Webcasters Running Out of Time?

The Washington saga over Internet radio royalty rates will reach a
crescendo this week with the new fees set to take effect on Sunday. Webcasters
say the hike in royalties will wreck the industry.

Since a March 1 ruling by the
U.S. Copyright Royalty Board tripling the royalty rates for Internet radio
stations, webcasters have furiously worked to undo the fee hike The increases
are retroactive to 2006 and extend through 2010.

Legislation has
been introduced in both the U.S. House and the Senate to lower the rates. An
emergency stay of relief from the rate hike has been filed in court. Internet
radio station owners have crowded the halls of Congress to plea for rate
relief and on June 26, webcasters held a Day of Silence,”
substituting their regular streams with public service announcements urging
listeners to contact Congress.

But with only six says left before webcasters begin receiving their new
royalty bills, neither Congress nor the courts have intervened.

“In less than one week, unless sanity prevails in either the courts or the
Congress, the volume will start to go down on Internet radio,” Jonathan
Potter, executive director of the Digital Media Association (DiMA) said in an
e-mail statement to internetnews.com. “At the rate we’re going, July 15
may very well be the first day of the end of Internet radio.”


Under pressure from Congress, SoundExchange, which collects the royalty rates
on behalf of labels and artists, has offered several compromises on
the rate hike over the last few weeks. Instead of one blanket rate covering
non-commercial, small commercial and large commercial webcasters,
SoundExchange is now offering separate deals for each classification.

“These negotiations are ongoing,” Richard Ades, a spokesman for SoundExchange
said. “Once you have addressed small and non-commercial webcasters, the only
issue left is the royalty rate for large commercial webcasters, which are
multi-billion dollar corporations and can afford the rate increase.”

Under SoundExchange’s 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.

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.

DiMA’s Potter rejected the offer last month, claiming, “The looming 2009
billion-dollar threat is destabilizing and inhibits investment and growth.
DiMA…wants a solution that promotes long-term industry growth. A
billion-dollar ‘minimum fee’ is equally absurd in 2006, 2007, 2008, 2009 or
2010. It should be eliminated — period.”

SaveNetRadio, a grassroots group, that has held e-mail campaigns and concerts
to underscore the issue, was equally dismissive of the SoundExchange proposal
for large webcasters, who pay the vast majority of Internet radio royalties.
In 2006, for instance, the 20 largest webcasters paid 95 percent of all

“The SoundExchange proposal is just an 18-month stay of execution,”
SaveNetRadio spokesman Jake Ward said. “They didn’t take the bullet out of the
gun, though.”

Ades said SoundExchange remains “hopeful” a deal can be reached this week, a
sentiment also expressed by DiMA and SaveNetRadio.

If not, Potter said, “As of July 15, webcasters of all sizes will be forced to
either turn off, cut down their services or continue to play the music until
they can no longer afford to, which even for the largest webcasters, will only
be a matter of time.”

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