Webcasters Free to Reach Deals

The Webcasting bill passed by Congress early Friday morning could save many small Internet radio stations from financial ruin, but it does little to solve the fundamental problems facing the Webcasting industry.

The bill, H.R. 5469, leaves numerous Webcasters in the same dilemma they’ve been in for months: Unless they can persuade record labels to accept lower fees, they’ll have to pay a sizable amount of their revenues in royalties to labels and artists.

The measure would give SoundExchange -- the royalties arm of the Recording Industry Assn. of America -- the freedom to strike deals with small commercial Webcasters and noncommercial Internet stations, including college and community broadcasters. It also would give those Webcasters a one- to six-month reprieve from royalties so they can try to negotiate discounts.

One group of small Webcasting businesses already has reached agreement with the RIAA, and the bill would allow them to implement that deal. The same terms would be available to other small Webcasters, but some say the rates -- either 8% to 12% of revenue or 5% to 7% of expenses -- are unacceptably high.

The prospects for other Webcasters seeking lower rates aren’t good, said attorney David Oxenford, who bargained for the group. “I know how hard our group had to fight to get the numbers that we got,” he said.

But the political support that small Webcasters found in Congress should help them as they seek better terms, said Alex Alben, vice president for public policy at Webcasting technology firm RealNetworks Inc.

“I think the RIAA is negotiating in good faith to create a stable base for Webcasting,” Alben said. “And they should, right? They get paid a royalty on Webcasting; they don’t get paid a royalty on regular broadcasting.”

Internet radio has grown rapidly in popularity since it was launched in the mid-1990s. Its hallmark is a diversity of programming that’s hard to find on conventional radio.

That’s why many artists and labels are eager to see Webcasting flourish. However, they want entrepreneurs to pay for the music they use to build their businesses.

Despite their growth, many Webcasters have struggled financially in the midst of a broad advertising slump. Low royalties, they say, will give them time to establish themselves.

Stations that don’t strike their own deals must pay the rates set in July by the Librarian of Congress: 0.07 cent per listener per song for commercial stations, and 0.02 cent for noncommercial ones.

Hilary Rosen, chief executive of the RIAA, said her group would rather negotiate deals with Webcasters than have the royalties set by arbitrators.

“I understand that people don’t want to pay what’s there. But businesses have costs, and this is one of their costs.” She added, “I’m not sure that we have further obligation to build [the Webcasters’] profits. We’ve extended ourselves pretty far.”

The two sides have had trouble finding a middle ground, and few Webcasters have been able to strike royalties deals. The shortage of negotiated agreements led federal arbitrators and the Librarian of Congress to rely on a single deal between the RIAA and Internet powerhouse Yahoo Inc. when setting royalty rates for the entire industry.

That’s one of the fundamental flaws in the arbitration process, critics say. Another problem is the expense, which deters small and noncommercial Webcasters from taking part.

Although there was a broad consensus in favor of overhauling the way royalties are set, there wasn’t enough time late in the session to do that, said David Whitney, chief counsel for Sen. Jesse Helms (R-N.C.). A former broadcaster, Helms intervened in the waning days of the Senate to help reach the final compromises in H.R. 5469.

The main goal was to clear the way for negotiated settlements, rather than imposing rates and terms on Webcasters -- particularly those who weren’t at the bargaining table, Whitney said. He added that the RIAA has said it wants to negotiate market-based rates, “and that’s a process we want to encourage.”