Webcasters Win Temporary Reprieve

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The Librarian of Congress rejected proposed Webcast royalty rates that many Webcasters claimed would put them out of business, but the reprieve is only temporary.

The royalty rates would have applied to non-subscription, non-interactive streaming-music services and would be retroactive to 1998. Subscription and interactive sites are subject to separate royalty rates and conditions for Webcasting songs.

If the Webcasters were correct, the proposed rates would have reduced the number of streaming sites accessible by consumer devices intended to play streaming music through home audio systems.

The Librarian's office, which said it will issue its own royalty rates by June 20, didn't state why it rejected an arbitration-panel proposal issued in February. But the Digital Media Association (DiMA), an association of companies involved in distributing and streaming content over the Internet, contends the decision bodes well for its members. The decision "offers hope that the final royalty will be more in line with marketplace economics than was the arbitrators' proposal," said Jonathan Potter, DiMA's executive director.

During recent Congressional hearings, Potter contended that the proposed royalties would put small independent Webcasters, and even the Webcasting subsidiaries of large companies, out of business.

The Recording Industry Association of America (RIAA) said it could live with the arbitrators' decision although it initially opposed the proposal.

The arbitration panel recommended that Webcasters, including Internet-simulcasting AM and FM stations, pay a per-song royalty rate to recording artists and record labels. The rates would be 0.0007 cents per song per listener for simulcasts by AM and FM stations and 0.0014 cents per song per listener for Internet-only Webcasters.

The Copyright Office was required under the Digital Millenium Copyright Act (DMCA) to create the panel in mid-2001 after a two-year impasse in negotiations between Webcasters and the music industry. Webcasters wanted to pay 3 percent of gross revenue to cover royalties, while the recording industry originally sought 15 percent.

During recent Senate Judiciary Committee hearings on May 15, DiMA's Potter contended that, "for thousands of independent Webcasters, community broadcaster Webcasters, and college Webcasters, the reality is very simple: the [panel] recommendation means the end of streaming."

If the recommendation takes effect, he added, "Companies from the largest broadcasters to the smallest startups are likely to cease or significantly diminish Webcasting."

"For Webcasters of every size — no matter the number of performances or the size of the media company — the [panel's] Webcasting royalty leads to an unsustainable business model." Radio Free Virgin, he noted, earned revenues of $23,000 in April 2002, paid royalties to songwriters and music publishers of less than $1,000, but would have had to pay $67,000 more to recording artists and the record companies during that month alone.

The rejected pay-per-play scheme is unique in the broadcast industry. Although AM and FM stations don't pay royalties to artists and record companies for over-air broadcasts, they do pay royalties to song writers and music publishers based on a percentage of revenues, not on the number of times a song is played.

Webcasters already pay royalties to songwriters and music companies.

DiMA can be reached at www.digmedia.org.

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