New age means the Internet.
Yet Kaloyan, president of X1fm Radio, a Southern California webcaster, has feared for months that his fledgling Internet-only station could be forced out of business because of sharply higher royalty fees proposed by the major record companies for playing their music online.
"Why do they want to create different rules for us?" Kaloyan asked. "We're putting our money and our necks on the line because we believe this matters - to create radio the way it used to be."
Webcasters and the music industry, particularly the major record labels, have been locked in tough negotiations over the amount of royalties that webcasters must pay to stream music online.
The talks started slowly but are now yielding results.
Record companies and big webcasters such as AOL, Pandora and Yahoo recently reached a deal on one of the more contentious issues in the negotiations by agreeing to cap the proposed minimum fee that webcasters must pay. The minimum fee was proposed on top of any per-song royalties.
Record labels also offered small webcasters - those with revenue of less than $1.25 million annually - a flat royalty rate of 10% to 12% of revenue.
Although progress is being made, the two sides are far from being in harmony. Among the thorny issues remaining are hikes in the per-song royalty rates for large and medium-size webcasters; the revenue limit for small webcasters; and how much public radio stations must pay for streaming music online.
The difficult talks highlight the upheaval taking place in the music business. Declining CD sales have record labels scrambling for new ways to make money. Higher royalty fees for webcasters have been the latest battleground.
But webcasting is an unproven business. Analysts say it's unclear whether enough advertising will eventually flow to Internet radio to sustain the industry.
"The webcasters are saying (that) if you charge us even a fraction of a penny per song every time we play it for everybody who is listening, we're going to go out of business because we're not making enough money to afford that," said David Card, vice president and senior analyst with Jupiter Research.
"And that's probably true. There are not a whole lot of people paying for subscription services. And there's not a whole lot of advertising going on either," Card said.
If it takes off, however, the future for webcasting could be bright. Mobile broadband is bringing high-speed Internet to cell phones, laptops and other hand-held devices. That could potentially allow listeners to plug into their favorite Internet radio station without being tethered to the desktop computer.
According to Bridge Rating and Research, about 75 million people currently listen to Internet radio at least once a month. The research firm expects that number to grow to about 180 million by 2020.
The dispute over online radio royalties reached a high point last spring, when a panel of three copyright judges approved fees much higher than what webcasters had been paying.
Internet radio advocates estimate that the increased royalties as initially proposed could have totaled 40% to 70% of revenue for large webcasters such as America Online and Yahoo. Royalties potentially would have exceeded total revenue for many small webcasters, say advocates.
The rates officially took effect in July and were retroactive to Jan. 1, 2006. But under pressure from Congress, the music industry group SoundExchange hasn't enforced the new rates while negotiations with webcasters continue. They're proceeding on three tracks: with large webcasters, small webcasters, and non-commercial public stations.
Even though it took months to hammer out, the deal to cap minimum fees for large webcasters was a step forward, industry officials say. Record labels agreed to cap the minimum fees at $50,000 a year.
Previously, they had proposed a "per channel" fee with no cap. Because large webcasters offer thousands of "channels," including individualized playlists, they feared the per-channel minimum fees could have cost them millions of dollars.
But there's also a long way to go in negotiations.
For instance, webcasters want a higher threshold for what constitutes a small webcaster. They say the revenue limit of $1.25 million is ridiculously low and discourages companies from growing their businesses.
They would like the limit raised to $6.5 million - the Small Business Administration definition of a small business. That would allow more webcasters to pay royalties as a percentage of revenue, instead of paying a per-song fee for every online listener.
Although the rates are only a fraction of a penny per song, they are calculated each time that one song is streamed to one listener. Therefore, a station that has an average audience of 500 listeners racks up royalty bills for 500 "performances" for each song it plays.
The per-song rates are set to more than double by 2010.
The proposed fees would hurt not only pure webcasters, but also some over-the-air radio stations that simulcast online. They, too, would have to pay the royalties for the online streams, which could lead them to stop the simulcasts.
At KSDS, a public broadcasting station that streams mainstream jazz from San Diego City College, the increased royalties, as first proposed, could have gobbled up 5% of the station's total budget, said Mark Deboskey, station manager.
