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New Deal Offered For Small Webcasters

Bowing to pressure from Congress, performance rights association SoundExchange offered small webcasters royalty rate relief through 2010. Large webcasters, though, still face a tripling of their rates on July 15.

Under the new proposal, small webcasters would continue to pay the same rates they have since 2002: royalty fees of 10 percent of all gross revenue up to $250,000 and 12 percent for all gross revenue above that amount. Small webcasters are defined as having revenues of $1.4 million or less.

"Artists and labels are offering a below-market rate to subsidize small webcasters because Congress has made it clear that this is a policy it desires to advance, at least for the next few years," John Simson, executive director of SoundExchange, said in a statement. "We look at it as artists and labels doing their part to help small operators get a stronger foothold."

SoundExchange, which negotiates and collects Internet radio royalty rates on behalf of music labels and artists, decided to offer small webcasters the deal after receiving a letter last week from the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property.

The letter, signed by Rep. Howard Berman (D-Calif.), the subcommittee's chairman, and Howard Coble (R-N.C.), the panel's ranking member, asked SoundExchange to "initiate good faith private negotiations with small commercial and noncommercial webcasters with the shared goal of ensuring their continued operations and viability."

SoundExchange's decision to offer small webcasters the reduced royalties comes in the aftermath of a March 1 ruling by the Copyright Royalty Board (CRB) of the Library of Congress dramatically raising the rates for all webcasters. The new rates, webcasters contend, will force many webcasters off the air.

"Although the rates revised by the CRB are fair and based on the value of music in the marketplace, there's a sense in the music community and in Congress that small webcasters need more time to develop their businesses," Simson said.

SaveNetRadio, a coalition of webcasters lobbying Congress to revise the CRB rates, immediately rejected SoundExchange's proposal.

"The proposal made by SoundExchange?would throw large webcasters under the bus and end any small webcaster's hopes of one day becoming big," said Jake Ward, a spokesman for the coalition. "Under government-set revenue caps, webcasters will invest less, innovate less and promote less."

Ward added that under the SoundExchange proposal, Internet radio would "become a lousy long-term business, unable to compete fairly against big broadcast and big satellite radio ? artists, webcasters and listeners be damned."

The revenue cap for small webcasters proposed by SoundExchange is based on the terms established under the Small Webcasters Settlement Act, which expired in 2005. The 2002 legislation set temporary below-market rates for small webcasters to provide them more time to establish their business models.

But Ward said the cap creates an "insurmountable" barrier to growth for small webcasters.

"This revenue cap has had the perverse and unintended consequence of forcing thousands of webcasters to stay small if they want to stay alive, thereby weakening the industry -- the very opposite of Congress' intention," SaveNetRadio said in a statement.

SaveNetRadio favors legislation introduced in both the U.S. House and Senate that would vacate the CRB decision and set a 2006-2010 royalty rate at the same level currently paid by satellite radio services (7.5 percent of revenue).

SoundExchange stands by the CRB ruling.

"The copyright royalty judges conducted a thorough and comprehensive legal proceeding. The judges determined fair rates based upon marketplace evidence provided by all parties," Michael Huppe, SoundExchange's general counsel, said in a statement.

The SoundExchange proposal for small webcasters is "not about displacing the [CRB's] correct analysis of the market, but rather about extending for a limited time the below-market rates that these small businesses received several years ago. We have heard the concerns of Congress and we are responding."

According to Arbitron and Bridge Ratings and Research, between 50 million and 70 million Americans a month listen to Internet radio. Bridge estimates that audience will double by 2010 and grow to nearly 200 million monthly listeners by 2020.