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Last Minute Stay Of Execution For Web Radio

Retroactive Royalty Increases on Hold For Now

By Martin H. Bosworth
ConsumerAffairs.com

July 15, 2007

But today won't be the day the music died after all. An eleventh-hour agreement between music labels, traditional radio networks and Webcasters put off today scheduled implementation of the new royalty schedule.

The new fees were ordered by the Copyright Royalty Board in March. Subsequent court rulings upheld the new fee schedule, which charges Internet stations for each listener that listens to each song. The fees would be so much higher that Webcasters complained there was no way they could stay in business.

Late this week Rep. Ed Markey (D-MA) organized a private roundtable discussion between webcasters and SoundExchange, the entity set up to collect and distribute digital music royalties. It was that session that led to an agreement to put off the new fees, at least for a while.

SoundExchange executive chairman John Simson said didn't want small Webcasters and Internet radio stations to stop broadcasting, only that they needed to be up to date with the royalties they paid for streaming artists' works.

Simson told Radio And Internet Newsletter (RAIN) head Kurt Hanson that, "For the people who want to comply with the law and are in bona fide negotiations with us, we don't want those people to be intimidated."

Under the new royalty structure, Internet radio broadcasters would face increases in royalty payments retroactive to the beginning of 2006, and continuing to increase through 2010. Webcasters would also have to pay "administrative fees" for each channel they stream, which could lead to billions in royalties owed from the many channels broadcast.

Simson said he was willing to cap the administrative fee at $500 per channel up to a maximum of 100 channels, but only if Internet radio stations demonstrated much more compliance with the current royalty system.

Simson also mentioned a "small Webcaster license" that might exempt individual Internet radio broadcasters from the fee requirements.

Those stations that choose to ignore the new royalty payments and don't "go dark" today may face collection action from SoundExchange, Simson said, but "It's going to be business as usual at SoundExchange — trying to process data, trying to get deals done. We're not gonna be filing lawsuits."

With the momentary reprieve granted by the meeting, Pandora's Tim Westergren exhorted readers of his blog to "keep the legislative pressure on."

"Key congressional reps including Jay Inslee (D-WA, lead sponsor of the Internet Radio Equality Act which now has 130 sponsors) and Ed Markey (D-MA) convened a meeting and brought very serious pressure to bear on everyone to reach a solution," he wrote. "This is grassroots democracy in action. We're far from out of the weeds, but we won't be shutting down on Monday."

Congress May Act

Meanwhile, a bipartisan bill that would vacate the Copyright Royalty Board's new rates -- the Internet Radio Equality Act -- is making its way through Congress, but is not likely to win final passage until later this year.

More than 2,000 students rallied earlier this week in support of the Congressional measure and petitions were delivered to Congress by a coalition of media public interest groups, including U.S. Public Interest Research Group (U.S. PIRG), Free Press, and SaveNetRadio.

"The Internet Radio Equality Act compensates rights holders but also encourages growth in Internet Radio and the greater media marketplace," said U.S. PIRG Staff Attorney Amina Fazlullah.

"The Copyright Royalty Board rates are a clear example of unfair and shortsighted regulation. These new rates will destroy this young and innovative industry if they are allowed to take effect," she said.

There are an estimated 72 million net radio listeners that support college and other independent stations streaming over the Internet as well as the airwaves along with new and innovative Internet-only outlets.

In the wake of massive consolidation of ownership of over-the-air radio, Internet Radio has stood alone as an outlet for diverse and independent musicians playing in formats from jazz and freeform to bluegrass and classical music that have been squeezed off the traditional radio dial, the coalition members said said.

"Internet radio offers an unprecedented and unparalleled level of accessibility and diversity to music lovers of every age, from every walk of life, in every region of the country," said SaveNetRadio coalition spokesperson, Jake Ward.

The rate increase would increase royalty payments between 300 and 1200 percent. The action could bankrupt Internet radio stations like Pandora, Live365, Rhapsody, MTVradio, and hundreds of smaller, regional, and local stations. Internet radio industry representatives estimate the new fees will cost companies $1 billion- a gigantic leap from the $200 million paid last year, noted Fazlullah.

"Students and young people have always supported independent musicians playing a variety of formats," added PIRG student volunteer Lauren Linville, "The Internet should make it easier for independent musicians to compete with big radio and big media, not harder."

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