March 7, 2007 4:01 PM PST

New Net radio rules draw fire on Capitol Hill

WASHINGTON--A key Democrat in the U.S. House of Representatives on Wednesday slammed new federal rules that would require many Internet radio services to pay higher fees to record companies.

Rep. Edward Markey (D-Mass.) had harsh words for a ruling released Tuesday by the U.S. Copyright Royalty Board. It proposes raising the amount that commercial Internet radio services pay to record companies by 30 percent retroactively to 2006 and in each of the next three years through 2009. Each station would have to hand over a minimum $500 royalty payment.

The pricing inquiries arose in part because Mel Karmazin, CEO of Sirius Satellite Radio, whose proposed merger with XM Satellite Radio is being scrutinized by House members, seemed to indicate at a House hearing last week that prices would never increase, even on the combined service.

"This represents a body blow to many nascent Internet radio broadcasters and further exacerbates the marketplace imbalance between what different industries pay," Markey said at a hearing here titled "The Future of Radio". The hearing was convened by the House panel on telecommunications and the Internet, of which Markey is chairman. "It makes little sense to me for the smallest players to pay proportionately the largest royalty fee."

Before the CRB's new rules (PDF), which are subject to appeal, most Webcasters calculated their requisite royalty rates based on a percentage of their revenue. According to calculations by the Radio and Internet Newsletter, an advocate for Net radio services, the new retroactive 2006 rate would require Webcasters to pay approximately 1.28 cents per listener per hour--enough to cripple some smaller services, the group argued.

"One can easily imagine Web radio looking more and more homogenized,"
--Robert Kimball, general counsel, RealNetworks

The CRB's decision has imperiled Webcasters by widening the gap between what Internet radio and satellite radio services must pay, RealNetworks general counsel Robert Kimball told politicians. He was also speaking for the Digital Media Association, whose members include Amazon.com, Apple, Microsoft and MP3.com, a property of CNET Networks, publisher of News.com.

If the decision is not overturned, "one can easily imagine Web radio looking more and more homogenized," Kimball said. That's because the higher rates may force Internet radio operators to reduce the number of songs they carry or increase their advertising prices and frequency, which could make it a less desirable place for advertisers to invest, he said.

Kimball suggested the proposed merger between XM and Sirius should be put on hold until Congress "corrects the Copyright Act's bias against the Internet," thereby allowing Internet radio companies to compete more fully with satellite firms.

For instance, the Copyright Act prohibits Internet radio from offering its own recording devices and portable radio devices, but it does not levy the same restrictions on other radio services, Kimball said. (A recording industry-backed effort is under way in Congress, however, to impose new restrictions on satellite radio devices.)

Copyright law also places a number of programming restrictions exclusively on Webcasters, Kimball said, including forbidding them from announcing upcoming songs and playing more than two songs consecutively or four songs over a three-hour period by the same artist.

Rep. Anna Eshoo (D-Calif.) said she believes Internet radio could face threats from another source: "broadband providers who have the ability and incentive to limit consumers' access to the content of their choice." She called for passage of Net neutrality legislation, which failed to pass Congress last year, that would prohibit such a practice.

Questions about XM-Sirius
Although Internet radio played some role in the hearing, many politicians continued to focus their questions about the proposed $13 billion merger between satellite radio players XM and Sirius.

Just a week after a House panel that oversees antitrust issues grilled him, Sirius CEO Karmazin agreed to field similar questions from Markey's committee.

Several politicians on the committee, including Markey, said they planned to scrutinize the proposed deal for potential conflicts with the public interest. Some voiced outright reservations about approval of the deal.

"It's hard to see how prices of satellite radio will go down" as a result of the merger, said Rep. Gene Green (D-Texas).

The broadcast industry opposes the deal on the grounds that combining the two companies would amount to a government-sanctioned monopoly. Consumer groups also have voiced fears that the merged entity would result in higher prices for satellite subscribers.

Karmazin again argued the combined companies would give more programming choices to listeners and would not result in raised prices--at least on the individual services. He reiterated that the same receiver would be able to get content from both services, eliminating the need for customers to purchase another device if the deal goes through.

"You will not pay more than $12.95 for that service after the merger," he told the committee. He added that the combined company plans to offer the option of purchasing smaller batches of channels for a lower price.

Pressed by Markey on the combined company's pricing plans, Karmazin acknowledged that customers who want to receive content from both XM's and Sirius's previous offerings may have to pay more than $12.95. He declined to give an exact figure but estimated that price would be "closer to $10" less than the $25.90 it would currently cost to subscribe to both services.

It will ultimately be up to the Federal Communications Commission and the U.S. Department of Justice to decide whether the merger favors consumers or would hinder competition. FCC Chairman Kevin Martin made it clear as recently as an interview published Wednesday in The New York Times that the companies have high hurdles to jump. The Senate Judiciary Committee also has scheduled its own hearing on the matter for March 20.

CNET News.com's Desiree Everts contributed to this report.

See more CNET content tagged:
Webcaster, Internet radio, Edward Markey, radio, record company

13 comments

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Thank you RIAA
I would like to thank the RIAA for protecting me from the evils of having a choice in what I listen to. What If I heard an "Unofficial" song that I liked?

