The U.S. Senate on Tuesday afternoon passed the Webcaster Settlement Act, the legislation that lays the groundwork for Web radio stations to negotiate reduced royalty rates for the songs they stream over the Web.
The bill passed through the House of Representatives on Saturday and is now headed to the White House, where President Bush is expected to sign it.
"I'm relieved, optimistic, and grateful to our listeners," said Tim Westergren, founder of Pandora, a Web radio station and music-suggestion engine.
Webcasters have long complained that the royalty rate to stream music is too high for Web radio stations to generate any profit. Representatives from Internet radio and the music industry have been in negotiations for more than a year. Recently, the two sides have gotten closer to an agreement and both say they are confident a deal is within reach.
The deal needs the blessing of Congress because the parties seek a statutory license. Under such a license, any Web station is allowed to play songs that fall under the license without seeking permission. In return, Webcasters are required to pay the negotiated rate.
Westergren, who emerged as a de facto spokesman for the bill, said that had it not made it through Congress, a long delay would have ensued before an agreement could be reached, a situation he says would have driven some Web stations out of business. That's why Webcasters and representatives from the music sector, including representatives of the Recording Industry Association of America, teamed up to get the bill passed.
Believe it or not, the RIAA was in there fighting shoulder-to-shoulder with Pandora and the Web radio stations to fend off any threats to the legislation.
The most imposing obstacle came from traditional broadcasters, who lobbied hard the past weekend to snuff the bill for reasons that are still unclear. Rep. Howard Berman (D-Calif.), who has a history of voting for pro-copyright-holder issues, helped mediate a settlement with the National Association of Broadcasters, and the group dropped its opposition.
"This is a welcome and encouraging development and a sign of the constructive working relationship between the music industry and Webcasters," said Mitch Bainwol, the RIAA's chairman and CEO. "Together, we want to make this marketplace work for both music fans and music creators."
It's important to note that the bill doesn't guarantee a settlement between the Webcasters and music industry. They now have until February 15 to reach an agreement.
See Kara Tsuboi's interview on Monday with Westergren, in which he explains why he's fighting to save Web radio.
Technology companies are supposed to be wide-eyed novices on Capitol Hill. I've read that they don't spread enough money around or aren't hip to the ways of Washington.
Regardless of whether that's true, this weekend saw Pandora, a struggling music service, whip up enough support among fans of Web radio to help persuade the House of Representatives to unanimously pass the Webcaster Settlement Act on Saturday, according to multiple people associated with the bill. The proposed legislation is designed to give Internet radio stations added time to negotiate a settlement with the music industry on reduced royalty rates.
Lower rates are vital to the survival of Internet radio stations, according to Tim Westergren, Pandora's founder, who pleaded with the public on Friday to call their congressional representatives and demand they support the bill. Webcasters and the music industry are close to reaching an agreement, but if the legislation fails to pass it could push the discussions back months and deliver a financial death blow to some services, Westergren said.
According to one Washington lobbyist, phone calls from the public were one of the factors that helped the legislation pass in the House and now have it headed for a Senate vote within the next two days without any major parties gunning for it.
Two other factors, however, likely played larger roles in getting the bill through the House: the lobbying efforts made by National Public Radio and some 12th-hour deal making to appease traditional radio broadcasters, who were trying to kill the legislation, according to sources.
"You know," said a fatigued Westergren, "it was a nerve-racking day."
In crunch time, Howard Berman came through
Saturday started with lobbyists for the National Association of Broadcasters "making a huge press in the House, blasting every (Congressional representative's) office" with appeals to kill the legislation, according to a lobbyist with knowledge of the events.
NPR, the publicly and privately funded nonprofit organization created by Congress in 1970, has plenty of friends in Washington. The group, which produces Webcasts and supports the bill, e-mailed members of Congress on Saturday, explaining how much it needed the legislation and that a deal on a new royalty rate couldn't be struck without it, sources said.
The real deciding factor came when Rep. Howard Berman (D-Calif.) met with members of the NAB. They told him that they feared their Web competitors would get a deal done first. Under the terms of the legislation, SoundExchange, the body that collects royalties and is part of the Recording Industry Association of America, has until Dec. 15 to negotiate a new rate. The NAB apparently was worried that the deadline didn't give the organization enough time to strike its own royalty agreement.
"Berman said 'Fine, we'll extend the date until Feb. 15, which gives you two more months to talk,'" said one music-industry source with knowledge of the discussions. "There isn't anything in the act that prevents traditional broadcasters from reaching their own royalty rate."
That did the trick, according to the source. Dennis Wharton, an NAB spokesman confirmed Saturday night that the NAB met with Berman and that the deadline was extended. He said the trade organization has dropped its opposition in both houses of Congress.
This means that unless something unforeseen happens, the Webcaster Settlement Act should pass, according to insiders.
Then what? Internet radio stations must still reach an agreement with the artists and labels about how much to pay them for streaming their music over the Web. Sources on both sides say they are closer than ever before to a number, and should the Webcasting bill pass in the Senate, they predicted that a deal could be reached as early as next month.
Update at 5:50 p.m. PDT: The House actually did weigh in on the bill on Saturday, passing it unanimously by a voice vote.
Proponents of Web radio stations are predicting a very close vote in Congress on a bill that they paint as life or death.
The House of Representatives is set to vote Sunday on the Webcaster Settlement Act, which would allow Web radio stations to negotiate with the music industry for a royalty rate lower than what Congress mandated last year.
Companies like Pandora are seeking a reduced rate and say that they simply cannot afford to keep operating with the higher rate.
The bill was scheduled to go to the House floor Saturday morning but was postponed twice. Meanwhile, the National Association of Broadcasters, which opposes the bill, was also using the extra time to sway lawmakers.
Because the bill is being considered under a suspension of rules, it will require a two-thirds majority to pass.
Asked which way Congress was leaning, Pandora founder Tim Westergren said it is too close to call.
"NAB is gunning full bore to kill the bill," Westergren said. "It's become a straight up battle between NAB lobbying might and constituents. Calls from listeners have been raining in since last night. (It's) touch and go."
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