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Music Policy Fills Washington Air

There was music in the air this week in Washington. On the policy table, too.

Almost 200 independent labels, musicians and policy mavens gathered at the Future of Music (FOM) Coalition's annual policy day conference to discuss the links between public policy and the dominant companies that control the production, transmission and marketing of music.

On Capitol Hill, lawmakers concerned themselves with protecting the property rights of those major labels, pushing colleges and universities to do more about campus music and video piracy. It was a move saluted by the Recording Industry Association of America (RIAA), which filed another 402 infringement pre-litigation settlement letters to students at 13 universities.

"There's no way to get government out of the music and telecom industries, even if it wanted to," Pittsburgh Congressman Mike Doyle told the FOM conference. "The question for policymakers in Congress and the administration today is, what goals should we be setting and what policies would get us there?"

One of the top policy issues for Doyle and the FOM attendees is the new Internet radio royalty rates recently approved by the Copyright Royalty Board of the Library of Congress. The decision nearly triples the royalty rates for music played over Internet radio stations and would change the rates from a percentage of revenue to a uniform rate that applies to all webcasters.

The new rates are retroactive to 2006. After some initial confusion by webcasters when the first bills come due, the CRB clarified Wednesday the bell will toll on July 15. Webcasters claim the new rates will cripple the nascent platform, which has provided valuable airtime to independent artists who are largely shut out of commercial radio play lists.

"While I strongly support musicians' efforts to be paid for their work, I am concerned that the new rate changes may go too far," Doyle said in his keynote speech. "Shutting down the majority of small or non-commercial webcasters by putting the royalty rates too high would in the long run hurt most musicians."

Doyle noted the rates are paid by webcasters, not the public. "The increases might cause some webcasters to turn off their music stream, which would hurt the ability of new and undiscovered artists to be heard by interested listeners," he said.

The Pennsylvania Democrat said he would closely monitor developments in Congress, including legislation introduced last week by Reps. Jay Inslee (D-Wash.) and Don Manzullo (R-Ill.). The Internet Radio Equality Act would vacate the CRB decision and apply the same royalty rate-setting standard to commercial Internet and satellite radio.

But the potential legislation would do little to solve the almost immediate rate increase faced by webcasters. "If the new rates go into effect, there is no industry," Mark Lam, chairman and CEO of Live365, the world's largest Internet radio network with more than 10,000 stations on its platform, told internetnews.com.

Live365's growth reflects the growing public interest in Internet radio. In January of this year alone, 20 percent of Americans, approximately 49 million, tuned in to online radio, according to Arbitron. Compare that with the 6 percent of Americans who listened to Internet radio in all of 1998.

SoundExchange, which negotiates and collects royalty rates for the music industry, claims there were 430 distinct webcasting services registered and paying royalties in 2004. By 2006, the number had jumped to almost 1,000.

Lam said webcasters are still attempting to negotiate lower rates with SoundExchange. "We are the goose that lays the golden eggs for you guys," Lam said he told SoundExchange.

SoundExchange, though, seems in no mood to go for lower rates. It issued a statement claiming "big webcasters," such as Yahoo and AOL are painting a distorted picture of the issue to maintain low rates and high profit margins.

According to SoundExchange, a review of 2006 webcasting royalties paid to SoundExchange shows that 82 percent of royalties were paid by the 10 largest webcasters, which make up 4 percent of all paying services. In contrast, small webcasters made up fewer than 2 percent of all royalties paid to SoundExchange.

"Not only is Internet radio not going to die, it's going to continue to flourish," John Simson, executive director of SoundExchange, said in a statement. "The statistics show it is a vigorous business dominated by large businesses that can easily pay fair market rates while also having room for small webcasters and niche services."

While the independent music business was debating its future, Congress was dealing with its past and present, sending a letter and survey to the 20 universities identified as having the highest number of illegal downloading infringement notices.

"We want to know exactly what they plan to do to stop illegal downloading on their campuses," House Judiciary Committee ranking member Lamar Smith (R-Texas) said in a statement. "We are asking these universities to report back to us by May 31."

Intellectual Property Subcommittee Chairman Howard Berman (D-Calif.) added, "By answering the survey, universities will be required to examine how they address piracy on their campuses. My hope is that in six months from now these same universities will no longer be on the list."

Colleges and universities receiving letters were Columbia, Pennsylvania, Boston University, UCLA, Purdue, Vanderbilt, Duke, Rochester Institute of Technology, Massachusetts-Boston, Michigan, Ohio University, Nebraska-Lincoln, Tennessee, South Carolina, Massachusetts-Amherst, Michigan State, Howard, North Carolina State, and Wisconsin-Madison.

"Since government has obligations under the Constitution to set and administer copyright law to the benefit of creators and the public, it's involvement in this issue is inevitable," Doyle said.