Complicating the issue is the fact that over-the-air radio stations - called "terrestrial radio" in industry parlance - do not pay royalty fees to record labels or recording artists for their over-the-air broadcasts.
Terrestrial radio does pay royalties to songwriters. Historically, over-the-air radio has been viewed as a promotional vehicle to sell records.
Some webcasters say the same philosophy should apply to Internet radio.
"I've been in radio for a long time, and I've seen how radio impacts the sales of a song or an album," said Steve West, a San Diego DJ who also runs Radio Nigel, a small webcasting station that plays '80s New Wave and Punk.
"For the longest time, most labels have been getting free advertising for their product," West said. "Now they want (webcasters) to pay for the right to carry their advertising."
Radio Nigel has developed a respectable following. At any given time, 800 to 1,000 people are listening to the site, West said. Under the proposed royalty fees, West estimates he would have owed more than $100,000 last year.
"It's huge money," he said.
Webcasters and record labels are on different frequencies not only over royalties, but also in the way they view the business, said Floater of Live365.
"The major labels' business is to sell millions of copies of 10 artists," he said. "In the Internet world, it's about selling 10 copies of millions of artists. The big record companies haven't moved to that model yet."
Webcasting, say its proponents, provides an outlet for music that's not being played on terrestrial radio, whether it's salsa or ragtime or jazz or older artists who have been abandoned by major labels.
Live365 played music from more than 200,000 artists last month, Floater said. "Jack-FM says, 'We have the widest playlist in the world. We have 3,000 artists.' But the fact is anytime people hear more product and more artists, it may not generate a major label sale."
Webcasters have staged protests and lobbied Congress in hopes of overturning the approved royalty rates. But analysts say the record companies aren't without some justification for their hard-line stand.
"It's a tough call," said Card, the Jupiter Research analyst. "It is easy to be sympathetic to the webcasters, but there are definitely two sides to the story."
The record companies' case perhaps is best illustrated by Last.fm, a British webcaster. It registered with SoundExchange and began paying royalties as a small webcaster. The company didn't focus on revenue. Instead, it worked hard to build an audience. Once it did, it was sold to CBS for about $280 million.
"SoundExchange said they only paid them $2,000 in royalties," Floater said. "So they're saying, 'This company used our music to create a $280 million value, and we got $2,000. That's not fair.' And you can see their point."
Card said webcasters are asking record labels and artists to take the risk that webcasters' business model will work.
But record companies are hurting from declining CD sales. More young music buyers today are purchasing only the songs they like on iTunes and other download services for 99 cents, instead of buying an entire CD for $15.
"Artists need to get paid," Card said. "I will observe that there is no money to support webcasters, so they're building their business on the back of somebody who is suffering mightily right now. You're asking me to take this risk, which may well
be a substitute for selling stuff, and god knows I'm not selling enough stuff already."
It's tough to pin down exactly how many webcasters there are. But several stations have popped up in San Diego.
Kaloyan's X1fm Radio (www.x1fmradio.com) is run by industry veterans from Binational Broadcasting, which used to operate an over-the-air station before selling to Clear Channel.
Radio Nigel (www.radionigel.com) plays '80s New Wave and Punk bands and is run as a side business by 91X DJ West.
RichBroRadio (www.richbroradio.com) streams oldies and was founded by Richard "Brother" Robbin, a radio industry veteran.
AmplifySD (www.amplifysd.com) plays local San Diego artists and is run by signonsandiego.com, the Web site of The San Diego Union-Tribune.
And Slacker.com, founded by former executives of MusicMatch, offers personalized Internet radio that selects playlists based on listeners' favorite artists. Slacker has negotiated separate, higher royalty deals with the record labels, in part because it plans to begin selling a portable music player to access its personalized radio service.
Kaloyan of X1fm said Internet radio is a friend to artists. The webcast promoted the Tears for Fears show in San Diego this year, Kaloyan said. It sold out. It's also playing music from Hawaiian band VooDoo Suns, which he claims needs exposure far more than it needs a royalty check.
"The only way for us to have a chance to promote, expose this music to listeners is through this new technology," Kaloyan said. "It's the same industry. It's just a different technology."
