Music Industry, Webcasters Agree on Royalty Rate

Reuters | April 3, 2003 | Ben Berkowitz

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LOS ANGELES (Reuters) - Online music broadcasters and the record industry's main trade group, heading off what promised to be a contentious battle between them, on Thursday proposed a new set of royalties for Internet music broadcasts.  

The resolution, which covers 2003 and 2004, came after a long and bitter dispute that involved lawsuits and arbitration over the royalty structure for past years.

The Digital Media Association and the Recording Industry Association of America said they filed the proposal with the U.S. Copyright Office, which will soon publish it for public comment.

The RIAA and the Webcasting industry have been at odds in the past over how much should be paid in royalties to stream music over the Internet, with Webcasters arguing that the rates favored by the RIAA would put them out of business.

In a statement, the DMA's executive director, Jonathan Potter, said "the agreement is a temporary Band-Aid that avoids millions of dollars of legal fees associated with a broken arbitration process."

Potter was referring to the Copyright Arbitration Royalty Panel, the Copyright Office's process for determining disputed royalties. The so-called CARP system has been widely criticized and legislation is pending before Congress to reform it.

Under that system, an arbitration panel had set a royalty rate for Webcasts of music in February 2002, but that decision was rejected by the Librarian of Congress in May 2002.

Last summer the Librarian set the rate for Webcasts from October 28, 1998 to December 31, 2002, at 0.07 cents per performance, whether the Webcast was Internet-only or a Web rebroadcast of an over-the-air, AM or FM radio transmission.

SoundExchange, the organization designated by the Librarian of Congress to process royalties for music Webcasts, said in a statement Thursday the sides had agreed on a proposal of 0.0762 cents per performance or 1.17 cents per aggregate hour tuned in for free, advertising-supported services.

Subscription services, SoundExchange said, were also offered the option of paying a royalty of 10.9 percent of their gross revenues.

SoundExchange said the proposal did not cover rates for noncommercial Webcasters or simultaneous broadcasts of over-the-air radio transmissions.

"The deal enables SoundExchange to avoid a protracted and costly arbitration with Webcasters that would have come on the heels of last year's extraordinarily expensive arbitration," John Simson, the executive director of SoundExchange, said in a statement.

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