Web Royalty Rates Rejected

The Library of Congress on Tuesday rejected a proposed royalty rate for online music broadcasts that threatened to drive many Internet radio stations out of business.

However, the order by Librarian James H. Billington didn’t indicate whether the final rate would be higher or lower than the hotly disputed proposal from a panel of arbitrators. It said only that a final determination was due by June 20.

Still, many Webcasters viewed the ruling as a sign that their protests had been heard.

“Today’s decision by the librarian offers hope that the final royalty will be more in line with marketplace economics than was the arbitrators’ proposal,” said Jonathan Potter, director of the Digital Media Assn.

Record labels and recording artists, meanwhile, continued to argue that Webcasters shouldn’t be allowed to build businesses around music without paying fairly for it.

“The recording artist is not interested in Webcasters paying a nominal royalty while all of their other bills are paid in full, at the same time the recording artist is being devastated by rampant Internet piracy,” said Jay Rosenthal, who represents the Recording Artists Coalition. “Figure out how to incorporate a viable artist royalty in the Webcasting business plan, or look for a new business. The day of the free ride is over.”

John Simson, executive director of SoundExchange--the licensing and royalties arm of the Recording Industry Assn. of America--said the ruling may spur labels, artists and Webcasters to strike a deal finally on royalties. A likely middle ground is having online broadcasters pay a percentage of their revenues to labels and performers, just as broadcasters pay to music publishers.

Although it seems simple in concept, tying royalties to revenues is tricky in practice. A key issue for major Webcasters with multiple sources of income, such as AOL Time Warner Inc.’s America Online, is which revenues to consider.

One alternative favored by some labels and artists is charging Webcasters a percentage of their expenses, such as the fees they pay for Internet service and computers. Another possibility is developing a multitiered approach that offers lower rates to small, independent Net stations.

These smaller stations have been the focus of the Webcasters’ lobbying efforts, which caught the media spotlight and won sympathy on Capitol Hill. Twenty members of Congress wrote to Billington on April 22, urging him to reject the panel’s proposal in favor of a lower royalty rate and a percentage-of-revenue option.

The librarian of Congress spent the last three months reviewing the arbitration panel’s royalty rates, which were lower than the record companies sought but significantly higher than the Webcasters proposed. The panel recommended charging commercial Internet-only stations 0.14 of a cent per song, and over-the-air stations 0.07 of a cent per song if they “simulcast” their programs on the Web.

Those fees would have to be paid for each person who tunes into a Webcast, which meant a Web-only station broadcasting 15 songs per hour would have owed more than $180 per listener per year.

For a popular outlet such as KNAC, the highest-rated Internet-only station in a recent survey by MeasureCast Inc., the annual bill would have been about $100,000.