Net Radio Wins Partial Reprieve as Royalties Loom

Eliot Van Buskirk Email 07.13.07 | 2:00 AM

A coalition of webcasters have worked out a deal with the recording industry that could temporarily stave off a portion of crippling net radio royalties set to take effect Sunday, according to people familiar with the negotiations.

The deal is not final but creates a window for webcasters to continue broadcasting while a more lasting solution is sought. Webcasters have said the fees would effectively force many services that personalize individual channels for listeners to close shop by the end of the weekend.

For now, the parties involved in what’s described as ongoing negotiations have agreed to waive at least temporarily the minimum charge of $6,000 per channel required under a scheme created by the Copyright Royalty Board, or CRB.

The deal, brokered late Thursday, is not final and could change. One person involved in the talks described the situation as a reprieve, and said that “internet radio won’t be saved until a workable royalty rate is set.”

(Wired News will be posting live updates on new developments on the Listening Post blog.)

The deal affects only webcasters participating in CRB hearings convened in Congress this week aimed at winning a reprieve for the industry, according to a source familiar with the negotiations who requested anonymity. Although the deal is for now provisional, one participant expressed relief.

“It was getting pretty close,” said Tim Westergreen, founder of Pandora, one of the most popular webcasting services under threat. “I always had underlying optimism that sanity was going to prevail, but I was beginning to wonder.”

Opponents of new internet radio charges due had asked Congress to enact emergency relief legislation this week, pleading that “dead webcasters pay no royalties.”

The call came after a federal appeals court refused to delay new royalty rates expected to bankrupt many webcasters. Affected stations had appealed for an emergency stay of the rates to the U.S. Court of Appeals for the District of Columbia Circuit, but a panel of judges declined in a ruling made public Thursday morning.

“We are disappointed that the court failed to acknowledge the irreparable and, quite frankly, devastating effect these new royalties will have on the internet radio industry,” said Jake Ward, a representative of the SaveNetRadio coalition of webcasters, net radio listeners and artists, in a statement.

The royalty payments, set by the CRB and collected by SoundExchange, would be retroactive to the beginning of 2006, and could total tens of thousands of dollars even for webcasters that produce no revenues.

Webcasting royalty payments for Jan. 1, 2006, to July 1, 2007, due under the new scheme would total $.000762 times the number of songs played per listener, plus a $6,000 per-channel-per-year payment. The charges would instantly crush webcasters that offer personalized streams for each listener — a common feature on existing net radio services such as Pandora.

The per-listener rates would rise to $0.0019 per song by 2010.

Thursday’s deal marks a sharp turnaround for SoundExchange, which told Wired News just hours before that the new online radio royalty rates are “etched in stone.”

Observers credited lobbying by net radio listeners with helping bring pressure on SoundExchange. “This is a direct result of lobbying pressure, so if anyone thinks their call didn’t matter, it did,” said Westergren. “That’s why this is happening.”

The deal opens the door for longer-term solutions, including action from Congress. On Thursday, Rep. Ed Markey (D-Massachusetts) called parties representing record labels and webcasters before the House Committee on Energy and Commerce to try to broker a deal that would allow online radio stations to survive in something similar to their current form, while still paying labels and artists their due.

The as-yet-unpassed Internet Radio Equality Act proposes that webcasters switch to a percentage-based royalty system similar to the 7.5-percent-of-revenue fee structure enjoyed by satellite and cable radio broadcasters.

Under that scheme, webcasters that produce negligible revenues could escape payments altogether — a prospect that’s unlikely to please the recording industry.

Webcasters could also work our individual deals with SoundExchange.

If a permanent deal is ultimately worked out between the two parties, it would most likely involve something other than a straight percentage fee, but something less onerous than the rates scheduled to go into effect.

Prior to Thursday’s agreement, SoundExchange offered a deal to webcasters that would spare them from paying the minimum per-channel fees until 2008 or later, but few have jumped at the offer. Jon Potter, head of the Digital Music Association, has dismissed it in the past, saying “a billion-dollar ‘minimum fee’ is equally absurd in 2006, 2007, 2008, 2009 or 2010.”


Congress and SoundExchange have heard loud and clear the amazing outpouring of support for Internet radio from webcasters, listeners and the thousands of artists they support. A commitment has been made to negotiate reasonable royalties, recognizing the industry’s long-term value and its still-developing revenue potential.

During negotiations SoundExchange committed temporarily not to enforce the new royalty rates so webcasters can stay online as new rates are agreed upon.

This development is due in great part to the millions of people who have let their Congressional representatives know about their support of Internet radio. Over 125 representatives have cosponsored the bill to this point.

We urge listeners to continue calling their Senators and Representative to ask them to co-sponsor the Internet Radio Equality Act. Thank you.

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