October 7, 2002 1:49 PM PDT

House votes for Webcasters' reprieve

A bill exempting small Webcasters from fees that had threatened to drive many small operations out of business passed the House of Representatives on Monday.

The vote followed a weekend of tense negotiations between representatives of record labels, artists and Internet radio stations. The parties ultimately agreed to a deal that would let small Webcasters pay a percentage of their revenues to labels and artists, instead of a flat per-song fee. Large companies, such as America Online or Microsoft, would not be included in the agreement.

"This represents compromise from both sides," said Michael Roe, owner of RadioIo.com and one of the small Webcasters who participated in the negotiations. Even if it remains controversial, the bill "will provide for the short- and long-term future of the industry," he said.

The bill, which still must pass the Senate before Webcasters will see any tangible effect, marks a surprise political victory for a loose Internet community that had never previously launched any concerted political action.

Webcasters are facing an Oct. 20 deadline for the first payments of royalty fees to record labels and artists for the rights to play music online. Those payments, set by the Librarian of Congress and the Copyright Office in a controversial June ruling, hold Internet radio stations responsible for paying about a 14th of a cent for every song they play for each individual listener.

Big Webcasters complained about the ruling, but small companies, including over-the-air and college radio stations, exploded. Many had revenue streams small enough that it would be impossible to foot the bill under the new regime, they said. Dozens of organizations began shutting down in advance of the fee deadline, while a small group of vocal critics approached Congress for help.

That effort culminated when Rep. James Sensenbrenner, R-WI, introduced a bill that would have put off payments of the new Webcasters royalties for another six months. Designed as much as a tool to force the various sides to the bargaining table as a genuine policy statement, it served its purpose. Negotiations peaked last weekend, finally reaching agreement Sunday after strong pressure from congressional staff.

"We appreciate the assistance of congressional leaders in helping move this process along," the Recording Industry Association of America said in a joint statement with Webcasters. "We look forward to building business partnerships that create the best possible music experience for fans."

Some concern arose late in the process from artists groups that direct royalty payments to artists--a provision of the original royalty plan and a rarity in an industry where labels hold most of the financial strings--were being eliminated.

However, a representative of the American Federation of Television and Radio Artists (AFTRA), one artists group involved in the process, said their concerns had been addressed and that the group supported the bill.

Under the bill, Webcasters that make less than $250,000 per year would pay about 10 percent of revenue, or 7 percent of expenses, as royalties. Whichever figure is greater would be used. Companies that make between $250,000 and $500,000 a year would pay 12 percent of revenue or 7 percent of expenses.

Rates for retroactive payments dating back to 1998 would be just 8 percent of a company's revenue or 5 percent of its expenses, with an installment plan availible. The ceiling for qualifying as a small Webcaster would be raised to $1 million in annual revenue for the year 2004, the last year that the bill's rates would be valid.

Larger companies would pay the original fees as laid out by the Librarian of Congress.

Looking on from their positions scattered around the country, the small Webcasters are dizzied by the experience--even if they've still got another significant hurdle to pass.

"You have to stop and remember that without exception, the most political thing any of us had ever done before was vote," Roe said. "Now here we spent seven months doing something it took the House seven minutes to pass."

 

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