11th Hour Save for Internet Radio

The talk of a Wall Street bailout may dominated the news lately, but Congress had some extra bandwidth to deal with other issues, one of which may have saved the life of Internet radio.

The House of Representatives on Saturday and the Senate late on Tuesday passed H.R. 7084, the Webcaster Settlement Act of 2008, which will allow for Internet radio stations to negotiate royalty rates with the copyright holders and Webcasters. The bill is headed for President Bush’s expected signature.

It would replace a March 2007 ruling by the Copyright Royalty Board (CRB), which jacked up royalty rates on Internet radio stations to unmanageable levels. While terrestrial radio stations pay no royalties, Internet radio would get smacked with a sliding scale rate that could hit 70 percent of their total revenues.

Web radio station Pandora, whose founder and Chief Strategy Officer Tim Westergren stumped hard for the legislation, said that under the CRB rules, Pandora would have to pay $18 million of its expected $25 million in 2008 revenues, which would spell the end of the site. Another champion of the legislation was National Public Radio (NPR), which also claimed it would be forced out of business by the royalty rates.

There are two kinds of royalties for music broadcasts, a publishing royalty for the songwriter and a performance royalty for the artist. Internet broadcasters, like every other radio station, pay the publishing royalty.

The performance royalty was the problem. It was devised by the CRB within the constraints of the Digital Millennium Copyright Act (DMCA), which was amended in 2002 by the Recording Industry Association of America (RIAA) to tack on a higher performance fee specifically for Internet radio.

The Webcaster Settlement Act of 2008 would allow SoundExchange to represent copyright holders and negotiate with the Digital Media Association, which would represent online services such as Pandora, to work out royalty rates. The bill makes some technical changes to the Copyright Act to give the two sides more room to reach an agreement.

“There’s no reason Internet radio should be treated worse than terrestrial radio,” Westergren told InternetNews.com. “We’re not looking for special treatment. Internet radio is looking for some degree of parity with terrestrial and satellite radio.”

The legislation was championed by Rep. Jay Inslee (D-WA). “This is a truly historic moment for Internet radio and its listeners,’ said Inslee in a statement issued after the House vote. “There may now be a light at the end of the tunnel in the fight over internet radio royalties.”

The bill had been lost in the shuffle of the election year and the meltdown of the financial markets. Last Friday, Westergren made an urgent plea on the Pandora blog for fans of the site to call their Representative, even posting the main switchboard to the House.

Westergren got wind that representatives from National Association of Broadcasters, which governs terrestrial radio, were lobbying members of Congress to kill the bill and preserve their hegemony. He had to mobilize the troops fast because Congress was listening.

“The NAB is very powerful, but it was such an obvious interference in our business that the rightness of our position was clear,” he said. None the less, Pandora listeners flooded the Hill with calls of support for the law, so it became harder and harder for Congress to stand in the way of it.

Westergren has long-term plans but for now, just wants to get the boot of CRB royalties off the back of his neck. “What [the law] does is it gives us the time we need to finish up negotiations and everyone is optimistic that we are pretty much there, and optimistic is not a word we have used before, so that’s pretty significant. We can wrap it up quick now that we have statutory binding to do it,” he said.

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