Will Performance Royalties Create a New Class of Radio Pirate?

February 8, 2016

Thousands of internet radio stations have gone silent in 2016, while thousands more may yet shut down, primarily because of new performance royalty fees that have skyrocketed for small and mid-sized internet radio stations. In this piece I explore how this challenge might encourage some webcasters to give up complying with the law and simply stop paying royalties altogether. Will this make them a new–perhaps reluctant–class of radio pirate?

The History of Pirate Radio Is as Long as Radio Itself

The impulse to be a broadcaster is not a new one. Technically speaking, the very first broadcasters were pirates, because there was no license at the time. Ever since, there have been those who qualify to broadcast under the law and prevailing practice, and those who don’t, whether it’s a matter of economics, identity, politics or proclivity. And since broadcasting really isn’t that hard, there have continued to be radio pirates, who transmit because they can, not because they’re allowed.

There is a multitude of rationales for unlicensed broadcasting. Some broadcasters protest the way licenses are granted, while others deny the authority of the government to regulate the airwaves. Still others don’t give a hoot about the FCC–or never stopped to consider legality–and are simply interested in being on the air, and consider the risk to be no greater than taking illegal drugs or driving over the speed limit.

And so it remained from about 1926, when the Federal Radio Commission first tried to impose order upon the once-anarchic American electromagnetic spectrum, until the dawn of the new millennium. By that time two things had changed. First, the FCC created low-power FM, which provided a more accessible legalized path to broadcasting for many people and groups otherwise shut out, thereby addressing at least one raison d’être of many unlicensed broadcasters.

The other was the emergence of internet radio. While the first pioneering live webcasts started in the mid–90s, it was around the turn of the century that the ability to both broadcast online and receive those streams became more accessible. The open source Shoutcast streaming platform was released in 1998 and Live365 first offered its webcast services to just about anyone with an internet connection in 1999.

The Internet Alternative

While pirate radio never went away, that was the beginning of when many critics of pirate radio could make a convincing argument–especially to middle class pirates–that internet radio was a suitable alternative to unlicensed broadcasting. All the would-be broadcaster needed was a computer, an internet connection, and maybe another $15 to $20 a month for the streaming service, and she could have her own station. Even factoring in the cost of the PC and ISP, the total cost was way below that of starting a commercial station, buying an existing station, or even starting an LPFM.

Starting an online station wasn’t necessarily less costly than starting a small pirate station. But, the reasoning went, the difficulty of obtaining decent equipment (in 2000) combined with the inherent risk of engaging in an illegal activity made internet broadcasting the better option.

Sixteen years ago, before the invention of the smartphone and mobile broadband, many fewer people could hear your internet station than today. Yet, that audience could be worldwide, rather than bounded by a five or ten mile radius from your transmitter. Although at the time you might not have served less affluent listeners without a home computer or internet service, you also didn’t risk a visit from an FCC field agent.

That extremely low bar to entry combined with the growth and proliferation of internet access really did make internet radio a viable path for new broadcasters, many with fresh voices and perspectives. While the inevitable imposition of music royalties onto internet radio provided occasional speed bumps along the way, these were smoothed out enough to permit most broadcasters–from small one-person outfits to sophisticated outfits with dozens of DJs–to keep their streams alive and thriving.

From NYC’s East Village Radio to San Francisco’s Mutiny Radio, today there exist dozens of online stations that have explicitly migrated from unlicensed FM to internet radio. On top of that, there are countless stations that dipped their toes into the unlicensed airwaves, or just considered doing so, before settling on a webcast instead.

Alternative Denied

Now this alternative is threatened, and may be coming to an end. In its place we may have a new form of pirate radio: internet pirate radio.

With the lapsing of the Webcaster Settlement Act of 2009 and the passage of new, higher royalty rates for internet radio stations, many small to medium-sized webcasters are seeing their royalty payments go up by as much as ten times. Thousands of internet radio stations are facing the reality that they can no longer afford to keep streaming.

Actually, what I meant to write is that most small webcasters no longer can afford to keep streaming legally. There is nothing actually stopping them from keeping their stations going, and just not paying any royalties. You see, the collection of royalty rates is not so different from licensing terrestrial broadcasts. While there is a statutory obligation to get a license or pay royalties, there is no barrier in place that stops you from doing so without that license or payment. Just like a radio pirate can buy a transmitter and antenna and turn it on, the internet broadcaster can stream away and never send in a check.

