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Webcasters grumble over proposed fees

Government regulators set long-awaited music licensing rates for online radio stations. The recommendation isn't final yet, but it's already drawing criticism from trade groups.

Government regulators on Wednesday set long-awaited music licensing rates for online radio stations, essentially splitting the difference between two wildly divergent proposals from the recording industry and Internet advocates.

A closely watched arbitration panel appointed by the U.S. Copyright Office recommended that online radio stations pay about a seventh of a cent for every song they stream online.

For America Online, which said it was streaming about 160 million songs a month by late last year, the new rates would turn into a monthly bill of about $224,000.

In addition, the rate is retroactive, requiring companies to make back payments that could run to millions of dollars.

The recommendation isn't final yet, but it's already drawing criticism from an Internet trade group, which declared itself to be "extremely disappointed" in the results.

"A lower rate would more accurately reflect the marketplace for music performance rights and the uncertain business environment of the Webcast industry," Digital Media Association (DiMA) Executive Director Jon Potter said in a statement.

However, Hilary Rosen, president of the Recording Industry Association of America, said in a statement, "Artists and labels, who have supported these new businesses from the start with their music, are one step closer to getting paid.

"We would have preferred a higher rate. But in setting a rate that is about 10 times that proposed by the Webcasters, the panel clearly concluded that the Webcasters' proposal was unreasonably low and not credible."

The royalty rates must still be approved by the U.S. Copyright Office. This decision will come only after a 60-day public comment period, and DiMA will use that opportunity to press again for lower rates, the group said.

The proceeding, and the years of dispute preceding it, was kicked off by the passage of a landmark copyright law dealing with digital media in 1998.

In that law, dubbed the Digital Millennium Copyright Act, a new royalty right for online use was created for the owners of copyrighted works. That meant that if a song were to be played online, the record companies and artists would get a small fee, unlike the case with traditional radio.

Waiting on the final word
But Congress didn't say how much this royalty should be. Individual companies have cut their own deals with record companies over the years, but many Net companies have been waiting until an official rate was set by the government.

Under the terms of the original law, that means that they will have back-payment bills due soon, paying whatever rate is set for the last several years of operation.

Radio broadcasters, which initially thought they would be able to put their ordinary radio shows online without paying the new fee, get off a little easier than Webcasters. The price for streaming an over-the-air broadcast online is half that of a Webcast, or .07 cents per song. Companies that are broadcasting only online will have to pay .14 cents per song streamed.

Each type of company also will have to pay an extra charge totaling 9 percent of their total per-song bill, for a so-called ephemeral license fee.

It's not yet clear whether these rates will cover a type of service that Webcasters call "consumer influenced," in which a listener can skip songs, or have some kind of say in what types of songs are played. Record companies contend that because this gives the listener much more control than is the case with ordinary radio, it's a different kind of service. Webcasters say it should be covered under the ordinary royalty rates.

Court cases in California and New York are under way on this issue.