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Webcasters brace for royalty decision

Independent Webcasters are bracing for a final decision on a royalty rate for online radio, with the Librarian of Congress expected to announce a final determination Thursday.

Independent Webcasters are bracing for a final ruling on a royalty rate for Net radio, a decision that could determine the fate of hundreds of small online radio stations.

The Librarian of Congress is expected to announce a "final determination" on Webcasting fees Thursday, having last month rejected royalty rates proposed by a federal arbitration panel.

The U.S. Copyright Office and the Librarian of Congress appointed the Copyright Arbitration Royalty Panel (CARP) last year to set compulsory Webcasting rates after the industry reached an impasse. CARP had recommended that Webcasters pay record companies a fraction of a cent for each song they stream to an online listener.

Many independent Webcasters are now hoping that the Librarian of Congress, James Billington, will set a lower royalty rate. They have argued that the CARP proposal would stifle the industry and drive many of them out of business.

"I don't want to be optimistic and then be really let down," said Rusty Hodge, general manager of San Francisco-based Soma FM, which draws about 3,400 simultaneous listeners a day at its peak hours. "Just because (the CARP rates) were rejected doesn't mean that they were too high. So all things being said, there could be a 50-to-50 chance that he could even make the rates higher."

Royalty rates for online radio have been an ongoing debate between Internet companies and record labels since the Digital Millennium Copyright Act (DMCA) was passed in 1998. Under the statutory licensing provisions of the DMCA, record companies and artists would get a small fee if a song were to be played on the Web. Last month, the debate intensified at a Senate Judiciary Committee hearing in which independent Webcasters and the recording industry testified over CARP's proposed royalty rates.

The Recording Industry Association of America (RIAA) argued that artists and record companies should be fairly compensated for the performance of their music based on the market value of the sound recordings.

Small Webcasters, however, said they have no problem with paying royalties to recording artists, but they say that high fees would be prohibitive to their business. For most independent Webcasters, CARP's proposed royalty rates would have been 200 percent of current revenues, forcing many online radio stations out of business. For instance, Soma FM's Hodge said that CARP's proposed fees amounted to about $1,000 a day for its online radio station, which he said is a "magnitude above our total revenue."

"The only thing that is going to work for us is a percentage-per-revenue model," Hodge said. "I can't really imagine (the federal regulators) wanting to make those numbers's a possibility they might even go up. We hope not."

In an effort to shine a spotlight on these concerns, online radio companies---such as Ultimate-80s, Choice Radio, RadioParadise, Radio Free Virgin, Soma FM and Live365--have made aggressive efforts lobbying Congress and rallying support in a "Day of Silence" protest.

The Librarian of Congress since 1993 has had the power to appoint ad hoc panels to help resolve disputes over compulsory licensing and other copyright issues. While the Webcasters wait for the final decision, the structure and processes of CARP continues to be held under a microscope.

A House subcommittee on Courts, the Internet and Intellectual Property held a hearing last week to hear the effectiveness of CARP.

Representative Zoe Lofgren, D-Calif., pointed specifically to three separate rate-setting standards administered by CARP. She said one requires CARP to set rates based on fair return and a balancing of competitive interests. Another requires royalties to reflect "fair market" value. And a third is a standard for Webcasting, which, she said, "has no fairness requirement; instead it requires royalties to reflect what a 'willing buyer' would pay a 'willing seller.'"

"As evidenced by the most recent CARP proceeding on Webcasting royalties, the CARP process has many shortcomings, not the least of which is the varying standards under which CARPs operate," Lofgren said in a statement before the committee. "It is not clear to me why there need to be three separate standards. In considering reforms to CARP's structure and process, I hope this subcommittee will address this and other issues associated with the rules that govern CARP proceedings."