Webcasters Saved From High Royalties

Record companies agreed Friday to defer most of the royalties they’re owed by small Internet radio broadcasters after Congress failed to pass a bill authorizing a discount for those stations.

The move by the Recording Industry Assn. of America saves a number of small Webcasting businesses from certain doom Sunday, when four years’ worth of back royalties would have been due. Although the labels and artists are entitled to collect tens of thousands of dollars from popular small Webcasters, the RIAA asked each station simply to make a down payment of $2,500 or less.

Nevertheless, a wide array of Webcasters and over-the-air broadcasters remained unhappy and continued to press for change. They still want Congress to overhaul the way royalties are set.

In last-minute maneuverings Thursday, former broadcaster Sen. Jesse Helms (R-N.C.) raised an objection that derailed a bill for small Webcasters passed by the House this month, according to sources who backed the bill. As a result, the Senate recessed without voting on the legislation.

Helms spokesman Joe Lanier said the senator didn’t want the Senate “rubber-stamping a bill written by the recording industry in the dead of night.” Several religious broadcasters and other Webcasters from North Carolina were “very unhappy they did not have a voice in the process,” Lanier said, adding that the bill’s proposed royalties were exorbitant.

The dispute centers on the royalties that Internet broadcasters must pay to labels and artists for the songs they transmit. The rates were supposed to be based on the deals individual Internet stations had struck privately with the record labels.

But only one such royalty agreement qualified: a deal between the RIAA and online powerhouse Yahoo Inc. It became the basis for the rates set in July by the librarian of Congress.

Small Webcasters said the rates, which amounted to $100 per year per listener, were ruinously high in light of the prolonged advertising slump. They predicted that free Webcasts, once commonplace on the Internet, would all but vanish as only media conglomerates would be able to offer them.

In response to pleas from small Webcasters, House Judiciary Committee Chairman F. James Sensenbrenner Jr. (R-Wis.) pushed a bill through the House that called for royalties of 8% to 12% of a Webcaster’s revenue or 5% to 7% of its expenses, whichever is higher. It also required annual minimum fees of $2,000 to $5,000.

By contrast, the librarian of Congress had set royalties for commercial Webcasters at 0.07 cent per song per listener, regardless of how little revenue they had raised.

The measure would apply to Webcasters with less than $1 million in revenue since November 1998 and whose revenue remains below $500,000 in 2003 and $1.25 million in 2004. Those eligibility limits would put some mid-size companies in a bind: too large to qualify for the discounted rates but not big enough to attract the advertising needed to cover the per-song fees.

Webcaster David Landis, founder of Los Angeles-based station Ultimate-80s.com, said the rates for small Webcasters were “extremely expensive, but the alternative is far more detrimental.” Without the discount provided in the legislation, he said, he’d owe $25,000 in back royalties for two years of Webcasting. With the bill, he said, he’d owe about $7,000.

When the bill foundered, the RIAA decided Friday to ask for only a portion of the royalties as “another example of our commitment to the Webcasting industry,” said John L. Simson, executive director of the RIAA’s royalties unit.

Although the RIAA is still eager to see the bill pass, critics -- including college radio stations and Webcasting hobbyists -- want more relief.

Some large Webcasters, the National Assn. of Broadcasters and religious broadcasters also are seeking changes to ensure that the provisions for small Webcasters wouldn’t affect their businesses.

Some of the strongest proponents were artists’ unions and trade groups, who are slated to receive 50% of the royalties paid by Webcasters. The bill would put that split, which was originally mandated by federal regulations and contracts, into federal law.