- The Washington Times - Thursday, May 16, 2002

A key senator said yesterday royalties that Internet radio stations will have to pay record labels and artists should not be so high that the young, struggling industry is threatened with insolvency.
Sen. Patrick J. Leahy, Vermont Democrat and chairman of the Senate Judiciary Committee, also urged Internet radio stations, artists and record labels to reach an agreement in their ongoing dispute about royalties and avoid costly litigation. But the senator stopped short of criticizing the copyright arbitration royalty panel's proposal, which started a raging debate three months ago.
"You may want to consider whether it's time to seek a global settlement. Artists and labels should be compensated, but small companies should continue [doing business]," he said during the hearing, which was broadcast on the Web.
Internet radio stations, record labels and artists are awaiting a May 21 decision from James H. Billington, librarian of Congress, to resolve a dispute over how much the stations, or Webcasters, should pay the labels and artists who own the music.
The Copyright Arbitration Royalty Panel said in February that Internet radio stations must pay royalties equal to 0.0014 cents per song, per listener. Nonprofit Webcasters and standard radio stations that stream songs to a Web site would pay half that rate.
Mr. Billington can accept the proposal, call for a new panel to look at the issue or reject the proposal. Mr. Leahy predicted a wave of litigation if Mr. Billington rejects the royalty proposal because parties involved in the dispute can appeal the decision in federal court.
Seemingly no one involved in the dispute is happy with the panel's decision. In fact, Webcasters and record labels hoped for a royalty rate based on a percentage of revenue, rather than a per song-per listener fee.
Webcasters have repeatedly said the royalty would amount to their largest expense and threaten them with bankruptcy.
"It will force us to close, and I do not believe that is what Congress had in mind" when it passed the law in 1998 that authorized the royalty, said Frank Schliemann, founder of Vermont Webcaster Onion River Radio.
Webcasters pay an estimated 4 percent of their revenue to composers and music publishers, but they have never paid royalties to musicians or record labels. Onion River Radio paid $170 in the first three months of the year to composers and publishers. If the new royalty was in effect, it would have cost Mr. Schliemann $1,880, he said.
Hilary Rosen, chief executive of the Recording Industry Association of America, said Webcasters must pay the fee, just like they have to pay other business expenses.
"All of these businesses are already losing money. To say they are going to go out of business because of copyright fees is unfair," she said.
Mrs. Rosen also said she is willing to accept the panel's decision, even though the industry wanted Webcasters to pay a higher royalty.
"We think [the copyright arbitration royalty panel ruling] was fair, even though we didn't like the results. But we're willing to live with them," she said.
Independent artists are divided on the issue.
A group of 138 artists and independent labels said in a letter to Mr. Leahy dated Tuesday that the royalty rate is so high it could force many Webcasters out of business. If that happens, the Web's diversity would be threatened because it no longer would be a haven for independent music, it would resemble standard radio, and sales by ndependent artists would fall, they wrote.
"I think the success of Internet radio is proof that [consumers] want variety," Mr. Schliemann said during the hearing. Only about 9 percent of Americans listen to Internet radio during any given week and 95 percent of Americans listen to standard radio in a week, according to research from Arbitron Webcast Services, in New York.
But Dan Navarro, a recording artist and member of the American Federation of Television and Radio Artists, said at the hearing the panel's decision must stand and artists must be paid royalties because they need the money.
"I cannot overestimate how important this new income stream will be to royalty artists and session artists and players. We are also small businesses," he said.
Mr. Leahy said he may hold more hearings on the issue.

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