Court denies webcasters' stay appeal

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WASHINGTON -- The federal appeals court here on Thursday rejected webcasters' request to postpone implementation of a new royalty rate for music they air over the Web.

The decision hands a court victory to the music industry and performers who have been warring with webcasters over the rate. By denying the webcasters' stay, the court let stand the July 15 "true up" date when they are required to give copyright holders a new, higher royalty payment for digitally delivered music.

"This is a major victory for recording artists and record labels whose hard work and creativity provides the music around which the Internet radio business is built," SoundExchange executive director John Simson said. "Notwithstanding this victory, we continue to reach out to the webcasting community to reach business solutions."

SoundExchange was created to distribute the royalty following the 1995 Digital Performance Right in Sound Recording Act. The royalty is split 50-50 between copyright owner, typically a label but sometimes the artists or other entities and the performer.

Webcasters had challenged the royalty, contending that a panel of copyright royalty judges erred when they dramatically increased the rate this year.

"Digital Media Assn. 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," executive director Jonathan Potter said. "The result will certainly be fewer outlets for independent music, less diversity on the Internet airwaves, and far fewer listening choices for consumers. We're hopeful that Congress will take steps to ensure that Internet radio is not silenced, and that webcasters and SoundExchange will find a way to compromise and maintain the diversity and opportunity of Internet radio."

The music industry and many artists organizations contend that the royalty is a fair payment for the products that drive consumers to webcasters' sites, giving them something upon which to build their businesses. While the court declined to grant the webcasters' stay, the battle over the royalty doesn't end there. Congress is taking a look at the issue as webcasters are pushing a bill that would roll the rate back to one that is lower than what they currently pay.

SoundExchange made a new offer to webcasters after a "roundtable meeting" of the parties convened by Rep. Ed Markey, D-Mass., chairman of the House Commerce Committee's telecommunications and Internet subcommittee.

According to SoundExchange general counsel Michael Huppe, the organization offered to cap the $500-per-channel administrative fee DiMA members -- which include most of the industry's biggest players -- have to pay under the ruling at $50,000.

The $500 payment, which is an advance on royalties, has been a contentious issue as webcasters often build businesses using many niche channels.

As a quid pro quo, webcasters would have to agree to more "robust" reporting requirements to ensure that artists get paid what they are due, and implement anti-ripping technology to protect copyrights.

The offer for the largest players comes after SoundExchange extended an offer to the industry's bit players that would give smaller businesses a big break on the royalty.

"It is our feeling that, with today's ruling and a strong push to resolve these outstanding issues, we can now go forward together to provide the best listening experience possible for music fans," Simson said. "We look forward to working with our partners, the webcasters, to grow opportunities across the board for Internet radio operators and recording artists."

Most of the talks have focused on giving webcasters unaffiliated with the big companies such as Yahoo, Live 365, Clear Channel and others some relief.

Offers by SoundExchange to cut small webcasters a deal have been rejected. The court's decision and Markey's roundtable could spur some action on the deal.

The CRB ruled that webcasters must pay each time a listener hears a song, at a rate that began at 0.08 cents in 2006, and rises to 0.19 cents in 2010. Besides increasing the charge for each song, the ruling established a $500 minimum payment for each Web channel.

Internet radio royalties have become a thorny issue in part because conventional over-the-air stations pay nothing to use recordings. Both online and regular stations pay royalties to songwriters, but under a 1995 law, companies transmitting music using the Internet, cable or satellite must pay both the songwriter and for the performance. The money is split between the owner of the recording, usually the label, and the performers.

Until the end of 2005, Internet stations could pay royalties based on either the number of songs they played or the number of hours listeners tuned in, and small companies had the option of giving SoundExchange about 12% of their revenue. That changed with the CRB's ruling.

Besides establishing the first federal performance right for sound recordings delivered over the Internet, satellite radio and cable-delivered music, Congress also established SoundExchange to pay artists directly.

While Congress recognized the danger that webcasting posed for musicians, it also feared that artists' share of the royalty would get eaten up by the record companies.
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