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Dispute Threatens Net Radio Royalty Deal

Small Internet broadcasters and the music industry have agreed on a last-minute royalty-payment plan but a dispute between musicians and record labels threatens to scuttle the deal, sources said Sunday.

Two weeks before “Webcasters” are due to begin royalty payments to the musicians and record labels whose songs they use, the online broadcasters have agreed to pay a rate of between 8 percent and 12 percent of revenues rather than a previously set per-song rate that many fear could drive them out of business, sources said.

Larger Webcasters, such as America Online and Clear Channel Communications were not included in the agreement and will pay a per-song rate set by the Library of Congress in June. But the arrangement is unlikely to become law unless musicians and record labels agree on how to distribute the millions of dollars of anticipated royalties.

The House of Representatives was set to delay the payment deadline by six months last week, but the two sides said they could work out an agreement on their own.

They will likely ask Congress to codify the agreement in law this week if musicians and record labels can agree how to distribute the money. Under an agreement reached previously, royalty money would be distributed directly to musicians, rather than going through record companies, after lawyers’ fees and other expenses were taken out.

But while the new agreement states that legal fees will be taken out of royalties, it makes no guarantee that musicians will then be paid directly, said Ann Chaitovitz, national director of sound recordings for the American Federation of Television and Radio Artists.

As a result, the deal may be threatened.

“They knew we would object to it,” Chaitovitz said.

A spokesperson for the Recording Industry Association of America said the trade group was still working on the issue.

Under the terms of the deal, smaller Webcasters would pay between 8 percent and 12 percent of their revenues or expenses, whichever was larger, sources said. The arrangement would cover performances between 1998 and 2004.

Small Webcasters had argued for years that it would be easier for them to pay a percentage of their revenues, rather than a per-song rate that could easily amount to more money than they were taking in from advertisements or other sources.

But the head of a trade group that represents many larger Webcasters said the terms of the agreement remained onerous. “This is a deal that a segment of the industry was swilling to accept because they were the segment facing bankruptcy,” said Jon Potter, executive director of the Digital Media Association.

Potter said that established percentage-of-revenue royalty deals, such as those paid to songwriters, typically fall in the 3.5 percent to 4 percent range.

What constitutes a “small Webcaster” remained unclear, but earlier negotiations have set the limit at revenues of less than $500,000 per year, Potter said.

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