May 26, 1999 5:00 AM PDT

Deadline looms in Webcast license fee talks

The period for negotiations over a license fee to be paid by Webcasters such as Internet radio firms to record companies ends tomorrow, but both sides say it is unlikely they will reach an agreement on time.

An amendment to the Digital Millennium Copyright Act, which was signed into law in October 1998, calls for Webcasters to pay a license fee to record companies for the performance of a sound recording. That fee is in addition to what Webcasters already pay to license groups such as ASCAP and BMI, which represent composers, publishers, and authors.

The Recording Industry Association of America (RIAA), which represents the major U.S. record labels, and the Digital Media Association (DiMA), the trade group for Webcasters, have had six months to negotiate that fee.

"I do not anticipate that we will reach an agreement this week," Jonathan Potter, director of DiMA, told CNET News.com. "This is a particularly difficult negotiation for both sides, because this is a brand-new industry with very fluid business models."

Steven Marks, vice president and deputy general counsel for the RIAA, agreed with Potter's assessment.

If the two parties don't come to a consensus, they could jointly file to the U.S. Copyright Office for an extension. If they decide not to file, the issue will be turned over to an arbitration. If only one side files for an extension, chances are the Copyright Office will not grant the extension for fear the additional time would not be productive, Potter said.

Both Potter and Marks said the spirit of the negotiations has been cooperative. The negotiations have been "fair, productive, reasonable--even friendly," Potter said. "But that doesn't always get you to the finish line."

Since the negotiations began six months ago, the landscape of the online music space has shifted rapidly and dramatically. Large players have bought other firms or have been swallowed up themselves, as in the case of DiMA member Broadcast.com agreeing in March to be acquired by Yahoo.

In addition, Internet radio has evolved from a fledgling business into a must-have feature on portals and emerging music hub sites, such as Tunes.com and Viacom's upcoming site, code-named the Buggles Project. Viacom acquired Net radio firm Imagine Radio to incorporate it into the hub site.

Setting a standard
Part of the difficulty in reaching an agreement over license fees is the trepidation over setting a legal precedent that will stick in the future, Potter said.

"DiMA is a very different organization than it was when we agreed to this legislation," Potter said, adding that it has added 13 new members since then, including America Online, Diamond Multimedia, and Westwind Media.

"If there was a way to set up a formula without setting a precedent, [agreeing on a fee] would be much easier," Potter said.

A spokeswoman from the Copyright Office declined comment, except to say that there is "no way to know in advance" what the office will do if faced with a request for an extension.

Neither Potter nor Marks would disclose the numbers discussed during the license fee negotiations.

Under dispute
The amendment relates to a contested section within the copyright law, the Digital Performance Right in Sound Recordings Act, which took effect in 1996. Varying interpretations of the act led to the debates that eventually resulted in the amendment.

Specifically, the act states that "the performance of a sound recording publicly by means of a digital audio transmission, other than as a part of an interactive service, is not an infringement...if the performance is part of a nonsubscription transmission."

Under the act, a "subscription" service is one for which users pay a fee, and an "interactive service" is one in which users can request specific songs and hear them on demand.

Some observers have said the fee paid by subscription services will be a benchmark for the fee Webcasters will pay; subscription services currently pay 6.5 percent of their gross revenues.

Earlier this month the RIAA entered a licensing agreement with Musicmusicmusic, which operates the RadioMoi.com Internet radio station. Musicmusicmusic is not a member of DiMA.

Marks declined to disclose the terms of the Musicmusicmusic agreement, which also could be seen as a benchmark for the fee to be paid by other broadcasters. Potter said DiMA also had not yet been told the terms of the deal.

Marks pointed out that the rate agreed upon by DiMA and the RIAA is not the only arrangement the law will allow. Webcasters still will have the option to negotiate a fee for themselves either with the RIAA or with the individual record companies.

"There will be different rates and different licenses for different services," Marks said. "I don't think anybody envisions a one-size-fits-all [setup], because there are too many business models out there."

 

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