If you're new to broadcasting, or have not streamed your station online before, reading the following brief explanation of compensation rules for songwriters, musicians and other copyright holders may save you a great deal of trouble later.
Independent music radio on the Internet has faced royalty demands from SoundExchange in the USA, and similar organizations in other territories. These organizations are usually membership societies or government-sanctioned national authorities which are intended to collect money from broadcasters to compensate copyright holders. The royalty collection societies require payment before you can stream just about any music released commercially to the general public — whether you make any money out of streaming, or not. It's not so much the percentage of revenue demanded, but that there are usually annual minimum fees to pay, which can hurt small stations disproportionately.
For example, in the UK, the MCPS-PRS Limited Online Music Licence covers non-commercial music streaming by groups and individuals, as long as their gross revenue is less then £12,500 per year. The cost is on a sliding scale, up to £1,120 plus 20% tax per year for delivering up to 450,000 individual streams or serving 25,000 files; after that, you have to apply for a full MCPS-PRS Online Music Licence. That doesn't sound too bad at first, but 25,000 files per year works out at less than four downloads per hour for a round-the-clock website. This particular licence only covers publishing (songwriter) rights, not recording (record label and musician's performance) rights, so you have to negotiate an additional licence from Phonographic Performance Limited (PPL) to play music online, including digital recordings converted from commercially released CDs, vinyl or tape.
Typically, you have to provide full statistical details to the royalty society of all music streamed or downloaded from your site, which can be onerous. Even if your radio station is mostly speech, there are many limitations in the small print of these music licences. For instance, you can't use music for promotional purposes, and you can't stream a whole opera, without negotiating separate licences. Weirdly, you are not allowed to play a piece of music in a 'derogatory context' to the writer or performers; no drummer jokes allowed, then.
However, the biggest pitfall is that these MCPS-PRS licences for publishing rights only cover listeners in the UK. For recording rights, PPL is a member of the IFPI reciprocal scheme for webcasters, which means its licenses cover listeners in some European countries, Australia, New Zealand and a few other countries, but not listeners in the USA or Canada. So if your Internet station picked up a significant number of listeners in countries not covered by the MCPS-PRS licences or the IFPI reciprocal scheme, you would have to pay for similar music licences in those countries as well. It's no wonder that many not-for-profit radio stations have disappeared from the virtual airwaves over the last few years, since not having the right licences could leave the operator liable to legal action.
If you want to go down the commercial music route, check out the http://www.prsformusic.com and http://www.ppluk.com websites for UK licence details. In the USA, the http://www.soundexchange.com website currently quotes a 500 dollar minimum annual fee for non-commercial webcasters, plus a usage fee above a certain number of listener hours, for the right to stream music recordings to listeners. See the websites of ASCAP, BMI and SESAC for details of music publishing royalties payable by webcasters streaming to the USA.
Free content streaming offers an alternative for DIY Internet radio. Since royalty collection societies like MCPS-PRS and SoundExchange can only represent the interests of their own members, it follows that if you are not a member, you can stream your own self-produced content without paying for their licences. If you state somewhere on your website that the stream is of your own copyrighted material, and is made available to the public under a specific licence, then no-one should misunderstand your intentions.
You might be able to persuade other people to allow you to stream their content too, as long as they do not have a conflicting legal obligation, such as having previously joined one of the many royalty collection societies around the world. You can ask for permission to stream when website visitors upload their own music files to you via a HTML form, much as the likes of SoundCloud do. Or you can collect files licensed under an appropriate Creative Commons licence (http://www.creativecommons.org) or other free content licence.
Explicit permission to stream on your particular server is always going to be the ideal, so think about your own terms and conditions before you accept files from third parties for streaming. How, for example, would you know if someone uploaded a file to your online radio station that unknown to you, had been ripped from a commercially released CD? That's the kind of thing that could get you in trouble with the licensing authorities and copyright holders.