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New talks over Webcasting fees begin

Federal regulators are opening up a new round of negotiations over the fees that Net radio stations pay record labels, but this time talks may go more smoothly.

The dust has barely cleared from the last round of battles over the fees that Net radio stations pay record labels, but federal regulators are opening up a new series of negotiations over those royalty rates.

The United States Copyright Office said Tuesday that it is opening up a six-month period for negotiations over new Webcasting fees. Today's royalty rates--decided only after bitter negotiations, a regulatory arbitration process, and successive intervention from the Library of Congress and Congress itself--expire in 2004.

Small Webcasters continue to hold considerable resentment over the outcome of the previous process, and one group has even sued the Recording Industry Association of America (RIAA) on antitrust grounds. But medium-size and larger Net radio operations say they think this round will be more amicable than the last.

"I think a lot has changed this time around and that the labels' attitude toward Net radio has changed," said Michael Roe, owner of Florida-based RadioIo.com and one of a small group of Webcasters who negotiated with the RIAA for small-business rates last year. "I think both sides are going to be more amenable to reaching agreement before getting into a situation that requires intervention this time."

The initial dispute lasted several years, after Congress created the royalty in 1998 but left the rates up to the industry to decide. For years, the fees were put on hold, and thousands of tiny Webcasters sprung up across the Net.

But as the fees began to snap into place last year, Net radio stations either had to begin paying a small per-song fee or a separate payment of between 8 percent and 10 percent of revenue. Many small Webcasters went off the digital airwaves as a result.

The Digital Media Association (DiMA), the trade association for large Webcasters and Net companies including America Online and Yahoo, said it hasn't begun polling its members as to whether they want a substantial revision of the rates for next year.

Jon Potter, DiMA's executive director, said his group is more focused on legislation reforming the regulatory and arbitration process by which the royalty rates are determined, hoping to extend the active period of the fees so they don't have to be renegotiated every two years.

"It's still not a highly profitable business--and is still an evolving business," Potter said. "As industry has consolidated, there are more stable companies who have a growth path, but they also are reticent to spend money on litigation rather than on marketing."

A representative for SoundExchange, the organization that collects the fees on behalf of record labels and artists, could not immediately be reached for comment.

Small Net companies, represented by the Webcaster Alliance, say they are still being ignored by the big labels and SoundExchange and are continuing with their lawsuit against the RIAA.

If Webcasters and record labels do not voluntarily reach agreement on fees for the 2005 to 2006 period, the issue will go in front of a federal arbitration panel again.