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Bill Proposes Royalty Relief for Webcasters

Internet: A measure in the House seeks to help stations facing possibly crippling payments to record labels and artists.

July 27, 2002|JON HEALEY | TIMES STAFF WRITER

Responding to complaints from hundreds of Webcasters, 10 members of Congress proposed Friday to give most Internet radio stations temporary relief from the royalty payments they must make to record companies and artists.

Their bill, introduced by Rep. Jay Inslee (D-Wash.), comes one month after Librarian of Congress James H. Billington set a royalty rate of 0.07 cent per song, which amounts to $92 per listener per year for Webcasters playing a steady diet of music. Many small Webcasters said that rate would drive them out of business, and more than 50 companies have taken their stations off the Web.

Inslee's bill would overhaul the arbitration process used to set royalties, making it easier for small businesses to participate and probably resulting in a lower rate. Until a new rate is set, Internet radio stations that fit the federal government's definition of a small business would not have to pay.

But with online advertising slumping and the Webcasting industry in its infancy, most online broadcasters currently qualify as small businesses, representatives of the recording industry said.

As a result, the bill would force labels and artists to subsidize the financially troubled Webcasting industry, said John L. Simson of SoundExchange, a subsidiary of the Recording Industry Assn. of America that collects digital broadcasting royalties. He urged Congress to let small Webcasters, labels and artists work out a compromise on their own.

"We might have been a convenient scapegoat," Simson said, "but if you look at all their numbers, they were losing tens of thousands of dollars."

Inslee said the bill was needed to fix problems caused by Congress when it established the process for setting royalties in 1998. The arbitration process was so expensive that small businesses "had no real way to participate," he said.

Making matters worse, Inslee said, arbitrators had to base the royalties on the deals that labels and Webcasters had negotiated privately. But there was only one, between the RIAA and Yahoo Inc., so the resulting rate did not truly reflect market conditions, he said.

The first payments are due in mid-October, when Webcasters will have to pay almost three years of back royalties, amounting to about $260 per listener for full-time online broadcasters.

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