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Webcasters, Music Industry Reach Royalty Deal

In an effort to avoid the costly arbitration proceedings of last year, the recording industry and webcasters on Thursday agreed to royalty rates and terms to apply to commercial subscription and non-subscription-based webcasters and Internet radio. The parties submitted the proposal to the Copyright Office for industry-wide adoption.

The agreement, if approved by the Copyright Office, allows non-subscription webcasters to pay on a per performance or aggregate tuning hour basis, and offers an additional gross revenue option for subscription services. Webcasters can choose to either pay 0.0762 cents per song per listener or 0.0117 cents per listener hour. Internet radio subscription services can also choose to pay 10.9 percent of their subscription fees. The deal is effective for 2003-2004.

The deal does not impact the ability of eligible small commercial webcasters to elect rates and terms adopted under the Small Webcasters Settlement Act. The agreement also does not address rates and terms for noncommercial webcasters or simulcasts of over-the-air broadcasts.

"Musicians in all styles of music and at every level of popular success deserve fair compensation for their hard work and talent," said Thomas F. Lee, president of the American Federation of Musicians. "We hope webcasting will bring more music to more fans, and we are delighted to have reached an agreement that will bring compensation to musicians without a costly arbitration."

In 1998, Congress passed a law requiring Internet music broadcasters pay royalty fees to artists and music labels for use of their music. Webcasters and the music industry were unable to reach agreement on the fees, however, and the dispute went to arbitration, a process that cost both sides millions in legal fees.

Through the arbitration process, the Copyright Office set rates for 2002 and until the Thursday agreement it was preparing for another arbitration process between the warring parties.

John L. Simson, executive director of SoundExchange, the U.S. performing rights organization that collects and distributes royalties to sound recording copyright owners, said the deal avoids the "protracted and costly arbitration with webcasters that would have come on the heels of last year's extraordinarily expensive arbitration."

Simson also said that the agreement will ensure that SoundExchange starts receiving royalties considerably sooner than if an arbitration were necessary.

"Webcasters had stopped paying royalties pending the setting of new rates even though they continue to exploit sound recordings for their businesses," Simpson said. "This action threatened to deprive SoundExchange of royalties necessary to continue operations, and the Register of Copyrights has even asked Congress to clarify that webcasters cannot do this in the future."

Steven Marks, senior VP for business and legal affairs at the Recording Industry Association of America, said "This deal underscores our commitment to negotiate agreements that reward record labels and artists, while enabling us all to focus on delivering music to consumers."