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Webcasters win reprieve from fees

Federal regulators reject proposed royalty rates for online music broadcasts, which small Webcasters criticized as too high and the big record labels called too low.

Federal regulators on Tuesday rejected a proposed set of royalty rates for online music broadcasts, offering a glimmer of hope to Web radio stations that contend the fees would torpedo their young industry.

A federal arbitration panel had recommended that Web radio stations pay about a seventh of a cent for each song they stream to an online listener. The proposal had prompted a storm of protest from smaller companies, culminating in an online "day of silence" and a lobbying trip to Washington by companies that said the rates would put them out of business.

Tuesday's rejection of the proposed rates didn't provide any hint as to what the final rates might be. A terse note from the Librarian of Congress said only that the arbitration panel's proposal would be rejected and that a "final determination" would be issued June 20.

"This is a good sign," said Rusty Hodges, who manages San Francisco-based Web station SomaFM, which draws about 3,000 simultaneous listeners a day at its peak hours. "I don't want to get my hopes up. But we're alive for at least another 30 days, and that's a good thing."

The Webcasting fees have been a source of contention for almost four years since the passage of the digital copyright law in 1998. As a part of that law, Congress ordered that Webcasters should pay record labels and artists a royalty for using their music online.

Legislators didn't say how much that fee should be, however. Internet companies and record labels have fought over an appropriate rate for years, finally culminating in a federal Copyright Arbitration Royalty Panel (CARP) last year.

In February, the panel returned with a proposed set of fees that effectively split the difference between suggestions by the record labels and a trade association representing big Webcasters such as America Online, and RealNetworks. Each side grumbled, and appealed.

But a grassroots swell of smaller radio stations, slowly dawning to the effect on their businesses, mounted their own public campaign against the rates. Since they hadn't participated in the original arbitration proceedings, they weren't officially allowed to appeal the panel's recommendations.

Instead, the small Webcasters went to Congress and the public, helping to prompt several legislators to write letters opposing the rates.

Their pleas have elicited little in the way of sympathy from the Recording Industry Association of America (RIAA), which has contended that the arbitration panels' recommended rates were too low. The stations should pay market rates for the music they use to build their businesses, just as they pay for Internet bandwidth and computers, RIAA executives said.

RIAA executives cautioned Tuesday that regulators had given no indication as to whether the final royalty rates would be higher or lower than the arbitration panel's recommendations.

"The Librarian has rejected the arbitration panel's determination, but we do not know why or what decision the Librarian will ultimately make based on the evidence presented," RIAA President Cary Sherman said in a statement. "Since both sides appealed the panel's determination, anything is possible."

The big Webcasters' Digital Media Association (DiMA) cautiously welcomed the royalty rates' rejection.

Hodges said the small Webcasters would continue their public lobbying push. It's not clear what effect, if any, that is likely to have, however. The Librarian of Congress and the Register of Copyrights have 30 days to make a new decision, and they are limited to studying the record of the past proceeding, which largely included input from the big record labels and big Webcasters.

Nevertheless, it gives SomaFM and other stations that said they would have shut down, or stopped playing the vast majority of their music today, a little more time to maneuver.

"We would have started pulling the plug today," Hodges said. "At this point, we sit back and wait and see what happens."