Appeared in the Toronto Star on April 9, 2007 as Web Radio May Stream North To Canada

Online radio is one of the Internet's quiet success stories.  While podcasting and Internet video garner the lion share of attention, webcasting has emerged as a major force with millions tuning in daily to thousands of services that freely stream their signals online.

Internet radio consists of several types of "stations" including conventional radio stations that simulcast their signal on the Internet, community and college radio stations that use the Internet to extend their signals from small communities to the entire world, and Internet-only stations that broadcast exclusively online.  The Internet-only services are particularly intriguing as they include niche webcasters focused on content not found on mainstream AM/FM stations as well as customizable services such as Pandora and Last.fm, which help users identify new music personalized to their tastes.

Despite their popularity, there is growing fear that a recent U.S. royalty decision could effectively shut down thousands of webcasting services.  The U.S. Copyright Royalty Board recently established a new royalty scheme that dramatically increases the fees that webcasters will be required to pay to stream music online.  

The rates include a minimum fee of US$500 per year, per channel with escalating fees for each song played.  In 2006 (the decision is retroactive), the applicable fee would be US$0.0008 per performance.  Since a performance is defined as streaming one song to one listener, a webcaster with ten thousand listeners would pay 10,000 times the going rate for every streamed song.  The fee structure increases each year with rates that more than double by 2009.

The decision, which has faced objections from both commercial and non-commercial webcasters, is likely to cost large webcasters such as AOL, which averages more than 200,000 listeners per hour, millions of dollars each year in royalty fees. Smaller webcasters, such as the popular Radio Paradise, may find themselves liable for royalties that exceed their total revenues.  

Given the concern about the future viability of Internet radio in the U.S., there has been mounting speculation that some webcasters may consider setting up shop in Canada, where the U.S. rates do not apply.  For example, Mercora, a service that allows individuals to launch their own webcasts, has established a Canadian site that falls outside U.S. regulatory and royalty rules.

Webcasters considering a move to Canada will find that the legal framework for Internet radio trades costs for complexity.  There are two main areas of concern from a Canadian perspective – broadcast regulation and copyright fees.

Those expecting strict broadcast regulation from the Canadian Radio-television and Telecommunications Commission will be pleasantly surprised to learn that webcasters operate outside of conventional broadcast regulation in Canada.  The 1999 CRTC New Media Decision exempts webcasters, thereby relieving them of the need to obtain licenses or meet Canadian content requirements.

The copyright concerns associated with webcasting are far more challenging.  While there are options that allow non-commercial webcasters to stream music without paying significant royalties – Soundclick lists more than 350,000 songs that are freely available under Creative Commons licenses – streaming commercial music will require royalty and license payments.

The Canadian fee structure is still under development with webcasters likely to face several charges.  Next week, the Copyright Board of Canada begins hearings on Tariff 22, a tariff proposed by SOCAN to cover the performance of music online.  The tariff actually dates back to 1995, when SOCAN endeavoured to hold Internet service providers accountable for the music available on their networks.  The ISPs challenged the tariff, leading to nine years of litigation that culminated with a Supreme Court of Canada decision that exempted Internet intermediaries from liability.

Undeterred by the decision, SOCAN restructured the tariff by identifying an extensive list of online uses of music, including on-demand streaming, webcasting, music streaming on gaming sites, and other services that potentially include podcasting.  SOCAN has asked the Copyright Board to grant a tariff that features a minimum monthly fee of $200 and establishes a royalty rate that runs as high as 16.7 percent of gross revenues (or gross operating expenses if those are higher) for on-demand streaming.  The webcast rates vary from three to nine percent of gross revenues, depending on the type of webcaster.  Several groups are challenging the SOCAN tariff request and a final decision from the Copyright Board is not expected for months.

In addition to the Tariff 22 royalties, there are at least two other potential licenses.  The Canadian Musical Reproduction Rights Agency Ltd. (CMRRA) licenses the music reproduction right.  CMRRA proposed a webcasting tariff in 2005 that sought five percent of gross operating revenue (or expenses if greater) with a minimum monthly payment of $200.  CMRRA voluntarily withdrew its tariff application last year and is now negotiating individual licenses for Internet-only radio stations.

The Audio-Visual Licensing Agency (AVLA), which licenses the duplication of master sound recordings, has also created a license for webcasters that copy music onto Canadian servers for webcasting to Canadians.  The agreement establishes transmission and subscriber fees as well as sets limits on the number of songs that can be webcast for any individual artists (no more than four in a three hour period) and prescribes the quality of the transmission (no greater than 96 KPBS).

The net effect of these tariffs and licenses is that webcasting in Canada can get expensive, particularly for non-commercial and niche webcasters.  By wisely focusing on a percentage of revenue model rather than the U.S. per-stream approach, the Canadian framework may enable webcasters to get off the ground, yet a streamlined system for streaming will be needed before Canada develops into a genuine Internet radio haven.

Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at mgeist@uottawa.ca or online at www.michaelgeist.ca.