Last weekend I drove around Chicago with a friend whose car CD player was broken. Forced to listen to terrestrial radio for perhaps the first time in a year, I was reminded constantly of why I prefer streaming stations online to those pesky airborne frequencies. Ads for nudie bars, constant station IDs, and a whole lotta Daughtry were the primary reasons – I just don’t here those kinds of offenders on NPR, WOXY or KEXP. Guess we’d all better enjoy it while it lasts, because come July of this year, the royalty rates paid by Internet radio stations will skyrocket. Many will be left with heftier royalty bills than they can cover with advertising sales, and countless will go silent for good.

Congress’ Copyright Royalty Board is behind the change. Under the current ruling, which goes into effect on July 15, Internet stations will owe $.0008 per song, and that’s retroactive to January 1, 2006. It gets even better for the little guys – that rate is set to more than double in the next three years, reaching $.0019 per song by 2010.

“Nonprofit” performance rights group SoundExchange has countered with a proposal that would allow small Webcasters additional time to “build their businesses” through subsidized royalty rates. Under this plan, small Webcasters who take in less than $1.25 million annually would be subject to 10% royalty fees up to $250,000, at which point they’d pay 12%. Those pulling down more than $1.25 million per year would pay Congress’ new, “normal,” rates.

Sounds like a generous plan, until you consider those broadcasters on the cusp of the $1.25 million cutoff. Take Webcaster AccuRadio, who last year claimed profits of just under the cap to qualify for the proposed royalty relief and owed $144,000 in royalty fees to artists and labels. In line with SoundExchange’s proposal, if they’d sold just $5,000 more in advertising, they’d surpass the cutoff and would owe $1.8 million in fees. Seem fair? Uh uh, and not surprising either when a little digging reveals SoundExchange to be a stepchild of the RIAA.

The SaveNetRadio Coalition, which boasts such prominent Web radio operators as Yahoo, RealNetworks, and Pandora, is leading the charge to delay the imposition of the new fees in hope that Congress will have a chance to review the “Internet Radio Equality Act.” This bill, introduced by Reps. Jay Inslee (D-Wash.) and Don Manzullo (R-Ill.), would invalidate the March 2 rate increase ruling. As Inslee said in a statement, “You can’t put an economic chokehold on this emerging force of democracy.”

What say ye? Is Internet radio really crippling the record industry, or is it a source of support for new and emerging musical ideas that have no place in big box terrestrial radio?

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