Internet royalty rates slammed

The saga of Internet radio royalty rates continues.

SoundExchange, the group that collects and distributes music royalties to artists and record labels, yesterday proposed a deal it says would give small Webcasters “additional time to build their businesses” by setting special royalty rates for qualifying Internet radio companies.

The offer is a response to a letter from a House subcommittee that asked the organization to negotiate with small and non-commercial Webcasters to ensure their survival in light of a March ruling by the Copyright Royalty Board to increase royalty payments for Internet radio.

“Artists and labels are offering a below-market rate to subsidize small Webcasters because Congress has made it clear that this is a policy it desires to advance, at least for the next few years,” said John Simson, executive director of SoundExchange.

Under SoundExchange’s proposal, Webcasters with annual revenues below $1.25 million would pay 10 percent in royalty fees on revenues up to $250,000, at which point they’d pay 12 percent.

Webcasters that take in more than $1.25 million a year would operate under the new — and hotly contested — March numbers, which set per-song, per-user streaming rates for five years. Those rates are retroactive from Jan. 1, 2006, at $.0008 per song, and more than double through 2010, when they reach $.0019 per song.

Internet radio stations have said the new rates will cause some broadcasters to owe more in royalties than they make in advertising, killing the industry. Copyright authorities denied Webcasters’ requests for a new hearing and the rates are scheduled to take effect on July 15.

There is no love lost between SoundExchange and the SaveNetRadio Coalition, which is leading the charge for opponents of the new rates.

“The proposal that SoundExchange made would decimate the Web radio industry,” said SaveNetRadio spokesman Jake Ward, calling the distinction between small and large broadcasters “disingenuous.”

Mr. Ward used Internet radio broadcaster AccuRadio as an example.

The company, which took in revenues just under the $1.25 million cap last year, owed $144,000 in royalties; if the company had sold just $5,000 more in advertising, it would have been classified as a large Webcaster and owed $1.8 million in royalties, he said.

“There’s no question that Webcasters with a government-set revenue cap will invest less, innovate less and promote less,” Mr. Ward argued.

“When a company’s revenue or listenership reaches a certain level, our proposal appropriately provides that they share those full gains with the artists who helped create this opportunity for them,” said Michael Huppe, SoundExchange’s general counsel.

Legislation that calls for royalties of 7.5 percent of revenues — currently the amount paid by the satellite radio industry — has been introduced in both chambers of Congress. The House version has 91 sponsors, Mr. Ward said.

Channel Surfing runs on Wednesdays. E-mail krowland@washingtontimes .com.

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