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Webcast fee talks headed for stalemate

A new fee Webcasters must pay record companies to play their recordings appears to be headed to arbitration, signaling that the controversial issue is likely to remain unresolved for at least six months.

A new fee Webcasters must pay record companies to play their recordings appears to be headed to arbitration, signaling that the controversial issue is likely to remain unresolved for at least another six months.

With only two weeks to go, negotiations between the Digital Media Association (DiMA), a trade group for Webcasters, and the Recording Industry Association of America, which represents the major U.S. record companies, have all but broken down. The two sides remain deadlocked on exact terms of a licensing fee mandated by a 1998 overhaul of the Digital Millennium Copyright Act.

An amendment in last year's Copyright Act requires Webcasters--meaning any noninteractive broadcasters based on the Internet--to pay record companies for the performance of a sound recording. The amendment gave the parties a fixed period of time to negotiate exactly how much the license would cost. That period expired in May, and the two parties had two months from that time to jointly file for an extension or watch the issue go to an arbitration panel.

With the deadline approaching later this month, the matter is all but certain to head to arbitration, both sides say, where it will take at least another six months to be sorted out.

Still, representatives from both sides say they expect to continue negotiating in the interim and hope that an agreement will head off arbitration.

The fee for the performance of a sound recording is in addition to what Webcasters and offline radio stations pay to license groups such as ASCAP and BMI, which represent composers, publishers, and authors. At the moment, Webcasters--like their offline counterparts--pay no fee to the record companies, said DiMA director Jonathan Potter. The law, however, requires them to pay the fee retroactive to October 1998, when the law went into effect. Offline broadcasters are not subject to the fee.

Consolidation complicates matters
The delay in resolving the fee comes as major consolidation in the Webcasting industry has dramatically changed the landscape. Since the law took effect, a number of smaller players have been swallowed up by media giants. For example, Broadcast.com was acquired by Yahoo, America Online acquired Spinner.com, and Viacom bought Imagine Radio.

As if negotiations weren't difficult enough already, the changes are creating new hurdles, say industry observers.

"For both [the recording and Webcasting] industries, making money online is still an unexplored frontier," said Mark Traphagen, a copyright attorney and former vice president of what is now the Software & Information Industry Association. "The change of pace makes it more difficult to conduct negotiations."

DiMA's changing role
The heightened difficulty is evidenced by the diminished role of DiMA in recent negotiations. Over the past few months, individual Webcasters have begun negotiating directly with the RIAA, both groups confirmed. Six months ago, DiMA was the chief negotiator for Webcasters. DiMA was one of the parties that drafted the original amendment.

DiMA's Potter said the change was a natural progression in the negotiations, as larger issues got hashed out and gave way to the settling of items specific to individual members' businesses. Still, Potter, whose organization represents about 16 Webcasters, said the industry's rapid evolution has made DiMA's role more difficult.

"The changing industry is precisely what destabilizes the negotiations to some degree," he told CNET News.com. "It makes them harder."

According to observers who asked not to be named, the changes also mean that there is less unity among DiMA members, requiring them in many cases to negotiate separately with the RIAA to get a deal that best matches their unique business models. Potter, however, said DiMA members continue to rely on the group for representation on a host of important issues and that the group is still signing up new members.

With the negotiation period about to expire, one or both of the parties is expected to file a petition with the U.S. Copyright Office asking that an arbitration panel set the fee. It is unlikely the panel would get the case before the beginning of 2000, and it would have six months to issue its recommendation, an attorney from the agency said. The Library of Congress then would have another four months to approve the recommendation.