Webcasting Royalty Rate Rejected

The U.S. Copyright Office on Tuesday rejected Webcasting royalty rates proposed by the Copyright Arbitration Royalty Panel (CARP).

A separate authority, the Librarian of Congress, now has 30 days to issue a final royalty, which need not be based on the panel’s recommendation.

Unlike the Napster case, this is not a matter of copyright but of licensing fees. At issue is the amount of royalties that Internet broadcasters will be required to pay in return for a license to distribute music and other radio content over the Internet.

Last December, the Copyright Office ruled in favor of Internet broadcasting royalties and assigned CARP to recommend specific rates. The rates the arbitration panel proposed in February are based on each person who receives the Internet-based broadcast.

CARP has recommended rates ranging from 7/100ths of a U.S. cent per song broadcast to 14/100ths of a cent for all other copyrighted material broadcast via Web radio. That translates to between 70 cents and $1.40 for every 1,000 listeners or viewers.

Disagreement Lurking

On the surface, the debate seems friendly enough. Webcasters have said they are willing to pay a fee to recording companies, and recording companies have said they are not opposed to the existence of increasingly popular Webcasters.

But dig a little deeper and deep differences are revealed.

Webcasters had argued that the proposed royalty rates were too high and could literally unplug their virtual radio stations. Recording companies are seeking a higher royalty rate than that proposed by CARP. That disagreement is what spurred the Copyright Office to step in with arbitration.

Broadcasters vs. Webcasters

Now both sides are playing a wait-and-see game, hoping for a compromise that swings in their favor.

“Since both sides appealed the panel’s determination, anything is possible,” said Cary Sherman, president of the Recording Industry Association of America. “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.”

Taking the middle road, Jonathan Potter, executive director of the Digital Media Association, a trade group that includes Webcasters, pointed to the purpose of the radio statutory license: to promote a new medium and artists’ welfare.

“Today’s decision by the Librarian offers hope that the final royalty will be more in line with marketplace economics than was the arbitrators’ proposal,” said Potter. “If so, then the result will accomplish Congress’ goals.”

Promoting Innovation

Mike Godwin of the Center for Democracy and Technology told the E-Commerce Times that efforts to promote innovation should not be suppressed. But high royalty rates could do just that.

“I don’t think anybody wants music companies to give stuff away for free, but they would like a solution that would allow Internet-based innovation to occur,” said Godwin.

Webcasters’ fears of going bankrupt if they are forced to pay high royalty fees are not exaggerated, according to Godwin. Bringing a broadcast radio model to the Internet, he added, requires a cost and revenue structure that is in line with traditional radio.

“If the royalties are set too high or if they are set differently compared to broadcast radio, then anyone who is thinking about investing in Internet radio is going to say, ‘Why should I bother?'” he said.

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