Got online radio?

Higher royalties threaten to put webcasters out of business

Val Starr, a local musician and webcaster, can’t make enough profit from her online radio station to pay new royalties.

Val Starr, a local musician and webcaster, can’t make enough profit from her online radio station to pay new royalties.

SN&R Photo By Sena Christian

Digital Media Association Executive Director Jonathan Potter says that if webcasters negotiate directly with record labels for lower fees, musicians may not see a dime of royalty money. Direct deals don’t go through SoundExchange, the organization that ensures recording artists and musicians get their 50-50 share. To read an interview with Potter, see the March 28 issue of the Radio and Internet Newsletter at

Val Starr works out of her home, having closed her office last year to save money. She doesn’t have fancy equipment, just two computers and several filing cabinets. She relies on advertising revenue and wisdom from 20 years in the independent music industry to operate, the Antelope-based Internet radio station she founded in 2003. GotRadio is her baby, but soon she may be forced to pull its plug.

On March 2, the Copyright Royalty Board, a three-member panel under the Library of Congress, drastically increased the royalties Internet radio stations pay to record labels and artists. The ruling, said Starr, threatens the existence of thousands of online stations that can’t afford the new rates.

“It’s another case of the big guys trying to put the little guys out of business,” said Starr, 48. “We’re finally getting some traction and they stick it to us. GotRadio will close its doors if we’re forced to pay these fees.”

Starr said if online radio stations shut down, music lovers will have an even harder time finding the diverse programming that conventional radio lacks. Webcasters take risks on independent artists and obscure musical genres because they don’t have anything to lose. If a listener doesn’t enjoy the music, she can select a different channel on that site. GotRadio has more than 100,000 songs in its library, including the music of the Sacramento Blues Society and local American Indian flutist Mary Youngblood.

“That’s the real tragedy,” Starr said. “Where else can you hear this music?”

Starr knows about music. She lives it, breathes it, plays it and makes a living from it. Growing up in Los Angeles, she first picked up the guitar at age 12, taught herself some chords and has been playing ever since.

“I grew up in a home where music was a constant and I was spoon fed on Rodgers and Hammerstein,” said Starr, who currently sings and plays rhythm guitar for the Sacramento band Rock of Ages. A few weeks ago, her band played during a Kings game at Arco Arena.

Starr got her start 20 years ago as a promotion assistant for ABC Records, then worked for Polygram Records and Chrysalis Records. After that, she worked for “notorious” indie promoter Joe Isgro—who was later investigated for payola (the case was dismissed for government misconduct). Her family moved from San Francisco to Antelope about four years ago and GotRadio was born.

At that time, online radio stations paid royalties based on a percentage of their revenue. Ten percent went to SoundExchange, the organization that collects and distributes royalties to record labels and artists. Another 5 percent was earmarked for other copyright organizations.

Under the new ruling, Internet radio stations will either pay per performance (the streaming of one song to one listener) or pay a minimum of $500 per channel per month (GotRadio streams 40 channels). Commercial webcasters will have to retroactively pay .08 cents for each song played last year, .11 cents for songs played this year and .19 cents in 2010.

Both online and regular stations pay royalties to songwriters but, under a 1995 law, Internet, cable and satellite stations also have to compensate both the record label (or the owner of the recording) and the performers. Regular stations don’t.

GotRadio plays about 15 songs an hour, which totals 15 million plays monthly. At the .08 cents rate, Starr figured she’ll owe an additional $125,000 in retroactive royalties for 2006 on top of the royalties she already paid. Under the .11 cents rate, Starr will owe about $16,500 monthly or $20,000 at the per channel rate. She also has bandwidth bills, the salaries of her two part-time programmers and other business expenses.

“I don’t even make that much,” Starr remarked. GotRadio brought in about $13,000 in February.

According to the written opinion, the panel sets rates that most clearly represent what would have been negotiated in “the marketplace.” The opinion also states that webcasters didn’t provide sufficient evidence to maintain the revenue-based structure.

Chief Judge James Scott Sledge, who wrote the decision, could not comment on the ruling.

“The music industry has changed fundamentally over the last 10 years. More and more people are paying to access music as opposed to own it,” said John L. Simson, executive director of SoundExchange, who testified in favor of the rate increase.

According to Simson, CDs almost have become secondary to other revenue streams, such as licensing fees. He’d like to see regular radio stations pay the new fees, as well, but thinks that may be difficult because of the “power of the National Association of Broadcasters.”

Starr thinks increasing fees is misguided. Losing webcasters could negatively affect big labels, as well as small independent labels.

As an independent radio promoter, Starr saw firsthand the difficulty labels faced trying to get their records played on the radio. That’s what motivated her to start GotRadio. She saw it as an opportunity to level the playing field for independent artists. It also serves the “big guys.” GotMusic displays the cover of discs being played, provides artists’ biographies and directly links to Amazon so listeners can buy the CDs. For a small fee, listeners can build custom channels and the site will feed them songs they might like, exposing listeners to different artists.

“This is a whole new marketplace and medium for record companies but they’ve treated us like an enemy from day one,” said Starr.

Simson said that webcasters can attempt to set their own contracts with record labels for lower rates, but smaller webcasters have argued that they do not have the resources—time, money or manpower—to negotiate these side deals. Some webcasters, such as Starr, said even if she directly negotiated with labels, she couldn’t ensure that the musicians would get a fair cut. Simson also suggested that online stations start charging listeners a small fee to tune in, something many webcasters simply do not want to do.

The Copyright Royalty Board recently announced it is considering hearing arguments from groups seeking a rehearing. In the meantime, some webcasters have decided to immediately cease operating to avoid accruing more debt until questions are resolved.

“We’re fine with compensating the artists,” said Starr, who will keep GotRadio running for the time being. “We just want a rate that’s fair.”