Government decision on Internet music royalty rates leaves everyone wanting a better deal

Friday, June 21st 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Internet music broadcasters and the recording industry, opponents in the debate over online music royalties, are both unhappy with a government decision setting rates for webcasters.

The U.S. Copyright Office decided Thursday to charge webcasters 70 cents per song heard by 1,000 listeners, or half of what a government panel had proposed in February.

John Potter, executive director of the Digital Media Association, said the rate was still too high, but was an improvement over the earlier proposal.

``There's still going to be a lot of pain in the industry,'' said Potter, who represents webcasters who send music programs over the Internet to computer users.

The recording industry had sought even higher royalties to compensate artists and music labels for using their songs.

The 70-cent rate ``simply does not reflect the fair market value of the music,'' said Cary Sherman, president of the Recording Industry Association of America.

In May, Librarian of Congress James H. Billington, who oversees the Copyright Office, rejected an arbitration panel's proposal setting the rate for Internet-only broadcasts at $1.40 per song heard by 1,000 listeners. That was double the rate set for broadcasts sent out simultaneously on radio and the Internet.

Billington thought the difference in the rates was ``arbitrary and not supported by the record of evidence,'' said spokeswoman Jill Brett. The lower rate now applies to radio station simulcasts on the Web and Internet-only broadcasts.

Opponents of Thursday's ruling can appeal to the U.S. Court of Appeals for the District of Columbia Circuit within 30 days. The court could modify the decision or set it aside if it finds the ruling was highly unreasonable.

If the decision is not changed, the first monthly royalty payments will be due in November. The fees are retroactive to 1998 and full payment of royalties from past years will be due in October.

Internet radio _ either simulcasts of traditional over-the-air radio or Internet-only stations streamed through the Internet to computers _ is becoming more popular as people get high-speed connections at home.

Webcasters said the rates initially proposed were too high and would cost larger Internet radio broadcasters hundreds of thousands of dollars annually, more than they get from advertising or listener contributions.

John Jeffrey, vice president of Live365 Inc., the largest Internet radio network, said even the lower rate may kill the fledgling industry. He said it will cost his cash-strapped company about $100,000 a month.

``This is a rate that still means the majority of independent webcasters will cease to operate,'' Jeffrey said.

Webcasters like Live365, a network of about 30,000 radio stations created by individual Internet users, wanted a rate based on a percentage of revenue to pay performers and record labels. Webcasters, like over-the-air radio stations, already use such an arrangement to pay songwriters and composers.

But the Copyright Office said that because many webcasters have such small revenues, there would be little compensation for those who own the copyrights to songs.

Traditional radio broadcasters have been exempt from paying the royalties for each song played _ the standard that is now being applied to webcasters. Broadcasters successfully argued before lawmakers that they already were promoting the music.

After the recording industry failed to impose new royalties on traditional broadcasters, the industry turned to webcasters and got what it wanted with a 1998 law.