Congress Close to Approving Webcast Royalties Measure

Hoping to rescue small Internet radio stations, Congress was close to approving a last-minute compromise late Thursday night that would temporarily suspend the royalty fees many Webcasters must pay to record labels and artists.

The main question was whether the House would pass the revised version of H.R. 5469 before it adjourned for the year. The compromise, which has broad support from broadcasters, labels and artists, passed the Senate unanimously Thursday.

The new Webcasting bill does not solve most of the problems faced by Internet radio stations, and many proponents of the compromise urged Congress to try again next year to overhaul the way royalties are set. But if passed, the measure would clear the way for small Webcasters to obtain discounted rates that better reflect their ability to pay, rather than simply the volume of music they play.

The latest version of H.R. 5469 was the third attempt by lawmakers to preserve at least some of the free-wheeling nature and diversity of Internet radio, much of which is provided by small businesses, community and college broadcasters and hobbyists. Many of those Webcasters complained that they would be driven out of business if they had to pay the royalty rates set by the Librarian of Congress in July.

Those rates -- .07 cent per song per listener for commercial stations, .02 cent per song for noncommercial ones -- were based on a deal that Yahoo Inc., one of the Internet’s largest broadcasters, negotiated with the Recording Industry Assn. of America. The Librarian ordered Webcasters to pay four years’ worth of back royalties Oct. 20, prompting many stations to run to Congress for relief.

The House unanimously passed a version of H.R. 5469 in October that would have let qualified small Webcasters pay royalties of either 8% to 12% of their revenues or 5% to 7% of their expenses, whichever was greater.

But the quick passage in the House belied the growing opposition to the bill among an array of over-the-air broadcasters and Webcasters, who argued that the rates were unacceptably high. They also feared that the measure would set a dangerous precedent, helping record labels and even songwriters win higher royalties from broadcasters in 2003.

Responding to these complaints, Sen. Jesse A. Helms (R-N.C.) stopped the Senate from taking up the House bill last month. On Thursday, Helms and Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) offered a compromise version that the RIAA had negotiated with a trade association of religious broadcasters.

Instead of enacting specific fees for small Webcasters, the Helms-Leahy version gives SoundExchange -- the royalty-collecting arm of the RIAA -- the right to negotiate retroactive discounts with small Webcasting businesses and noncommercial stations. Any deals with commercial Webcasters must be based on a percentage of their revenues, their expenses, or both.

The bill also suspends royalties for noncommercial, community and college Webcasters until June 20, giving them time to negotiate a deal with SoundExchange. And it would let Sound- Exchange delay royalties for small commercial Webcasters until Dec. 15 so that they can finalize their own discounts.

The bill includes a provision calling for 50% of the royalties to be paid directly to artists, as well as a more controversial section allowing SoundExchange to deduct certain administrative costs before paying royalties to labels and artists.

Mike Roe of Radioio, a small Internet station involved in the earlier deal with the RIAA, praised the bill but said it was just the first step needed to help Webcasters. “Sure, we would love to see a better rate,” Roe said, “but that’s certainly a manageable rate.”