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Webcasters Appeal Royalty Rates

Webcasters went to court today seeking to stave off a Copyright Royalty Board (CRB) ruling tripling Internet radio royalty rates. Without intervention by the courts or Congress, the new rates become effective July 15.

According to the webcasters, the new rates will force many Internet radio stations -- large and small -- out of business.

In a filing with the U.S. Court of Appeals for the D.C. Circuit, the Digital Media Association (DiMA), National Public Radio and a coalition of small commercial webcasters said it would appeal the CRB decision. According to sources close to the filing, the same group will ask the court Thursday morning for an emergency stay of the decision while the case is under appeal.

"We are hopeful that ultimately the Court will rule in our favor and overturn the CRB's decision, but unless a stay is granted, many webcasters will shut down July 15 when the new royalty rates go into effect," Jonathan Potter, DiMA's executive director, said in a statement. "While our appeal moves through the legal process, we implore the Court to grant a stay and prevent unnecessary industry carnage."

After more than a year of deliberations, the CRB in March raised the royalty rate for Internet radio to $.0008 per song played for 2006, $.0011 for 2007, $.0014 for 2008, $.0018 for 2009 and $.0019 for 2010. Most webcasters now pay a rate of $.0012 per stream.

The changes amount to a 300 percent increase for large webcasters and as much as a 1,200 percent jump for smaller operations.

"A July 15 shutdown of Internet radio services would cause these companies, consumers and artists irreparable harm, and the CRB decision so obviously needs the court's scrutiny," Potter said. "Accordingly, we have asked the D.C. Circuit to hear this appeal before the CRB's judgment silences the Internet."

Richard Ades, a spokesman for SoundExchange, the performance rights association that negotiates and collects royalties for music labels and artists, said the appeal was expected and SoundExchange would respond when it sees a copy of the appeal.

The CRB decision has also prompted legislation in both the U.S. House and Senate to roll back the rates. It is not likely, though, Congress will act before July 15.

"We have every confidence that Congress will continue to give the Internet Radio Equality Act the attention it deserves with the urgency it requires, as evidenced by the over 100 cosponsors who have signed on H.R. 2060 since its April 26 introduction," Jake Ward, a spokesman for SaveNetRadio, said in a statement. "The millions of webcasters, artists and listeners we represent urge the Court to give this motion full consideration."

Last week, SoundExchange offered small webcasters (revenues of fewer than $1.4 million) royalty rate relief through 2010. 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. Large webcasters would still be subject to the rate hike.

Tim Westergren of Pandora, one of the Internet's most successful webcasters, called SoundExchange's offer to negotiate a lower rate to small webcasters a "political ploy. It would be a public relations black eye for them for Mom and Pop webcasters to go out of business."

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.

Westergren told internetnews.com the statutory rates approved by the CRB would be prohibitive for webcasters. According to Westergren, the new rates would amount to 60 percent to 70 percent of Pandora's revenues.

Terrestrial radio stations pay royalties to only the author of the song and satellite radio has a rate of half of that paid by Internet radio. According to Nielsen Media Research, 70 million Americans listen to online radio every month.