How High Royalty Fees Affect Independent Internet Radio Stations

Since Pandora threw its support behind the Internet Radio Fairness Act (IRFA), and urged its listeners to do the same, the Internet radio streaming giant has dominated media coverage of the impending Congressional legislation. As the largest Internet radio player, Pandora has the most to lose, but how does IRFA affect all the small independent Internet radio stations?

Shawn Campbell, the founder and general manager of Chicago’s community Internet radio station CHIRP, calls the proposed legislation “a positive thing." The current high royalty rates “are definitely an issue” says Ms. Campbell, adding  “it’s our second biggest expense every month besides rent.”

And those royalty fees are a doozy.

Internet radio stations currently dish out 55% of their total revenue as royalty fees, more than triple the percentage that satellite radio pays (8%). The Internet Radio Fairness Act aims to lower the royalty fees Internet radio stations pay to reflect other radio distribution methods. U.S. Senator Ron Wyden (D-Ore.), who introduced the bill to the Senate, called the 55% royalty fee “discriminatory.”  

Campbell agrees.

Different Rates For Different Kinds Of Radio

“Webcasters are definitely treated differently,” says Campbell, who has been in broadcast radio for some 18 years. Before founding CHIRP, Campbell was the program director at 88.7 WLUW while it was partnered with WBEZ.  

“When Internet radio launched a decade ago, the RIAA (Recording Industry Association of America) were able to make a really convincing point that radio on the net will never have the impact broadcast radio had, of breaking an artist” given the scope of Internet radio at the time explains Campbell.

“But Internet radio has grown by leaps and bounds and to make that argument that Web radio isn’t as important as broadcast radio doesn’t make sense to me.”

The RIAA's proposed legislation, which runs counter to the IRFA, seeks to increase royalty fee amounts to those paid by Internet radio, but this also doesn’t make sense to Campbell. “What the RIAA is arguing now - paying those higher rates -  could effectively put some players out of business,” she says.

Terrestrial radio pays the lowest fees, and Campbell has been trying to get a broadcast frequency for CHIRP for two years now.

Growth Is An Issue

CHIRP is a non-profit community radio station operating on the grace of its many volunteers. So far, its high yearly royalty payout hasn't been too detrimental to the station. “But if we continue to grow," Campbell warns, "it is something that will definitely affect us down the road.”

And the station is growing, consistently at about 8% since the station’s inception in 2010.  “We’ve been really happy with our growth,” says Campbell, who estimates roughly 1,200 people tune in a day. But “we don’t want exponential growth because of the high fees. It would put us out of business.”