Royalty on Internet music rejected by copyright office

Many Web broadcasters feared proposed rates

May 22, 2002|By Michael Stroh | Michael Stroh,SUN STAFF

Fans of Internet radio: Stay tuned.

In an eagerly awaited decision, the U.S. Copyright Office yesterday rejected a proposed royalty on online music that threatened to put many Internet broadcasters out of business.

The copyright office now has until June 20 to make a final decision on how much Internet radio stations must pay recording artists and labels for playing their music.

"I'm happy, but it's a mixed blessing," said Gregor Markowitz, who runs the online folk station Hober.com in Takoma Park.

Yesterday's tersely worded decision by the copyright office, he noted, offered no hints as to why the proposed royalty rates were rejected. "They don't say whether their problem was that the rates were too low or too high," Markowitz said.

Radio stations have traditionally paid royalties to composers but not to the musicians who record the songs.

In 1998, a copyright law change required that Internet broadcasters additionally compensate recording labels and artists.

A federal panel of arbitrators earlier this year proposed a rate of 14 cents per listener per song for Internet radio stations, with a minimum annual payment of $500. Traditional radio stations that also "stream" their music online - a category that includes hundreds of college stations - would pay 0.07 cents.

Internet broadcasters, many of which operate on shoestring budgets, have argued the proposed royalty rates would bankrupt them, especially since the fees would be retroactive to 1998.

Some experts concur. A report published this month by market research firm Gartner G2 calculated that losses for small Web broadcasters could top $20,000. "If the recommended rates aren't changed, Internet radio may be gone before it even arrived," the report concluded.

The recording industry, which had been pushing regulators to impose even higher royalty rates on Web broadcasters, said it remains unclear which way federal regulators will go.

"We look forward to the conclusion of this process on June 20th, and to the day when artists and labels finally get paid for the use of their music," Cary Sherman, president of the Recording Industry Association of America, said yesterday.

The stakes are high for both sides.

As yesterday's decision approached, fierce lobbying by both sides had attracted the attention of lawmakers. Sen. Patrick J. Leahy, the Vermont Democratic who chairs the Senate Judiciary Committee, held a hearing on Internet radio last week. Internet broadcasters, meanwhile, pulled the plug on their broadcasts this month to protest the new royalty.

Recording industry officials argue that Internet radio stations shouldn't be so surprised they would have to pay for the music they play.

"Over the past three years, Web-casters have paid for bandwidth, rent, hardware, software and other business expenses," said John Simson, executive director of SoundExchange, the organization created to collect and distribute royalty payments. "It is time that they finally start to pay the artists and record companies whose creative output is the most important component of their business."

, The Associated Press contributed to this article.

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