Disclaimer: This document represents my interpretation of the current copyright law as gleaned from various music industry web sites. Since this area is in a state of flux, and I am not a lawyer, you should check for yourself before beginning any type of webcasting operation.
There are two entities entitled to payment when music is broadcast over the web, the composer and the recording artist. Traditional radio stations only pay composers, not recording artists, because the promotional value of having a recording played on the radio has been considered to be sufficient compensation for the recording artist. Iin fact, record companies often compensate radio stations indirectly for playing their records. Though direct pay-for-play arrangements have been illegal since the "payola" scandals of the 1950s, it is perfectly legal for a record company to pay promotional fees to an independent promoter, who can then make private arrangements with radio stations.
The record companies are concerned that webcasting will cut into record sales, so they have lobbied for, and been granted, royalty rights for this type of broadcasting.
There are three entities that control the vast majority of published music, ASCAP, BMI, and SESAC. These companies collect royalties from webcasters, traditional radio stations, nightclubs, and other sources, and distribute the royalties to the composers. To be safe, a webcaster needs a license from all three of these organizations. These fees are in the neighborhood of 1 cent per song per listener. The organizations have special flat rates for low-volume or educational use (these fees are typically a couple of hundred dollars per year) and give the webcaster the right to play any song from the organization's catalog.
After a great deal of contentious debate, as of June 2002 the Copyright Office has set the webcasting royalties that are due to the recording artist (in practice, the copyrights for sound recordings are generally owned by the record company, not the actual artist). This rate is $0.0002 to $0.0007 (2/100 to 7/100 of one cent) per listener per song, depending on the exact nature of the webcast (note that this rate has been widely misreported as 2 cents to 7 cents). As with the composer royalties above, a yearly flat rate is available for low-volume webcasters.
The fees above apply to straight music webcasting. If you want to use copyrighted music as part of another program (e.g., a commercial, a movie or a radio play) you must purchase "synchronization rights". In addition, there are other limitations on playing music on the web. You cannot play more than three songs from one album in a three hour period, you may not publicize the songs to be played ahead of time, and there are limitations on archiving music programs. Also, certain types of logs must be kept so that royalties can be fairly allocated to the artists. See the RIAA site for more information.
Document created 6/24/2002 by Tony Hursh