Using NewsHour Extra Feature Stories

Overview: NewsHour Extra feature stories can help students identify and interpret key issues in current events. This activity anticipates one class period, but the follow-up essay might be assigned as homework or in another period.

Warm Up: Use initiating questions to introduce the topic and find out how much your students know.

Main Activity: Have students read NewsHour Extra's feature story and answer the questions on the reading comprehension handout.

Discussion: Use discussion questions to encourage students to think about how the issues outlined in the story affect their lives and express and debate different opinions.

Follow-up: Students can write a 500-word editorial on the topic expressing their views and send it to NewsHour Extra [extra@newshour.org] for possible publication.

Evaluation: Students are graded on their answers to reading comprehension questions and/or their editorial.

Story: New Internet Radio Royalty Fees Pressure Webcasters, 05/21/07
http://www.pbs.org/newshour/extra/features/jan-june07/internetradio_5-21.html

Initiating Questions:

1. Do you listen to music online? If yes, on which Web sites do you listen to music?

2. In what ways do you pay money to listen to music? When do you not pay money?

3. How are traditional, "terrestrial" radio stations different from Internet-based radio stations?

Reading Comprehension Questions: (click here for printout)

1. Why is Internet radio in the news right now?

But with CD music sales decreasing and with audience shifting online to cheaper music alternatives, the Copyright Royalty Board, a Library of Congress panel, decided in March to increase royalty fees for streamed online music.

Under the new rules, Webcasters would no longer pay royalties as a percentage of earnings. Instead, they would pay a fee each time a user listens to a song.

2. List some Webcasters who pay to stream online radio.

Radio listeners rarely pay for music. That burden is usually placed on stations or, in the case of online music, Webcasters such as Live365, National Public Radio, Pandora Internet Radio and AOL Music.

3. Under the new rules, how would Webcasters pay royalties?

Under the new rules, Webcasters would no longer pay royalties as a percentage of earnings. Instead, they would pay a fee each time a user listens to a song.

Webcasters are multiplying the number of songs streamed each year by the estimated 70 million Americans who listen to Internet radio by the $0.0008 per song royalty rate set for 2006 by the federal panel -- and do not like what they see.

4. Why do Webcasters say the increase would devastate their industry?

"We don't have the money to pay up," Live365 Chief Executive Mark Lam told the Washington Post, calculating that the fees his radio network would have to pay based on its 4 million listeners per month could rise from $1.4 million in 2006 to between $7 million and $8 million in 2007.

With the royalty rate set to rise to $0.0019 per song per listener in 2010, large Webcasters would see an increase in royalty expenses of about 40 percent to 70 percent of revenues, according to a congressional estimate. For small Webcasters, the royalty increase could be up to 1,200 percent of revenues.

It's an increase Webcasters say would devastate their industry. They predict that, in the short term, few small online stations will survive the fee change, which includes 18 months of retroactive payment.

5. What is the name of the bill introduced in Congress and what impact could it have on the Copyright Royalty Board's decision?

SaveNetRadio supports the Internet Radio Equality Act, a bipartisan bill introduced in the House and Senate that would set royalty rates comparable to those paid by satellite radio -- about 7.5 percent of revenue.

6. According to SoundExchange, how much will large Internet broadcaster save if the bill is passed?

SoundExchange said the bill would save larger companies that operate online stations -- AOL, Yahoo!, Microsoft, Clear Channel -- from paying up to $100 million in royalties, money that would be kept out of the artists' pockets.

7. How much does John Simson think the new royalty fees would cost a Webcaster?

SoundExchange Executive Director John Simson wrote in his BusinessWeek editorial that the new fee is reasonable when broken down by listener -- $0.68 per month for a 40-hour-per-month online radio listener.

8. Why does Tim Westergren think his company shouldn't have to pay the new royalty fees?

Tim Westergren of Pandora Internet Radio said in a 10 Zen Monkeys Webzine interview, that he viewed his popular 6.5-million-listener, personalized radio company as a "wildly promotional service" that shouldn't be subject to the increased fees.

Discussion Activity (more research might be needed):

1. What do you think about the decision by the Copyright Royalty Board to increase royalty fees? Who will benefit the most? Who will lose the most? Explain your answers with clear examples.

2. Do your own cost analysis for Pandora Internet Radio. Assume the following:

• Pandora had 6.5 million users each month in 2006
• Each user listens to 16 songs each hour
• An average user listens to 40 hours of Internet radio per month
• Pandora earns $0.012 per listener per hour in advertising revenue
• Pandora offers an ad-free subscription service at $36 for 12 months
• The number of users will increase each year by 10 percent
• The advertising rate will increase each year by $0.002 per listener per hour

a. Calculate the royalty fees per year per Pandora listener for each year between 2006 and 2010.

b. Assuming it has no paid subscribers, how much would Pandora need to earn in advertising each year between 2006 and 2010 to offset the costs of the new royalty fees?

c. Assuming it has no paid subscribers, how much would Pandora earn in advertising for each year between 2006 and 2010?

BONUS. What percentage of Pandora's listeners would have to be subscribers to offset the new royalty fees for each year between 2006 and 2010? Based on your calculations, how do you think the Internet radio business would need to change to survive the new royalty fees?

Re-evaluate the assumptions and discuss how changes would affect your calculations.

Write a 300-500 word essay on either of these topics providing clear examples. Send your completed editorial to NewsHour Extra (extra@newshour.org). Exceptional essays might be published on our Web site.