Radio is music made social. When we began Creamy Radio over five years ago, it was primarily to turn people on to music that they might not normally hear: indie bands who’d never see the light of day on the FM dial; local artists whose reach might not go beyond their corner of the country; even mainstream artists who may not be known beyond their album single.

In 2002 when the Copyright Office set royalty rates for Internet radio stations, we were prepared to close our virtual doors. The rates were so exorbitant that many well-established stations had little hope of affording the cost, much less a fledgling station such as ours. There simply wasn’t a feasible way to make enough money to cover the fees.

Thankfully the Small Webcaster Settlement Act of 2002 was introduced that set up a more reasonable royalty scale based on percentage of revenue/expenses. While not ideal, because of this arrangement, webcasters like us found room to grow, and as we did, contributed more back in royalties.

But the new rates put in place by the Copyright Royalty Board once again threaten the existence of nearly all independent Internet radio broadcasters. As many have already pointed out, even the 2006 rates create a nearly insurmountable financial barrier that most independent broadcasters cannot meet, much less surpass. And those rates will more than double over the next five years.

Fear of the Medium

As Bill Goldsmith of Radio Paradise noted in his “The View from Paradise”, FM stations avoid paying most of the royalties that webcasters are subject to. The question arises: why single out the medium of Internet radio?

With Creamy Radio, we designed a station with a variety of music to entertain the listener and expose the artists. The reward comes when a listener finds that hidden gem of a band that has somehow escaped them all these years; when someone in Maine stumbles onto a breaking indie playing in our hometown of Tempe, Arizona; when a listener in turn recommends to us a band that they have discovered.

That’s the beauty of what Internet radio has become: a musical environment where options have increased a thousand-fold over terrestrial radio. If you’re a fan of the music of a certain genre, or subgenre, or era, or region, or instrument, there’s a station out there playing the best of it. Or, like Creamy Radio, where we play a diverse range of music.

But because our broadcasts are sent through cables to computers instead of airwaves to radio, we are subject to exorbitant royalty rates, even though the two are not substantively different. Radio is radio, despite the delivery method. The story is as old: set the barrier of entry, or continuation, for Internet radio so high that none but the few biggest entities can survive.

Age of Reason

Internet radio is a boon to the music industry, not a danger. It provides exposure for the hundreds, if not thousands, of artists that don’t benefit from increasingly narrow marketing and placement. It is also a boon for listeners, giving them the ability to indulge a narrow taste or broaden their range. A royalty system that expels the majority of webcasters from operation can only hurt the music industry as a whole.

And royalty rates cannot rely on the artificial schism that seeks to paint terrestrial and Internet radio as different creatures. As Creamy Radio moves forward, we want to continue to support the artists in our playlist, both mainstream and independent, but we can’t do that if we can’t afford to operate. When rates are out of reach for even the biggest independent webcasters, something is amiss. And if this comes to pass the end result is a loss of revenue for artists.

As an entity not yet profitable ourselves, we cringe at the idea of continuing to pay royalties not applicable to the entrenched competition, let alone at rates so out of scope compared to our other royalties. We object to the idea of our product not being judged for what it is: an avenue that is just as, if not more, promotionally valuable to artists and copyright holders than terrestrial radio. While we may find a settled royalty rate, the time has come for legislative or legal action to eliminate this gross error by Congress. Without it, the variety and scope you have come to love from Internet radio will come to end.

Derek Grimme and David Gould
Founders, Creamy Radio