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Webcasters, labels appeal Net radio fees

Nobody's happy about the new fees soon to kick in for Internet radio. Now both sides are asking a court to change the rules.

Webcasters and record labels Wednesday each said they would ask a federal court to overturn a controversial new set of fees, setting off yet another round of squabbling over Internet radio.

The new royalties were imposed in June by the Librarian of Congress, overturning a previous recommendation by a federal arbitration panel. The fees split the difference between rates suggested by labels and Webcasters, but both sides have continued to cry foul.

The new rates underpay artists who are providing the raw materials for Webcasters' businesses, say the record labels, which will get about 50 percent of the new royalties. Webcasters say they fees are still too high, and will drive small businesses and hobbyists off the digital air.

Both sides now want the court to decide.

"I am hopeful that a negotiated resolution will enable the Internet radio industry to withdraw this appeal," said Jon Potter, executive director of the Digital Media Association, a group representing companies including America Online, Listen.com, Radio Free Virgin and Live365.

"But there has been no indication that the (record labels) are seriously interested in royalty rates that will enable thousands of small Webcasters to survive."

The appeals aren't about big money. Federal regulators have asked Webcasters to pay .07 cents per song, per listener, for the right to play music online. For large companies, this could add up to tens of thousands of dollars a year. Smaller companies might be stuck with a $500 minimum fee, or have to pay several thousand dollars for the rights to broadcast songs.

Even that sum is too much for a large group of hobbyist and independent, cash-starved broadcasters, however. According to Radio and Internet Newsletter, a small publication that has helped lead the protest of the federal decisions for tiny stations, close to 200 Web broadcasters have already shut down in anticipation of the fees.

Many of these have had only small listening audiences, but some, such as San Francisco's SomaFM, attracted well over a thousand people a day.

The big record labels have had little sympathy. The Recording Industry Association of America (RIAA) says it negotiated terms with dozens of Webcasters for rights to use music, and that federal regulators should have used those higher "market-based" prices as a guideline for the new rules.

"The Librarian's decision was based on a misguided reading of the record," RIAA CEO Hilary Rosen said in a statement. "The end result significantly undervalued music used by Internet radio companies."

Many of the companies that the RIAA did negotiate separate deals with have since gone out of business, or never launched their Internet music services, critics note.

Wednesday's appeals notices, filed with the United States Court of Appeals for the District of Columbia Circuit, kick off what is likely to be a months-long court process. After receiving word of the parties' intentions, the court will set a group of filing dates. Those dates are expected to fall before the end of the year.

In the meantime, Webcasters still will be required to pay the royalties set up by the federal process, beginning in September.

Broadcasters, who would also be required to pay the fee if they stream programming online, have separately asked an appeals court to exempt them from royalty payments, since they aren't required to pay fees for over-the-air broadcasts.