Music industry offers deal to small Webcasters

Group says "small" Webcasters can escape fee hikes, but Net radio operators attack offer as a ploy to stunt the medium's growth.
Written by Anne Broache, Contributor
Facing an outcry over imminent royalty fee increases for Internet radio operators, the music industry body that lobbied for the changes has attempted a peace offering.

SoundExchange, the nonprofit group that collects the fees on behalf of hundreds of major and independent record companies, said on Tuesday that it would give "small" Webcasters the option of paying "below market" royalty rates on the songs they play--that is, by keeping the required royalty rates essentially the same as they are under a 2002 law called the Small Webcaster Settlement Act.

"The net result of this proposal is that small Webcasters would be guaranteed no increase in royalty payments for 13 years, from 1998 to 2010," SoundExchange general counsel Michael Huppe said in a statement.

Webcasters that fall in the "small" category would be required to pay 10 percent of all gross revenue up to $250,000 and 12 percent for all gross revenue above that amount. Those rates would hold until 2010 and be retroactive to 2006, SoundExchange said.

It was not immediately clear what the revenue cutoff would be in determining which businesses qualify as small, and SoundExchange representatives did not immediately respond to requests for clarification.

Either way, a coalition called SaveNetRadio, which is composed of Webcasters, listeners and artists, said the idea of offering privileges to companies that keep their revenue below government-set caps would stunt the growth of smaller firms and gut the Internet radio industry. The group also argued that by broadcast radio standards, even the largest Webcasters, such as the Internet radio divisions of Yahoo and AOL, would be considered small broadcasters.

"Under government-set revenue caps, Webcasters will invest less, innovate less and promote less," SaveNetRadio spokesman Jake Ward said in a statement. "Under this proposal, Internet radio would become a lousy long-term business, unable to compete effectively against big broadcast and big satellite radio--artists, Webcasters and listeners be damned."

SaveNetRadio's members include Yahoo, RealNetworks, Live365, Pandora, SomaFM, the Small Webcasters Community Initiative and 5,800 artists.

Popular Net radio services like Pandora and Live365 would likely be considered "small businesses" because of their staff sizes, but it's unclear whether they would qualify for the offer, particularly if they continue to grow.

The move comes as Internet radio operators, ranging from small commercial Webcasters to National Public Radio to Clear Channel, have been battling a U.S. Copyright Royalty Board decision issued in March. The CRB has so far declined to revise its ruling to those groups' satisfaction, prompting some opponents to indicate plans to take their gripes to court.

The new rules, which are scheduled to kick in July 15, call for rate hikes of 0.08 cents per song per listener, retroactive to 2006, climbing by 30 percent each year until they reach 0.19 cents per song in 2010. All channels would have to make a minimum annual payment of $500.

Those increases may not sound like much, and SoundExchange maintains that the board's decision is a fair and reasonable way to ensure that artists are properly compensated. But opponents of the new rules say they would result in payment increases of 300 percent to 1,200 percent, which they argued could cripple smaller Webcasters.

The Webcasters have also attracted allies on Capitol Hill. Members from both parties in both the House of Representatives and the Senate have introduced nearly identical bills that would align the rates required of Internet radio stations with those paid by satellite, cable, jukebox and other digital-radio services. The politicians have said they fear that leaving the CRB's decision as-is could stifle the growth of Internet radio services.

SoundExchange, for its part, said its offering came at the urging of a letter on Friday from Reps. Howard Berman (D-Calif.) and Howard Coble (R-N.C.), the leaders of a key House panel that deals with intellectual-property issues.

Berman, a veteran congressman whose district includes Hollywood, has established himself as an advocate for more stringent copyright laws over the years, most recently endorsing the creation of a new lobby alliance composed of groups like the Recording Industry Association of America and the Motion Picture Association of America.

SoundExchange executive director John Simson said he remained concerned that the small Webcasters that have protested the most loudly against the new royalty rates have not been complying even with the existing payment requirements.

"The artists and labels are acting in good faith today, giving small Webcasters a break," he said in a statement. "In return, they expect the integrity of their music and their copyrights to be respected."

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