Please limit all music to official channels, This is a free country (Company?) but freedom should have its limits.
Posted by ralfthedog (1589 comments )
Reply Link Flag
RIAA has to be stopped from its butchery
Having worked in Radio, and currently in TV, we always thought the licensing fees were high, but they were livable. You could play the same song or artist back-to-back for days if you wanted. You could play the same song how many times you wanted. The restrictions on the internet are nothing but insane. Fees are one thing, but the other items are obscene. Internet Radio should sound like RADIO, if it wants. For the radio stations that stream thier broadcasts to the web, this dis-service then applies to them. At least one lawmaker has come to his senses.

This is likened to book burning.
Posted by berick (7 comments )
Link Flag
Copyright Law is Backwards
Reading this it seems copyright law isn't focusing on what can be copyrighted and what legal remedies will exist for infringment. Instead it's focused on what you can and can't do. No recording devices for internet. That's not copyright. That's something else again and it gets in the way of Internet Tivo for shows that have commercials which we have the right to record!

They should stick to the basics and not try to second guess the world. Less listening to lobbies and more to the people they represent.
Posted by Renegade Knight (13748 comments )
Reply Link Flag
Thank You For Putting My Station Out of Business RIAA & SoundExchange
Thanks to Your Greed and Kudos for Killing off Mom and pop Stations That Are Legal and who have paid the fee's under the small broadcasters settlement act, we have obeyed every silly rule of the DMCA and file every report on time but Yet that?s Not enough for you and your record companies you represent.

After 9 years and thousands of Dollars and also buying all the music we play you fine it necessary to kill us off by making It look like were making money off this, I would be more then glad to put my financial records up for review would sound exchange along with RIAA be willing to have there record keeping audited?


What we play on our station is music you won?t hear on today?s radio saturated with payola type air plays.

Photoboy
Posted by soulsvilleonline (1 comment )
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how do we fight against this?
i have had it with RIAA. what can we do to fight them?
Posted by troubpk (2 comments )
Reply Link Flag
Thank you RIAA
I stopped buying all RIAA represented music in 2003 and still do not. When I find artists I just have to have I find it used. Mostly listening to Indies now.
Posted by ckani (10 comments )
Link Flag
Steal music
Keep stealing music to erode CD/download sales until they change their business models. As much as I feel guilty for doing it, I feel more guilty by letting the RIAA exert more power on me...DRM included.
Posted by verucabong (44 comments )
Link Flag
copyright law is killing niche programming
This ruling does for internet streaming the same thing that the repeal of the 7/7/7 rule for broadcasting did 20 some year ago. It allows the media to be concentrated in the hands of the big boys -- killing off the mom and pop operations. Look at how broadcast radio has changed -- nobody seems to serve their city of license, and most stations sound alike. The niche formats perished. Even satellite radio has reduced their niche formats. I had DMX music for over 10 years and have seen many formats get totally 86ed to make room for minor variations of existing formats well represented -- essentially the same playlists -- kinda like a replay of what happened to FM radio. Hey! I have nothing against those formats appealing to the masses -- that's good business practice. What irks me, is the moves afoot that kill off music that is not so "popular," be it a source of music by some budding death metal band, the music of Mantovani and Richard Clayderman, polkas, Dixieland, or German Schlager. The Internet offered a promise of untold diversity..now the copyright folks are killing that. Always thought that if the former USSR has used copyright law to keep out media "subversive" to them, there still would be an evil empire over there to this day. We're getting more and more like they were, and using copyright law to stifle free expression.
Posted by spruceman (38 comments )
Reply Link Flag
It's not CopyRight, it's CopyWrong.
Just change the name of the law. That's what it's about now. By it's wrong to make a copy of darn near anything for any reason. Each year, previously held allowed uses are removed. The length keeps getting extended. Next they will be copyrighting the sounds of passing gas and we'll all die or pay for the right to fart!
Posted by ricbrink (4 comments )
Reply Link Flag
the royalty problem
right now, I gladly pay a niche radio provider, Hearts of Space, and a public radio station, WCNY, for a user id and password to use their services.

I refused to pay another provider, Live365, because what I found did not attract me. I am attempting to persuade another provider, a Public Radio station, to which I already belong, to require a higher level of membership for use of their web streams.

I think that requiring a fee from the listener for the provider is a valid idea. If the provider attracts a large enough paid listener base, the fee problem would go away.
Posted by richard mitnick (29 comments )
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New Rules Deisgned to Kill off Net Radio
I think it's pretty obvious to just about anyone interested in broadcasting of music that the new rules, written primarily by the music and radio broadcast industries - these guys don't want any competition.

Watch for Internet radio stations to spring up off-shore where the FCC and the RIAA can't reach them.
Posted by Arbalest05 (83 comments )
Reply Link Flag
I'm just impressed a Congressman smelled and chased down a rat
I got so used to the previous Congress doing whatever the largest business told them to it was a bit of a shock.
Posted by missingamerica (6147 comments )
Reply Link Flag
Yea! Change in Congress is good
Yea, the best sign is that Congress is not selling out like they used to. Remember this when you vote for President next year.

Government needs to get back to being, "government of the people, by the people, for the people."
We need to roll back these stupid copyright laws that are more like gifts to corrupt/greedy recording industry types with no vision of a better future.

How can the Internet truly reach its potential in this country if our government continues to go against its people by propping up greedy businessman with weak ideas about the internet with this type of dumb legislation?
Posted by tetsuyo (50 comments )
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