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Summer is over and we are learning some exciting lessons from our friends at the Recording Industry Association of America. First, college radio station operators returning to school are learning that their channel to the outside world via the Internet is being snuffed out. A recent copyright office ruling set royalty payment rates far above the means of most small-budget college stations. As a nonprofit Webcaster, a college radio station must pay annually 2 cents per listener per 100 songs, plus an 8.8 percent surcharge to cover temporary copies of music needed for streaming. Since the rates are retroactive to 1998, even at the minimum $500 per year, a total of $2,000 will break the bank of many college stations. The RIAA’s approach of bullying the less powerful into submission offers a lesson in Web business. To protect the pre-Internet business model of its record-making members, the association has used the courts to shut down even the remotest competitor on the Web. The actions are unpopular with some artists and many consumers. Web users perceive music file sharing as a tremendous benefit. To oppose or deny it through relentless litigation has only crystallized opposition and turned the pirates into underdogs while painting the RIAA, which represents the major record labels, as greedy Hollywood fat cats. The Internet has allowed resourceful competitors to move offshore and underground. An early compromise by the RIAA to outsource distribution through a peer-to-peer system or a limited alliance for promotions could have saved millions of dollars in legal fees and endeared the record labels to the consuming public. It now appears some of the falloff in CD sales is outright consumer protest against labels perceived as grabbing more than their fair share to the detriment of artists and audiences alike. For the best first-person account by an artist revealing the RIAA’s mistakes and showing how free downloads can help rather than harm an artist, see the outstanding analysis by Grammy award winning singer/songwriter Janis Ian at http://www.janisian.com/ article-internet_debacle.html. According to Ian, one study showed that if the labels had been willing to charge a reasonable fee per download such as 25 cents, they would have made millions of dollars per day. One report showed “that in the heyday of Napster, if record companies had agreed to charge just a nickel a download, they would have been splitting $500,000 a day, 24 hours a day, 52 weeks a year.” Nonprofit Webcasters are not alone in their problems with the RIAA and its attempt to put Webcasting beyond the reach of all but its largest licensees. A commercial broadcaster must pay 7 cents per 100 songs per listener under the new rate. This is half of the 14-cent rate the RIAA demanded from the copyright office but enough for commercial broadcasters to start complaining, and in some cases shutting down. Clear Channel Radio, which owns a large percentage of U.S. stations, and other broadcasters are also upset at the copyright office because its rules force them to pay royalties for songs played on the Internet in addition to license fees they already pay for radio broadcasts. The broadcasters recently appealed to the 3rd U.S. Circuit Court of Appeals, challenging a Philadelphia federal court ruling that allowed the copyright office to set rates. (To learn more about Webcasting fees and recent copyright office actions, visit http://www.copyright.gov/carp/ webcasting_rates.html.) And that’s not all the RIAA did with its summer. In the wake of Napster, other Web sites, such as KaZaA, that allowed people to swap music files have taken over the file-sharing mission only to become a new target for the RIAA’s Rambo-style litigation. KaZaA, a Dutch software and products company, was effectively sued out of existence for its computer-to-computer file-sharing services but, before its demise, stuck its finger in the dike of lawsuits long enough to transfer ownership of its Web site, kazaa.com, and software to a little-known Australian firm, Sharman Networks Ltd. Sharman Networks quickly moved its business to a well-known haven beyond the reach of the most ardent trial lawyers: the Pacific island of Vanuatu. Perhaps if Napster had put its Internet servers on the same ship, it would still be around today. As much as Vanuatu may be remote geographically, another peer-to-peer server operation, Listen4Ever, has sought protection in a location just as politically remote: mainland China. Since Aug. 16, the RIAA has essentially sued “the Internet” through its major service providers, seeking to block Internet communications from the site, whose servers and operators are allegedly in China. The suit in federal court in New York even alleges that the pirates are ahead of the labels’ own record promoters by including files for featured albums not yet released. To evoke sympathy or justify its actions, the RIAA has been releasing study after study showing that Internet music hurts sales of recorded music. The most recent paid report, released by PricewaterhouseCoopers, shows a 5.3 percent drop in CD shipments for the first half of 2001 and a 7 percent decrease during the first half of this year. The RIAA blames all of this on file sharing. Apparently, the industry would rather point the finger at the world’s largest music distribution system rather than consider that a flagging economy could hamper discretionary purchases like CD music. And the RIAA would never want to consider consumer attitudes that affect CD sales, such as the vapid quality and narrow appeal of new releases or the lack of easy-to-use online services from the major recording labels. Scott Austin advises software development, e-commerce and high-technology companies as a partner in the Boca Raton, Fla., office of Adorno & Yoss. He can be reached at [email protected].

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