Court rejects Webcasters' plea for relief

Barring a last-minute industry compromise, new royalty rates--which Internet radio operators argue could cripple their services--are slated to kick in Sunday.

Anne Broache Staff Writer, CNET News.com
Anne Broache
covers Capitol Hill goings-on and technology policy from Washington, D.C.
Anne Broache
3 min read

A federal appeals court has declined to grant a petition by Webcasters to delay the onset of new royalty fees that they argue could imperil their offerings.

In a one-page order filed late Wednesday, the U.S. Court of Appeals for the District of Columbia said the opponents of the fees "have not satisfied the stringent standards required for a stay pending court review" and rejected their request for an emergency stay.

Barring an 11th-hour agreement, then, between Internet radio operators and the music industry, the new fees are scheduled to kick in on Sunday.

Jonathan Potter, executive director of the Digital Media Association, whose members include larger Internet radio operators like Yahoo, Live365, Pandora and RealNetworks, said he was hopeful Webcasters could still reach a compromise with the music industry.

But until then, Webcasters will be "forced to make very difficult decisions about what music, if any, they are able to offer," he said in a statement. "The result will certainly be fewer outlets for independent music, less diversity on the Internet airwaves, and far fewer listening choices for consumers."

The new rules (PDF) issued by the U.S. Copyright Royalty Board earlier this year prescribe rate hikes of 0.08 cent per song per listener retroactive to 2006. They would also climb to 0.19 cent per song by 2010. According to the advocacy group SaveNetRadio, smaller Webcasters could face payment increases of up to 1,200 percent of what they owed before, while larger ones could owe up to 300 percent more.

Each station would also have to hand over a minimum $500 royalty payment per "channel" under the ruling, which DiMA says could cost the three largest Net radio operators--Yahoo, RealNetworks and Pandora--more than $1 billion in the first year alone.

SoundExchange, the nonprofit entity that collects the fees, was not immediately available for comment on the decision Thursday.

The group has offered two attempted compromises to the Net radio industry, but they haven't gone far enough to meet the Webcasters' wishes thus far. First, it attempted to extend a peace offering to smaller Webcasters by saying it would freeze through 2010 the "below-market" rates they have been paying since 1998. But Net radio advocates said that would effectively discourage smaller firms from growing their operations. More recently, the group also reportedly to cap at $2,500 the $500 per "channel" minimum fee for all Webcasters but, according to DiMA, only through 2008.

If an accord can't be reached, Congress may need to step in and pass a bill that would overturn the CRB's ruling, said Rep. Jay Inslee (D-Wash.), one of the sponsors of the House of Representatives version. His bill proposes leveling the royalty rates for all digital broadcasters--satellite, cable and Internet--at 7.5 percent of their revenues.

"I hope a compromise between online radio broadcasters and record labels can be reached before then, but if the hammer drops, urgency for congressional action only increases," he said.

Update at 11:20 a.m. PDT: It's worth noting that the appeals court's denial of the emergency stay doesn't mean the entire legal challenge to the CRB's decision has been dismissed. David Oxenford, an attorney representing some of the Webcasters in that suit, said in a blog entry that "the appeal will continue and be fully briefed and argued over the course of the coming year," although the court hasn't set any timeline for that process yet.

Oxenford added that the looming due date doesn't necessarily mean that "lawsuits will follow the next day if a Webcaster does not pay on time." But Webcasters will be responsible for determining what they owe, he said, and such lawsuits certainly are a possibility if they don't pay on time.

Update at 12:55 p.m. PDT: SoundExchange has issued a statement applauding the appeals court decision. According to Executive Director John Simson, it "vividly demonstrates that the Copyright Royalty judges got it right when they set royalty rates and terms for the use of music on Internet radio."

Simson called the denial of the stay "a major victory for recording artists and record labels whose hard work and creativity provides the music around which the Internet radio business is built." He added that his group was nonetheless still actively negotiating with Webcasters over their concerns about the new fees.