June 20, 2002 3:15 PM PDT

Feds cut Webcasters a break on fees

Federal copyright regulators on Thursday set new royalty rates for online radio companies, halving previously proposed fees that had drawn bitter criticism from Net companies.

Under the new rates, Web companies would pay 0.07 cent, or about a fourteenth of a cent, every time they played a song online for a single listener. Radio stations would pay the same amount when they put their music programming online.

Even with the dramatic drop in fees, Webcasters said the decision could cripple many businesses.

"It still looks pretty oppressive," said Rusty Hodge, who operates SomaFM, a popular San Francisco-based set of electronica stations. The amount his stations would have to pay is "still way more than our revenues are," he said.

A RealNetworks representative was also disappointed by the new fees.

"It's a step in the right direction," said Alex Alben, a vice president at the streaming media company, which creates software used by many online radio companies. "But to be honest, it's still a pretty disappointing result for the Webcasting industry."

The Recording Industry Association of America, which represents the major music labels, blasted the decision as too low.

"The import of this decision is that artists and record labels will subsidize the Webcasting businesses of multibillion dollar companies like Yahoo, AOL, RealNetworks and Viacom," RIAA President Cary Sherman said in a statement. "The rate...simply does not reflect the fair market value of the music as promised by the law."

A bitter battle
Thursday's decision by the Librarian of Congress caps years of bitter wrangling between record labels, online companies and old-fashioned radio stations. As such, it finally sets the ground rules for the Webcasting industry--much of which is struggling financially despite attracting millions of listeners a day.

The decision is likely to remain controversial, however. Record labels had asked for a considerably higher sum. And while large companies such as America Online will be able afford the new fees, smaller garage-operated Webcasters may still find it a financial burden.

As part of landmark digital copyright legislation passed in 1998, Congress said "Webcasters" would be required to pay labels and artists a fee to play their music online. This created a new type of royalty, as ordinary radio stations have long paid songwriters a small royalty but have never paid labels or artists themselves.

But Congress declined to say exactly how much the online companies should pay per song. For years, record labels and the biggest companies attempted to negotiate an appropriate rate, but they could not find a compromise between wildly different proposals.

A few companies, with Yahoo as one of the only recognizable names, cut their own separate financial peace with the labels. Most companies waited, taking advantage of a legal provision that allowed them to balk at paying royalties until the Copyright Office set an official rate.

Last summer, the issue finally went to an arbitration panel appointed by the Copyright Office, which listened to both sides with considerable skepticism. It made its suggestions for the royalty rate in February, splitting the difference between labels' and the big streaming companies' proposals.

That panel's recommendation of 0.14 cent per song, per person listening doesn't sound like much. But small Webcasters erupted. That would add up to a figure that far exceeded many small companies' annual revenues, putting them out of business, they said.

Looking for an appeal
In a surprise decision last month, the Librarian of Congress rejected that report, however. In Thursday's decision, regulators said "significant portions of (the panel's recommendations) were arbitrary or contrary to law."

In their decision, regulators rejected proposals that the fees be based on a percentage of revenue, which some Webcasters said would be fairer.

Because "many Webcasters are currently generating very little revenue, a percentage of revenue rate would require copyright owners to allow extensive use of their property with little or no compensation," the regulators' report said.

The first monthly payments for companies that play music online are due in November, for the period beginning in September. Back payments will also be due in October for any music played online since Oct. 28, 1998.

Some small stations began pulling their own plug just moments after the decision was made available online.

"Tag's Trance Trip," a rave-style station, posted a bitter "Off The Air" farewell message on its site.

"I regret to inform everyone that I must shut off the stream today at 5 p.m., until further notice. I cannot afford these rates," wrote Stephen 'Tag' Loomis, the site's operator. "Special thanks to the RIAA and lobbyists who helped destroy my dream. Thank you for listening, you've enriched my life, as I hope I have yours."

Music industry representatives were equally bitter, however.

"There is a reason why we have the expression, 'I can get it for a song,'" said John Simson, executive director of SoundExchange, the organization created by record labels to collect and distribute the Webcasting fees. "It is because we, as a culture, devalue artistic creation. This is just another example of that cultural discrimination."

Either side can appeal the decision to the U.S. Court of Appeals for the District of Columbia Circuit. An RIAA representative said the organization would "weigh all of our options" as it studied the report.

"I can guarantee the recording industry will appeal this," said Adam Cohen, a partner at New York-based law firm Weil Gotshal & Manges, which represented a group of more than 20 Webcasters in the arbitration, and who also called the decision a disappointment. "If I were a betting man, I'd bet there will be an appeal of this decision."

 

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