Of course, every pirate has to keep looking over his shoulder. The terrestrial broadcaster has to worry about the FCC. Though, the FCC isn’t like a police force, roaming the streets and scanning the dials looking for unauthorized transmissions. So the threat to the terrestrial pirate comes from complaints to the FCC that eventually prompt an investigation–it’s not exactly a fast process.

On the internet there is no FCC or equivalent. No government agency is monitoring internet radio stations looking for those that haven’t paid their royalties. So, on the surface, pirate internet broadcasting seems even less risky than pirate radio.

However, the folks who collect royalties are on the lookout. In particular, the groups that collect songwriting royalties, like ASCAP and BMI, have been at this game long before internet radio came along, sniffing out bars, restaurants and radio stations that don’t pay royalties on the music they play. These groups are infamous for being pit bulls. And while they don’t have the authority of the federal government, they do have an army of lawyers who can make a violator’s life quite miserable. But, since these royalties haven’t changed, they should continue to be within reach of most existing webcasters.

SoundExchange is the new kid on the block, brought into existence to collect those performance royalties that went into effect in the digital age of the new millennium. Its ability to police non-payment is mostly untested, having only tangled in court with big broadcasters like SiriusXM. And it’s the performance royalties that are collected by SoundExchange that have gone through the roof–and that small and mid-sized webcasters now would love to avoid paying.

Birth of the Internet Radio Pirate

The question is: if an internet station simply quits sending checks to SoundExchange, what would happen? That station would probably start receiving sternly worded letters in the mail. But what if the station just ignored those letters? Then what?

Moreover, what about the new station, that’s never had a relationship with SoundExchange. How long until it gets found and the stern letters come in?

To be clear, this is a thought experiment. I really don’t know what would happen, and I’m not advising anyone to give this a try.

Still, let’s also consider that tactical evasion is also a time-honored technique of pirate radio. For the unlicensed terrestrial broadcaster this includes strategies like limiting publicity, keeping the studio and transmitter located separately, avoiding 24/7 broadcasts, or going mobile and changing broadcast locations.

For the internet broadcaster I’ve already heard talk of using a streaming host outside the US and then obscuring where the stream originates from. Or perhaps one could keep things on the down-low, and only publicize to a smallish circle of listeners. In many ways it’s probably easier to keep an internet station a secret than a terrestrial station, especially if one is savvy in the way the internet works.

The point behind this thought experiment is to show how American internet radio is built upon a kind of social contract. Internet broadcasters agree to pay royalties both because they understand the reasoning, and because those royalties are reasonable. But when one half of the bargain breaks, what’s left to keep the contract intact?

Will we have a new class of internet radio pirate that is actively avoiding payment of royalties rather than avoiding detection by the FCC? Is the American recording industry inadvertently encouraging a new breed of scofflaws, who will actively investigate and implement tactics for avoiding detection?

The problem with a cat and mouse game is that sometimes the cat wins. But at this very moment we don’t actually know what that looks like. Will SoundExchange start dragging mom-and-pop webcasters into court? Or will the Recording Industry Association of America decide to take up the mantle instead, effecting a repeat of the mid–2000s, when it chose to sue thousands of its own customers for file-sharing?

The big question: is it all worth it? Wouldn’t it be better for SoundExchange, recording artists and the recording industry to collect 2015-level royalties from thousands of small internet stations, rather than have to spend resources to chase down these new breed pirates, all while losing that revenue stream from the thousands of stations that chose to stay legal and shut down because they couldn’t afford to stay in business?

Furthermore, if the choice is between starting an internet station with the risk of being sued by the recording industry, or starting a terrestrial station and risk being detected and fined by the FCC, which is the better choice? With the internet alternative effectively denied, being an unlicensed broadcaster might look more attractive. I’m sure the FCC (and commercial broadcasters) would be happy about that.

Of course, one might argue that the best choice is just to give up hopes of being a broadcaster. That might be true, but is that the best for American culture and broadcasting?

What we see coming into effect is the law of unintended consequences. The final question is: who will suffer, and who will suffer most?

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