"How do radio stations get the ability to broadcast music for free?
..and secondly, why is this so different from broadcasting files on the internet?"
Radio stations, Webcasters, and even Satellite Radio providers who broadcast music and other copyrighted audio works DO pay for the music they play or stream.
Terrestrial Radio Stations
Traditional radio stations pay royalty fees for this right. These fees are paid to either ASCAP (The American Society of Composers, Authors and Publishers), BMI (Broadcast Musicians Incorporated) or SESAC (Society of European Stage Authors and Composers).
ASCAP is the largest performing rights organization in the world," according to the ASCAP website, "comprised of songwriters and publishers. We distribute over 80% of [the] license fee to our members to help them keep the music coming BMI and SESAC also provide similar services to the artists affiliated with these organizations.
So, how exactly does the process work?
Michael P. McCready, Attorney at Law at music-law.com writes:
BMI and ASCAP go to each radio station and make a proposition: "We have the rights to millions of songs that you want to play. For a flat fee of $X, you can play all of our songs." In this way, by buying a license from BMI and ASCAP, radio stations can play 95% of all the music ever written.
So, the fact of the matter is, radio stations pay licensing rights to broadcast music and report the music they play to the licensing organization which, in turn, distributes royalties to the artists affiliated with it based on the percentage of play their songs receive.
As a listener, you receive the benefit of having had the fees for public performance prepaid for you.
Internet Radio Stations
Net stations that stream music are also required to pay royalties based on a formula that has been adopted by the industry under the auspices of the U.S. Copyright Office. There are specific rates for large, small, non-commercial, and non-commercial educational webcasters. For more information, visit http://www.soundexchange.com/licensee_home.html.
Listening to many online radio stations is free but there are also many which charge a premium for upgraded listening privileges. In theory, some of what you pay for that goes to the licensing of music.
In February of 2002, both XM and SIRIUS Satellite Radio brokered five-year deals with ASCAP to broadcast music in ASCAP's repertory. But, since subscribers pay monthly fees to access these services, again you can argue the subscriber pays towards the royalty fees.
So, in the end, the only free ride you get is with traditional radio stations. Of course, the trade-off is: commercials - which allow these operations to pay their bills - so you don't have to.