has ever clicked on a webcast as background music while working - knows the answer to that question. No! There is no difference whatsoever. Radio is radio, whether it comes in digital or analog form."

As for the recording angle, I would challenge any random group of RIAA lawyers, copyright judges, or members of Congress to listen to a digital recording of our radio station and a high-quality cassette recording of an analog FM station and tell which was which. I guarantee that they could not. The differences in quality are too subtle for all but the most discerning listener to notice.

He adds, "I'm a DJ, & coder, & writer, & lots of other things - but not a lawyer or politician. I'm open to any & all suggestions. Right now all I can do is make noise & hope somebody's listening."

I've been listening to Radio Paradise for the duration. I also pay for it by sending money to the station, some of which goes to artists through SoundExchange and the system set up by the CARP process in 2002. (Note: Bill Goldsmith did an exemplary job of hacking together, on a LAMP stack, the complex codework required.) I also listen, every day, to dozens of online stations from all over the world. (I send some of them money, too.) I'm sure I'll continue listening to music stations from the U.K., the Netherlands, France, Japan and elsewhere. But unless we unscrew this latest decision, there is little hope for continuing to listen to music stations from the U.S. They have been, essentially, outlawed.

Yes, there are workarounds on the subscription side of the "digital performance" business. Rhapsody, for example, charges about ten bucks a month for a wide variety of music formats you can stream through your computer, your Sonos system or whatever. (For what it's worth, they also run on out of a Linux farm at Real Networks — and I'm a subscriber there too.) But these aren't radio. These aren't personal. Good as Rhapsosy is, it doesn't come close to providing the connections between artists and listeners that you get with Radio Paradise.

Noank Media is also a clever approach (by colleagues of mine at Harvard's Berkman Center) to satisfying both Hollywood and listeners, by involving the ISP industry. (That's a simplification, but it'll do.) For Noank to help Internet radio — webcasters — a lot of slow-moving pieces need to fall in place first. I doubt that will happen fast enough to relieve the current crisis.

We need action now.

Internet radio is a canary in the coal mine of an insane Net-hostile Regulatorium that stretches from the cableco/telco duopoly to the copyright oligarchs who are strangling what Professor Lessig calls Free Culture. That Regulatorium should be the enemy of every free-market Republican and every free-speech Democrat. It's slowing down the U.S. and its businesses as competitors in the World Wide Marketplace we call the Net.

Will this decision to execute the Internet radio canary motivate us to do what we should have been doing more of for the past ten years? That's up to you and me.

Because if we don't do something, she's gonna die.