Differential royalty payments for internet radio stations

SoundExchange announced old royalty rates for small webcasters to continue while the big giants will have to pay the revised rates starting from July which are almost triple the old rates.

Under the new royalty fee structure for Internet radio companies made by a panel of judges appointed by the librarian of Congress on the Copyright Royalty Board (CRB) and recommendations of SoundExchange on 6th March 2007, the webcasters will have to face a fee hike of 0.08 cents for every song that they play, almost triple than before, to SoundExchange which is responsible for collecting royalties from Internet radio, satellite radio and digital cable services on behalf of record companies. This hike is expected to rise by 30% every year until it reaches 0.19 cents per song till 2010. Minimum annual payment of $500 is mandatory for all channels.

This move got all the webcasters, ranging from small to big, to protest against Congress but the CRB has refused to make any changes in the new structure on 16th April 2007.

SoundExchange, however, has declared that it would give small internet radio stations, falling in the category of below $1.2 million in annual revenue, the relief of paying the royalty rates as under the Small Webcaster Settlement Act 2002 at least till 2010 i.e. they have the offer to pay 10 percent of all gross revenue up to $250,000 and 12 percent of all gross revenue above that amount.

The big webcasters will not receive any such subsidy and will have to pay the new fees July onwards with a retrospective effect starting 2006.

"The net result of this proposal is that small Webcasters would be guaranteed no increase in royalty payments for 13 years, from 1998 to 2010," SoundExchange general counsel Michael Huppe said.

He added saying that the decision was the outcome of a letter received on Friday which appealed SoundExchange to “initiate good faith private negotiations” and was co-signed by the chairman of the House Judiciary subcommittee on courts, the Internet and intellectual property, Howard L. Berman and Howard Coble.

The reduced rates are said to help the small stations to develop and strengthen their businesses which are still at its initial stages and also a fair way to compensate the artists.

The new rates are believed to have been posing a threat to the web broadcasting industry as they would be forced to back out of business. Webcasters, including National Public Radio, that fall under the revised rates’ category are protesting against the fee hike and have expressed their anxiety questioning the impact of this step on the music industry.

"Pandora has under a hundred employees, Live365 has 35. Under any definition of the word, they're small businesses, and yet they don't qualify," Jonathan Potter, executive director of the Digital Media Association said. "I don't see why SoundExchange sees this as having a positive impact on the industry."

SaveNetRadio, a coalition composed of webcasters publicly rejected SoundExchange’s offer saying that it will end up crippling both the small and big broadcasters.

The Internet Radio Equality Act (IREA) is also being considered by the Congress according to which SoundExchange would receive royalties from the music broadcasters at the same rate as paid by satellite broadcasters i.e. 7.5% of revenue and would put all webcasters on the same royalty fee platform.

The 7.5% royalty rate is way below SoundExchange’s offer and overturns CRB’s decision to charge differential rates extending upto three times the old rates. SaveNetRadio is supporting IREA and considers it as the best method to provide a level playing field for participants in the music industry.

The Executive Director of SoundExchange, John Simson, defended his offer saying that the small webcasters need time to develop their businesses.

"The artists and labels are acting in good faith today, giving small webcasters a break. In return they expect the integrity of their music and their copyrights to be respected. That includes proper tracking and reporting of how their music is used, and that they are properly compensated," he added.

SoundExchange is a non-profit organization and was originally formed by the RIAA but it became an autonomous entity in 2000.