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Internet radio compromise on the way?

Music industry group that collects royalty payments has offered a compromise, but it's unclear whether it will go far enough to please disgruntled Webcasters.

It's looking ever less likely that Congress or the courts will act swiftly enough to save Webcasters from the doomsday that they argue will result from imminent new fees. But there are signs that Internet radio players and a group representing artists and record labels may be moving closer to a detente.

A few weeks ago, we reported that the increased royalty rates set to kick in July 15 were poised to create a burden not only for small major Webcasters but for the largest ones as well. Because the fee hikes also include a $500 minimum payment per "channel," the three largest Webcasters alone--Yahoo, RealNetworks and Pandora--said they would owe more than $1 billion in the first year alone because of the thousands of unique "channels" their services offer.

Now, with the deadline for the fees creeping ever closer and the outcry from Webcasters still at a fever pitch, relief may be on the way.

SoundExchange, the nonprofit industry group that lobbied for the changes, told CNET on Thursday--and finalized in a press release (PDF) on Friday--that it has offered the Digital Media Association (DiMA), which counts the major Webcasters among its membership, a $2,500 cap on that annual requirement.

"We certainly don't want anybody to get unduly hurt by the minimum fee, but there is a value to music and a cost to administering the digital royalty program, and we wanted to ensure that everyone was treated fairly--artists, webcasters and record labels," John Simson, the organization's executive director, said in a statement.

According to DiMA executive director Jonathan Potter, however, there was a catch that wasn't mentioned in SoundExchange's press release. Namely, SoundExchange presented a written offer to apply that reprieve only through 2008, whereas the new U.S. Copyright Royalty Board rates extend through 2010.

"Any offer that doesn't cover the full term is simply a stay of execution for Internet radio," Potter said in a statement released Friday afternoon. Indicating that SoundExchange's public statement caught him by surprise, he added that he would have preferred not to be issuing such a statement at all and to be continuing negotiations directly with the music industry group.

SoundExchange has already attempted to extend an olive branch to smaller Webcasters that claim the new rules will wipe them off the map. In late May, it floated an offer to freeze through 2010 the "below-market" rates they have been paying since 1998.

But SaveNetRadio, a group lobbying against the changes, has argued the approach could stunt the long-term growth of smaller firms if it is based on keeping revenue below certain government-imposed caps.

Update at 6:45 a.m. PST: SaveNetRadio spokesman Jake Ward said Monday that the group was encouraged by SoundExchange's recognition that the per-channel payment could be crippling to many Webcasters. He said the ideal solution, however, would be to base the royalty rates on a Webcaster's revenues, as two congressional bills propose--and not, as the copyright officials decided, on the number of songs played and listeners.