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When I was growing up, radio stations were experimenting with free-form programming on the FM band. I still have fond memories of the radio personalities from that era. Their talk was unscripted, and the music they played didn't come from a playlist. The best FM radio stations of the day sounded rebellious and out of control, which resonated with the culture of the times and with me as a teenage boy.
January 13, 2003
URL:http://www.drdobbs.com/radio-radio/184411623
I never would have believed it then, but the free-form radio I fell in love with was actually a byproduct of government regulation.
Frequency-modulated (FM) broadcasting was developed in the 1930s, but amplitude-modulated (AM) broadcasting remained the dominant standard for over thirty more years. Though AM radio broadcasts suffered interference from everyday things like buildings, power lines, and hills, listener habits and the installed base of AM-only radios kept higher-quality FM from catching on.
Even as late as the 1960s, listeners had little reason to switch. FM was simply a high-quality echo of the AM band, as established radio stations used FM sister stations to simulcast their AM programming. Simulcasting was so predominant that by the mid-1960s, the FCC issued a directive limiting the practice. The new rule, which prevented station owners from simulcasting their AM programming on more than 50 percent of their FM stations, was designed to coerce sluggard broadcasters into making better use of the FM band. The FCC didn't particularly know what effect the rule would have, but it did understand that public interest was best served by diversity and competition.
When the FM-simulcast cap took effect, station owners weren't sure what to do. Some simply copied the formats from their AM stations, with new on-air personalities reshuffling the AM programming. Others used the FCC's directive as an opportunity to target new markets. AM was, after all, where the existing audience was. Why not allow the FM station to play around a bit? If the young DJs wanted to play songs no one had heard before, in formats they called "album rock" or "talk radio," who really cared? Maybe something would catch on. And of course, it did.
By the 1970s, everything interesting that was happening in radio was happening on the FM band. The FCC directive opened up new channels for communication that previously had been wasted in simulcasts. The new opportunities for programming fostered healthy experimentation and created new audiences of radio listeners.
The FCC's simulcast directive was handed down in a different regulatory climate than today's. At one time, federal regulators believed that caps on media ownership were necessary both to prevent domination by special interests and to ensure that local views were heard and preserved.
In the early 1980s, an FCC rule prevented any single company from owning more than eight radio stations. In that decade, however, the government's thinking about the social benefits of media-ownership caps started to change. The cap edged up throughout the 1980s and 1990s, until it was eliminated by the 1996 Telecommunications Act.
It didn't take long for the market to consolidate. Just seven years after the act's passage, Clear Channel Communications, the dominant provider of U.S. radio, now owns over 1,200 stations, and four companies collectively reap over 90 percent of radio's advertising revenue.
I certainly haven't done a scientific study, but the results of consolidation are audible. Radio stations may not be as obviously identical as the 1960s simulcasts, but the music sounds largely the same across the dial, and the personalities lack any, well, personality.
That's why I'm excited about the promise of Internet radio, which has the potential to bring back the variety and experimentation that consolidation killed.
Internet radio isn't really "radio" of course. "Radio" is the wireless transmission of electromagnetic waves in a certain frequency range. It's regulated by the FCC because of bandwidth scarcity and the need to ensure that broadcasters don't interfere with each other's frequencies in the geographic areas they serve. That's not what's happening on the Internet, and Internet broadcasters, or webcasters, don't face the same regulatory climate. But there is a relationship between the two, perhaps even a competitive one.
Back in 1996, one of the primary justifications for lifting the caps on radio ownership was that radio had to compete with new media: primarily cable, satellite, and the Internet. Even if a few companies came to dominate the radio bands, they couldn't dominate the listener experience. That was the theory, anyway. Consolidation in one medium was acceptable so long as variety from other mediums remained available.
When you first consider it, the idea that the Internet can provide an effective buffer against the consolidation of more conventional media seems just right. With unlimited source points for broadcasts, Internet broadcasters could consolidate as much as they wanted, and we'd still have limitless opportunities for new broadcasters to start businesses. If there has ever been a medium that truly could compete with radio, it is the Internet.
What no one counted on, however, was that the government and the recording industry would stifle the new medium of Internet radio through oppressive royalty rates.
Conventional radio broadcasters pay royalties to music associations (such as BMI and ASCAP) for the right to play the music we hear every day on the radio. The rates charged by the associations are the only royalties charged to broadcast radio stations. Radio broadcasters typically don't pay fees to the record companies for the ability to play their recordings on-air. The historic thinking behind this rule is that record companies actually benefit from having their songs played on the radio, as airplay will lead to sales of records, tapes, and CDs.
