Webcasters lose appeal in music royalties debate

Sunday's 'true up' date will stand

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

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 Sunday's "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, and the performer.

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

"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."

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 back the rate to one that is lower than what they now pay.

SoundExchange made a new offer to webcasters following a round-table 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, with webcasters often building their 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 came 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," SoundExchange's Simson said.