House urges royalty deal

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WASHINGTON -- The chairwoman of the House Small Business Committee urged webcasters and the music industry to make a deal on the controversial royalty that musicians and labels receive for Internet airplay.

During a hearing Thursday, Rep. Nydai Velazquez, D-N.Y., told representatives of the warring industries that she thought the proper venue to settle their dispute was the negotiating table rather than the House floor.

"I hope the parties can come together," Velazquez said. "I really do not think that Congress is the best vehicle to solve this problem."

Unlike traditional, over-the-air broadcasts who pay only a royalty to songwriters and publishers, Internet, cable and satellite broadcasters also are required to pay royalty to singers and musicians (HR 6/26).

Royalty payments are often contentious, but the rancor over the webcaster royalty reached a fever pitch recently after a panel of copyright judges substantially increased the payment.

On March 2, the Copyright Royalty Board 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.

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. Small companies had the option of handing over 12% of their revenue. All that changed with the CRB's ruling. By some estimates, the change amounts to a 300% increase.

Webcasters across the country are seeking to block the increases, asking a federal court to suspend the July 15 "true up," when the new rules take effect. They are pushing legislation that would require webcasters to pay a per-song royalty, arbitrarily setting the rate at 7.5% of revenue.

While the webcasters' legislation has garnered more than 100 co-sponsors, it has gotten little traction from the leaders of the House Judiciary Committee, which oversees copyright enforcement, and appeared to win little favor with Velazquez and the panel's senior Republican, Rep. Steve Chabot of Ohio.

Most of the money and "music" spins are being generated on large corporate sites such as those on Yahoo, Clear Channel and AOL, but Thursday's hearing focused on the industry's small players, those who could be hurt most by the royalty increase.

SoundExchange, the organization created to deliver the royalties to the artists and labels, has made an offer that would insulate small webcasters from the rise.

Qualified webcasters would pay royalty fees of 10% of all gross revenue up to $250,000 and 12% for all gross revenue above that amount. The proposal includes a $1.5 million revenue cap and a usage cap to ensure that it applies only to webcasters of a certain size.

That deal, however, was rejected by small webcasters' groups. Brian Miller, GM of WOXY.com, an Internet radio station that was recently acquired by lala.com, told the committee that the revenue cap was too low, suggesting that it should come in at $6 million.

People with knowledge of the negotiations said they expected the talks to get more serious, suggesting that there could be a way to make it easier for small webcasters to deal with the ceiling, whatever number it turns out to be.
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