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Web radio royalty rate for songs criticized

In a decision criticized by both Webcasters and the recording industry, a government official Thursday ruled that Internet radio stations must pay royalty rates that are 50 percent less than proposed by a federal panel.

Librarian of Congress James H. Billington has ruled that all Webcasters will have to pay 0.07 cents per song per performance, compared with the 0.14 cents per song per performance recommended by a federal arbitration panel in February.

But Billington stunned Webcasters by flatly rejecting their call for royalty rates that are based on a percentage of revenues.

While the recording industry said Billington’s decision still does not adequately compensate artists, smaller Webcasters said the decision could force thousands of Internet radio stations to shut down.

“This spells death for small, free Internet stations,” said a disappointed Rusty Hodge, general manager and program director for SomaFM.com of San Francisco.

“We’ll stay on the air for a few more days to make some noise, to get our listeners to write letters to Congress,” Hodge said. But if the new rate stands, he said, “We’re going to have to pull the plug.”

Billington ruled in a dispute over how much Internet radio stations should pay to compensate the record industry for songs they play. Webcasters – like over-the-air stations – pay fees to music publishing companies. But traditional stations have not had to pay royalties to recording companies.

A panel called the Copyright Arbitration Royalty Panel, or CARP, proposed in February that companies that broadcast only on the Web would pay the higher rate, with radio stations that simulcast on the Web paying the lower rate.

Billington established one rate, effective Sept. 1, with the bill for royalties owed due on Oct. 20. The royalties are retroactive to October 1998.

However, Billington agreed with CARP that basing rates on a percentage of revenues “was less desirable for a number of reasons,” including the fact that many Webcasters “are currently generating very little revenue.”

But Hodge said that’s the problem, noting that CARP’s rates were based on a separate deal cut between the Recording Industry Association of America and Web portal Yahoo Inc. in July 2000, a time when Internet advertising and investment dollars were still flowing.

Now, Hodge said his small company would have to pay $500 per day – “and we don’t bring in $5,000 a month right now.”

Raghav Gupta, chief operation officer of Live365 Inc., a Foster City firm that serves about 40,000 independent Webcasters, said large media companies have the resources to pay the proposed royalties, but “it’s going to be devastating to a lot of smaller Webcasters.”

Gupta said Live365 would have to “take a close look at our business model” to survive, but is hoping either congressional action or a court appeal reverses Billington’s ruling.

In a joint statement, U.S. Reps. Jay Inslee, D-Wash., and Rick Boucher, D- Va., said they were considering legislation to lower Webcaster fees because the current rate “will lead to the elimination of hundreds of small businesses and does not provide a viable model to serve both the Internet radio industry and recording artists.”

The recording industry association’s president, Cary Sherman, however, said the rates were still too low.

“The import of this decision is that artists and record labels will subsidize the Webcasting businesses of multibillion dollar companies like Yahoo, AOL, RealNetworks and Viacom,” Sherman said in a statement. “The rate… simply does not reflect the fair market value of the music as promised by the law.”

“There is a reason why we have the expression, ‘I can get it for a song,’ ” said John Simson, executive director of SoundExchange, the organization charged with collecting the fees. “It is because we, as a culture, devalue artistic creation. This is just another example of that cultural discrimination.”

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