Royalty Rates Set for Webcasters

Some Webcasters were given a stay of execution in late June, when the Librarian of Congress announced that they would be required to pay royalties at half the rate proposed by an arbitration panel last winter.

The new rate, announced June 19 by James H. Billington, will be .07¢ per song per listener, and will apply to pure Webcasters as well as over-the-air radio stations that put their programming on the Internet. Royalties will be retroactive, levied from October 1998 until the end of 2002. A new, and still undetermined, rate will be instituted by New Year's Day, 2003. The US Copyright Office, which oversees the collection of royalties, is a division of the Library of Congress.

The royalty issue had been a desperate one for small Webcasters, many of whom complained that paying the rate of 0.14¢ per song per listener proposed by the Copyright Arbitration Royalty Panel (CARP) in February, would effectively put them out of business. Paying accumulated fees for more than four years, even at the reduced rate, may still be impossible for some of them, according to Jonathan Potter, executive director of the Digital Media Association (DMA).

Webcaster MusicDish circulated a paper written by company founder Eric de Fortenay and economist Alain de Fortenay describing the methodology used by CARP to justify its proposal as "fundamentally flawed, resting on a 'house of cards' built upon untested assumptions and contradictory findings." A June 21 press release from the company claimed that "the recommendations issued by CARP would have charged Internet-only Webcasters twice as much as simulcasters to stream music over the Web." Webcasters had asked for a royalty system based on individual business revenue, a proposal that Billington said would be impossible to administer.

Traditional radio stations had asked to be exempted from paying, pointing out that they already pay royalties to songwriters' organizations like BMI and ASCAP. (American radio stations pay royalties to songwriters and composers, not to artists or copyright holders.) Even with Billington's cutting the rate in half, the National Association of Broadcasters (NAB) issued a statement that the fees would impose "a prohibitive financial burden on radio station streaming and will likely result in the termination of this fledgling service to listeners." Media research firms believe that almost 30% of Americans over the age of 12 have "streamed" Internet radio.

Representatives of the music industry had campaigned for higher rates than those proposed by CARP, claiming—with considerable justification—that artists deserve to be paid for their work. The Recording Industry Association of America (RIAA) responded to Billington's decision with a statement that the announced royalty rates would put the music industry in the position of subsidizing Webcasting businesses—both independents and corporate entities. "The rate . . . simply does not reflect the fair market value of the music as promised by the law," said RIAA president and general counsel Cary Sherman in a prepared statement on June 20.

Webcasters may appeal Billington's decision and/or ask for congressional intervention. Reports from Washington indicate that neither gambit is likely to bring them much relief.