Less Stringent Net Radio Royalty Plan Draws Fire

The recording industry appears to be changing its tune, now offering to defer hefty new royalty rates for smaller Internet radio stations that might otherwise be forced to tune out due to high costs. However, it doesn’t appear the proposed new price structure has won over any fans in the opposition’s corner.

SoundExchange, the organization responsible for collecting and distributing royalties from Internet and satellite radio operations, proposed Tuesday to give those with annual revenues of US$1.25 million or less a substantial break in fees.The move is likely an attempt to quell a growing chorus of complaints from Internet radio operators and to stave off government action.

At What Cost?

If adopted, small Web broadcasters will pay royalty fees of 10 percent of gross revenue up to $250,000, plus 12 percent of gross revenue exceeding that amount until 2010, according to SoundExchange.

“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,” said SoundExchange General Counsel Michael Huppe.

Still Not Good Enough

SoundExchange is drawing criticism for not fully understanding the issue.

The proposal would throw large webcasters under the bus and put an end to small webcasters’ hopes of one day becoming big, argued Jake Ward, a spokesperson for SaveNetRadio.

“Under government-set revenue caps, webcasters will invest less, innovate less and promote less,” Ward told the E-Commerce Times. “Internet radio would become a lousy long-term business, unable to compete effectively against big broadcast and big satellite radio.”

Political Pressure

The offer from SoundExchange comes amidst growing Congressional pressure for a solution to the vexing issue of Internet radio royalties.

After nearly two years of hearing arguments from some of the country’s biggest radio companies, theCopyright Royalty Board, a body created by Congress to settle royalty disputes in the music industry, decided in March on a higher fee structure for Web-based music broadcasts.

That moved sparked an outcry from almost all positions on the music broadcasting dial, as smaller players claimed the royalty structure would stifle their business, and larger broadcasters claimed the increased costs were unfair.

Pols Step In

In response to the CRB, several members of Congress introduced legislation to annul the pending royalty rate increase, which they say threatens the fledgling industry.

Radio broadcasters and online media companies have also challenged the ruling, claiming Internet broadcasters would have to pay three times as much as their over-the-airwaves counterparts for the right to play music.

Many Internet radio stations view the ruling, which went into effect on March 5, as a crippling blow.

The Big Players Cry Foul

It is not just the little guy who has problems with the royalty rate structure.

A consortium of radio industry heavyweights involved with the case — Clear Channel Communications, National Public Radio and several other groups — claim the CRB’s ruling also places unreasonable demands on them.

For example, under the existing rules, organizations broadcasting music online must now track the number of users downloading and listening to each song played.