Court Denies Webcasters’ Stay Appeal

Webcasters suffered a major blow in their effort to rollback new royalty rates
late Wednesday when the U.S. District Court of Appeals denied their appeal for
an emergency stay of relief.

The stay would have delayed the July 15 due date for the new royalties, which
triple the rates for streaming music over the next three years. The court
decision does not preclude the court from ultimately ruling in favor of the
webcasters. The May appeal, filed
by the Digital Media Association (DiMA), is still pending.

Webcasters claim the new rates are simply unaffordable for many Internet radio
stations and will put a number of them out of business.

“DiMA members and all webcasters are disappointed by the court’s decision and
are now forced to make very difficult decisions about what music, if any, they
are able to offer,” Jonathan Potter, DiMA’s executive director, said in a
statement. “The result will certainly be fewer outlets for independent music,
less diversity on the Internet airwaves and far fewer listening choices for

U.S. Rep Jay Inslee (D-Wash.), who has introduced legislation to vacate the
March Copyright Royalty Board’s decision, vowed in a statement to continue to push his bill.

“If Internet radio goes silent, I will fight to make sure the silence is
brief. One thing is sure: After July 15, national pressure for a resolution
of this travesty only will increase,” Inslee said. “We are not going away.”

Inslee’s Internet Radio Equality Act (IREA) would set a 2006-2010 royalty rate
at the same level currently paid by satellite radio services, which is 7.5
percent of revenues. The new royalty fees for Internet radio call for $.0008
per song streamed 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 IREA has gained 128 co-sponsors since it was introduced in April. Similar legislation is pending in the Senate.

“We are disappointed that the court failed to acknowledge the irreparable
and, quite frankly, devastating effect these new royalties will have on the
Internet radio industry,” Jake Ward, a spokesman for SaveNetRadio, said in a
statement. “This is a setback, but it is certainly not the end of the road.”

Ward told that SaveNetRadio would be rallying Internet
radio stations and their listeners to “get the phones ringing on Capitol Hill
today.” The organization hopes to pressure Congress to step in and resolve the
dispute between webcasters and SoundExchange, which collects the royalty rates
for the music labels and artists.

“The court’s failure to act has put the ball squarely in the hands of Congress,
and members of Congress work for the people, many of whom enjoy net radio
everyday,” Ward said. “Congress has already received more than a half million
messages in support of Internet radio and the IREA. In light of the court’s
decision, I would certainly expect that members in the House and Senate will
hear from their constituents today.”

A SoundExchange spokesman said Thursday morning the group had not read the
one-line decision by the court but would issue a statement when it did.

Earlier this week, SoundExchange said negotiations over the new rates were
ongoing. Since the new rates were announced, SoundExchange has offered several
compromises to both small and large webcasters.

Under SoundExchange’s latest 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.

For large webcasters like Rhapsody, Pandora, Live365, AOL and Yahoo,
SoundExchange has proposed capping annual payments for each station streamed
at $2,500. Originally, SoundExchange proposed a $500 fee per station, per year
though 2008.

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