D-Day for Webcasters

By Alexandra Berzon (aberzon@redherring.com).

In Internet radio land, D-Day is July 15. That’s when new royalty rules that web radio broadcasters say could kill them are set to kick in.

But a coalition of thousands of large and small webcasters, including Pandora, AOL, and Yahoo, helped craft a bill that would offer an alternative to the new rules and keep them in business. Those rules are set to raise the fees webcasters pay record labels by as much as 1,200 percent on July 15.

The bill, called the Internet Radio Equality Act and introduced in the U.S. House of Representatives April 26 and the Senate May 10, seeks to create a royalty fee that’s a small percentage of webcasters’ revenues. This would replace the new rate structure—retroactive per-song, per-listener fees created by the Copyright Royalty Board—that Internet radio operators say exceeds their revenues. But record labels have painted the webcaster-supported bill as an attempt by giant, greedy Internet companies to bilk musicians out of their deserved rewards.

If all of this sounds vaguely familiar, it is. Congress provided temporary relief five years ago when a similar spat between webcasters and record labels arose. But this time could be different. Although 121 representatives and four senators have signed onto the bill, reports indicate that both houses are reluctant to intervene, and efforts to pick up new sponsors have stagnated, people lobbying for the bill say.

Instead, Congress has pushed both sides to reach a settlement. For instance, Washington, D.C.-based SoundExchange, which collects Internet radio royalty fees for record labels, says it will lower the charge for webcasters if they keep their revenues below $1.25 million annually. Operators, however, rejected that condition, saying it prevents them from growing their businesses.

SoundExchange has also sought to cut special deals with larger webcasting companies that offer massive numbers of personalized stations. SoundExchange has offered to cap until 2008 the per-station “administrative fee” that these companies say will do them in. But the Digital Media Association, which represents large broadcasters, rejected the offer, saying its members need a longer-term solution.

Some webcasters fear all the deal-making could create a schism in the loosely formed coalition they’ve created in response to the royalty rates. “We’ve always known there was a time SoundExchange could make an offer to one group or another, and actively try to split us up,” says Paul Maloney, who programs for small webcaster Accuradio.

While SoundExchange is hopeful that settlements with the various entities will be reached before the July 15 deadline, Internet radio operators are less optimistic. They hope their appeal filed in a federal court will result in a stay to buy some time. “The worst-case scenario is, we’ll see starting July 15 some webcasters falling off, people who say they can’t do this anymore, and that will make news,” says Mr. Maloney. “That will keep the fire going, and hopefully reenergize the bill in Congress. We’re fighting for our lives here.”

But Congress is in recess much of the summer and consumed with larger national issues. “We’ve got this little war going on, we’ve got immigration activity going on, we’ve got a pressing problem on July 15, and Congress just left for holiday,” says Johnnie Floater, general manager for media at Foster City, California-based Live365.