Small webcasters offered royalty break

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WASHINGTON -- Small webcasters would continue to get a break on the royalty they pay for broadcasting music on the Internet under a deal the music industry proffered Tuesday.

SoundExchange, the nonprofit organization that collects digital royalties, essentially offered webcasters with revenue of less than $1.5 million a year the same rate they pay under the current royalty regime.

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

Under the SoundExchange proposal, the subsidy is based on a percentage of revenue model and is proposing the same rates that prevailed under the Small Webcaster Settlement Act, allowing qualified webcasters to 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 this subsidy is used only by webcasters of a certain size that are forming or strengthening their business.

While SoundExchange contends that the decision to increase rates is the correct one, it bowed to political and policy realities by offering small webcasters a price break.

On Friday, Reps. Howard Berman, D-Calif., and Howard Coble, R-N.C., sent a letter to SoundExchange pushing it to make a deal before the "true up" date, when the new rate goes into effect.

"This offer is not about displacing the judges' correct analysis of the market but rather about extending for a limited time the below-market rates that these small businesses received several years ago," Huppe said. "We have heard the concerns of Congress, and we are responding."

The deal SoundExchange is offering does not end the battle it is having with such large Internet broadcasters as Yahoo and Clear Channel. Companies with big Internet radio plays are still fighting the rate increase.

"If you're streaming at the level of Yahoo, you don't need that kind of a break," Huppe said.

While the deal does not touch the big boys of Internet broadcasting, it could make it easier to defend the rate increase in Congress as those businesses most vulnerable to the rate increase and most sympathetic in the public eye are cared for by the price break.

"It has nothing to do with Yahoo and Clear Channel," Huppe said. "We believe they should pay the rate set by the board."

It was unclear Tuesday if small webcasters were willing to accept SoundExchange's offer. David Oxenford, an attorney who represents several small webcasters and who has been a lead negotiator here in Washington, said they were studying the offer.

"The offer is to extend the SWSA with some modifications -- and we are studying these proposed modifications," he said. "The small webcasters have learned much in the five years that the SWSA has been in effect and have suggested modifications of our own to the SWSA, modifications not addressed in the SoundExchange proposal. We welcome this proposal as what it is -- the first step in a negotiation process which we hope to be able to conduct in a businesslike fashion in the coming weeks." Oxenford declined comment on what changes the small webcasters might want, saying he wasn't going to "negotiate in the press."

On March 2, a panel of copyright judges rules that Web broadcasters must pay each time a listener hears a song, at a rate that began at 0.08cents 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.
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