Net radio talks may prevent doomsday

This Sunday may not be doomsday after all for the smaller Internet radio stations that feared the onset of new royalty fees would kill off their operations.

But contrary to some published reports traversing the blogosphere on Thursday and Friday, SoundExchange, the nonprofit group charged with collecting the payments, has not made any sort of blanket pledge to delay enforcing the contentious new Webcaster payments established earlier this year by the U.S. Copyright Royalty Board, according to spokesman Richard Ades.

"There is a misunderstanding, and SoundExchange is making it very clear that everybody is expected to comply with the law," Ades told CNET News.com Friday.

The CRB ruling at issue requires Internet radio operators to pay additional fees to SoundExchange, which passes them on to artists and record labels, retroactive to 2006 and through 2010. Webcasters opposed to the new rules say the changes could drive up their mandatory payments by as much as 300 percent for larger entities and 1,200 percent for smaller ones, arguing such increases could put them out of business.

Here's where it gets complicated.

On Friday, SoundExchange executive director John Simson was quoted as telling Kurt Hanson at the Radio and Internet Newsletter: "For the people who want to comply with the law and are in bona fide negotiations with us, we don't want those people to be intimidated...just so long as they're continuing to pay under the license they had."

In a series of telephone interviews on Friday, Ades cautioned against misinterpreting Simson's remarks. Simson was sincere when he said he didn't want small Webcasters to be intimidated by the new rates, Ades said.

But what Simson really meant by his statement was that SoundExchange already has an offer on the table to freeze small Webcasters' rates at historic levels through 2010. "Assuming that those negotiations conclude successfully, then the small Webcasters would be paying the old rates, so it would not make sense for them to start paying the new rate," Ades said.

If small Webcasters choose not to pay the new rates come July 15, "they are taking a risk based on what the advice of the negotiators and their attorneys tell them," Ades said. "People need to follow the law. If the negotiations blow up, then they owe the new rates."

Simson's remarks to the online newsletter reportedly resembled what he said at a closed-door, invitation-only meeting Thursday afternoon on Capitol Hill, which brought together about a half dozen congressmen and representatives from the recording industry, large and small commercial Webcasters and National Public Radio.

At that meeting, Simson also said SoundExchange was prepared to accept an offer by the Digital Media Association (DiMA) to cap the $500 minimum "per channel" administrative fee for Webcasters at $50,000 per year through 2010, Ades confirmed. DiMA, which represents many of the larger Internet radio services, has argued that without a cap in place, the three largest Internet radio operators--Yahoo, RealNetworks and Pandora--would owe $1 billion in the first year alone because their services allow for creation of thousands of individual "channels."

DiMA, whose executive director Jonathan Potter attended the Capitol Hill meeting, declined to comment on Friday. David Oxenford, an attorney representing small and noncommercial Webcasters in their challenge of the new fees, declined to divulge any further details about the private session, except to call it "a constructive one where all of the parties agreed to continue to work on possible solutions to the perceived problems with the Internet radio royalty decision."

Tim Westergren, the founder of Internet radio service Pandora, a DiMA member, said he was encouraged by the direction the talks were heading. (He did not attend the meeting, but Pandora CEO Joe Kennedy did.)

Before the meeting, "we were days away from litigation and catastrophe," Westergren said in a telephone interview Friday. "Now we're in the next phase. We don't know how it's going to come out, but we're in sort of a chaperoned negotiation process, and there are a lot of Congress people watching, and their constituents are watching them."

The meeting occurred on the same day that a federal appeals court in Washington rejected an emergency plea by Webcasters to delay the new fees.

It's important, however, to note that the offers are not legally binding or in writing. SoundExchange is only a royalties collection body and does not technically have the legal authority to decide whether it can delay the onset of the fees, particularly in light of the appeals court's decision not to do so, Ades said.

Despite the ongoing negotiations, "what happens on Monday is, it's business as usual, people make their payments," Ade said, noting that SoundExchange has already received checks from some large and small Webcasters. "If people are late on payments, they get notified."

Meanwhile, Webcasters are still hoping for additional help from Congress. In addition to pending bills that would overturn the CRB rates, Reps. Nydia Velazquez (D-N.Y.) and Steve Chabot (R-Ohio), who lead the House of Representatives Small Business Committee, proposed a bill late on Thursday that would stall the fees' onset until 60 days after the July 15 deadline. Those members said at a recent hearing that they were reluctant to step in, but rather than prescribing a solution, their bill is designed to give the record industry and Webcasters more time to reach a compromise.

It's unclear, however, what its prospects are for passage. For one thing, the House was not in session Friday.