'Last best hope' for Internet radio


WASHINGTON -- The legal battle hasn't been won or lost yet, but the fight over copyright payments for music broadcast over the Internet already has moved to Capitol Hill.

Reps. Jay Inslee, D-Wash., and Donald Mazullo, R-Ill., on Thursday introduced the Internet Radio Equality Act. The legislation is designed to undo a ruling by a panel of copyright judges that would require Internet broadcasters to pay an increased royalty for the music they transmit.

The legislation would annul the March 2 decision by the Copyright Royalty Board that would require webcasters to pay a per-song royalty, arbitrarily setting the rate at 7.5% of revenue and changing the rate-setting standard used by the CRB to determine Internet radio royalties. In effect, the bill would drive copyright payments for musicians and other copyright holders down.

On April 19, the CRB refused a request by webcasters to reconsider the controversial ruling because the offended parties added nothing new to their arguments and that the judges made no error in their decision.

The bill swats away the olive branch that SoundExchange -- the first performing rights organization collecting royalties for digital audio transmissions -- held out to webcasters this month when the organization said that it was willing to cut a deal for a lower rate.

Jonathan Potter, executive director of DiMA -- the trade association representing webcasters -- called the bill "Internet radio's last best hope."

"The Internet Radio Equality Act sets a new standard for setting royalty rates that will level the playing field for Internet radio, avoid unfair bankruptcies that eliminate royalties currently being paid to recording artists and record companies and removes the unfair advantage enjoyed by our competitors in the satellite radio community," Potter said.

The parties can still appeal the ruling to the federal courts and ask for an injunction that could keep the new rate from going into effect May 15, but a decision on the legal strategy has yet to be made, sources said.

While DiMA contends that the new rate will cause the most damage to small operators, SoundExchange contends that is a red herring. The real beneficiaries of a lower rate are radio giants like Clear Channel and computer giants like Microsoft.

SoundExchange contends that it also would result in a windfall of more than $50 million to such mega-corporate webcasters as Clear Channel and Microsoft at the expense of recording artists across the country. SoundExchange executive director John Simson argues that the bill is particularly pernicious because it is retroactive. Artists would have to write checks to cover refunds to corporations whose CEOs and top executives are paid millions of dollars per year, he said.

"The idea that this bill would help small webcasters or artists is ludicrous since less than 2% of all royalty payments in 2006 came from small webcasters," Simson said. "The true beneficiaries are the mega-multiplex services like AOL, Yahoo!, Microsoft and Clear Channel, which will benefit from rates substantially lower than those set by the Librarian of Congress in 2002."

According to the March 2 ruling, Web broadcasters must pay each time a listener hears a song, at a rate that began at 0.08 cent in 2006, and rises to 0.19 cent 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.