Conventional broadcasters were able to build their businesses over a period of years as the radio licensing rules were under development. And the rate structure now in place for conventional radio allows broadcasters to thrive. That's one reason that industry consolidation happened on such a wide scale in such a short time: Broadcast radio stations are lucrative.
Not so with Internet radio. Before I even mention the royalty issues, just think about the other impediments webcasters face. The first ought to be obvious to anyone who works in the online arena: advertising rates. Advertising rates for Internet-based media have seen a steady four-year decline and remain at levels that make it extraordinarily difficult for companies to build online businesses based solely on advertising revenue. The second problem is that the listening audience for Internet radio is still small. Really small. Even though webcasters justifiably see the entire world as a potential audience, that audience typically has a dial-up Internet connection and tinny-sounding $35 speakers.
With just those impediments, it would take years for Internet radio to really penetrate deeply into the public consciousness. The royalty rates for webcasters, however, threaten to keep the medium from ever maturing.
Webcasters, of course, must compensate copyright owners when they wish to play music recordings to an Internet-based audience, just like broadcasters in the offline world do. As with everything at the intersection of music and the Internet, however, it's not quite so easy as in the offline world.
By now, most everyone is familiar with the Digital Millennium Copyright Act (DMCA), the 1998 legislation that defined the rules and liabilities of copying digital media. One of the lesser-known provisions of the DMCA, however, involves Internet radio. The statute gives record companies the right to collect royalties whenever one of their songs is broadcast over the Internet. That's a right the record companies don't have with existing radio stations. In the offline world, broadcasters only pay royalties to the songwriters; they don't pay for performance rights for the sound recordings.
The questionable rationale for the Internet-only radio tax was that Internet transmissions were perfect copies of the digital original and likely would hurt CD sales. That's in sharp contrast to the stated reason for exempting offline broadcasters from the same kind of fee, they help sell CDs. Hence, Internet broadcasters were not given a level playing field.
The Copyright Arbitration Royalty Panel (CARP), under the auspices of the United States Library of Congress, was charged with determining how much webcasters would have to pay. CARP's mission was to create a compulsory webcasting license allowing individuals and companies "to perform sound recordings publicly by means of digital audio transmissions and to make ephemeral recordings of sound recordings."
The royalty rate published by CARP, however, would have turned Internet radio into the FM broadcasts of the 1960s. It created one rate for simulcasts from AM/FM stations (.07 cents per song per listener) and another, twice as high, for pure webcasters (.14 cents per song per listener). The pure webcaster, of course, was the group least able to afford a high royalty rate.
When CARP came out with these rates in February of 2002, many wondered whether anyone on the panel knew how to do math. A webcaster with even a modest number of listeners, say a thousand at any given time, would have had to pay royalties close to $200,000 a year to the recording industry. Given the advertising rates for Internet-based media, commercials would have had to outnumber songs by a wide margin to allow the webcasting industry to break even.
Not surprisingly, hundreds of webcasters announced that they would stop broadcasting altogether if the CARP royalty rates went into effect.
Internet radio is at the same place FM was in the 1950s. The few webcasters we have are dwindling in number. Those we do have are duplicating the feeds they send over conventional radio. An audience is looking for reasons to tune in at the very time that small innovators are being pushed out of the industry by regulations.
But just like the FCC of the 1960s, the solution that will jumpstart the industry lies with Washington, D.C.
In an attempt to override the onerous CARP rates, concerned webcasters and legislators drafted new legislation called the Small Webcaster Settlement Act of 2002 (SWSA), which the Senate approved in November 2002. The act makes one small, but vitally important, change to the structure of webcasting royalties. It lets small webcasters opt for a newly negotiated rate structure based on their revenue. If the SWSA becomes law, participating webcasters can elect to pay either a percentage of their gross revenues or of their costs instead of the CARP fee-per-song rates.
Years from now, when we look back at the history of Internet radio, the SWSA legislation will loom large. While the DMCA placed heavy new burdens on webcasters that threatened to put them out of business, the SWSA restores rationality to royalty-rate collection. It's just the kind of thing that may bring variety and innovation back to Internet radio. Just like the golden days of FM.
Bret A. Fausett is an intellectual property and Internet attorney with Hancock, Rothert & Bunshoft. You can reach him at [email protected].
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