Break For Internet Radio?

A key concession Friday by a recording industry trade group might help ease the way toward an eventual settlement to end a bitter battle over royalty fees paid by Internet radio stations.

SoundExchange, a former subsidiary of the Recording Industry Association of America, said Friday that it has agreed to extend a cap on a portion of the fees that Internet radio operators will have to pay under new rules scheduled to take effect in about two weeks.

The $2,500 cap on an annual $500-per-radio-channel fee that Internet radio stations have to pay could represent a significant break for major streaming-audio services run by Yahoo! (nasdaq: YHOO - news - people ), Pandora and CBS's (nyse: CBS - news - people ) Last.FM, which feature multiple, customized audio feeds for their listeners.

Current rules already include such a ceiling, but no such ceiling was included under a new free structure issued in March by the U.S. Copyright Royalty Board (CRB), an arm of the U.S. Library of Congress.

SoundExchange is proposing that the cap be extended through the end of 2008. But the Digital Media Association, which represents Internet radio stations, countered Friday that it would only accept a cap that extends through the end of 2010.

Under the new CRB rates, which are scheduled to take effect July 15, Internet radio operators will face a sharp jump in the "performance" royalties they pay record labels and recording artists. In addition to losing the cap on annual fees, Internet radio operators will also have to increase the royalty they pay for each song they stream from 0.08 cents in 2006 to 0.19 cents in 2010.

Performance royalties are distinct from the publishing royalties that terrestrial, Internet and satellite radio operators must pay to songwriters. Only Internet and satellite radio stations have to pay performance royalties, but record labels are now gearing up for a battle to extract performance royalties from terrestrial radio stations as well.

Internet radio operators have warned that the increase in royalty rates and the elimination of the cap on annual fees will force many of them out of business and might prompt large portal sites like Yahoo! and AOL to reconsider their commitment to music services. On Tuesday, thousands of Internet radio stations observed a day of silence in protest of the pending royalty hike.

In an earlier concession, SoundExchange offered to extend, with some modifications, existing provisions allowing small commercial and nonprofit Internet radio operators to pay lower royalty rates based on a percentage of their revenues, rather than on a per-song basis. Under the proposal, such operators would pay a royalty rate of 10% on their first $250,000 of gross revenue and 12% on all revenue above that.

Because the CRB's new royalty structure for Internet radio will take effect in the absence of a settlement, the recording industry would appear to hold the upper hand. But legislation pending in Congress would throw out the CRB decision and set royalty rates for all Internet radio operators at just 7.5% of gross revenue.
Source :http://www.forbes.com