Internet Music Stations Receive A Reprieve

By LA Times.

WASHINGTON — The songs remained the same on Internet radio Monday, as most stations continued to stream music while their representatives negotiated to lower a controversial royalty hike that took effect over the weekend.

With talks progressing, SoundExchange, the organization that collects royalties for musicians and record companies, indicated to webcasters that it wouldn’t seek immediate payment of the higher rates.

That amounted to a reprieve for Internet radio stations, some of which had warned they would have to shut down when a major increase in music royalties and fees kicked in Sunday.

“Each company has had to decide how they want to act on their own, but I think it’s pretty clear that SoundExchange is not going to go after people providing they are trying to work it out,” said Tim Westergren, founder of Oakland-based Pandora Media Inc., which operates one of the largest Internet radio sites.

The federal Copyright Royalty Board set the higher royalties in March, retroactive to the start of 2006, when the previous rates expired. The board boosted the amount webcasters must pay per listener for each song they play, from .0762 of a cent to .19 of a cent by 2010.

It also eliminated a provision that capped the royalties of small Internet radio stations — many of them run by hobbyists — at 10% to 12% of their revenues, and set a $500 administrative fee for each Internet radio channel.

Some small stations already have shut down because the loss of the revenue-based cap meant they would owe much more in royalties than their stations earn.

Webcasters have organized online petitions and appealed the rate increase in court.

Fears that the new rates would squelch the musical diversity of the growing number of Internet radio stations have led some in Congress to propose halting the increases.

SoundExchange has the ability to strike separate deals on royalties. It has been negotiating with organizations representing various groups of webcasters, including small and large websites, religious broadcasters and National Public Radio stations.

The $500 per-channel fee is a major problem for large Internet radio sites, such as Pandora, Live365 and Yahoo Inc., which offer thousands of channels. A federal appeals court last week turned down a request for an emergency stay of the royalty increases.

But after a Thursday meeting organized by Rep. Edward J. Markey (D-Mass.), SoundExchange and the large webcasters are close to an agreement on a deal that would cap the per-channel fees at $50,000 a year, said John Simson, SoundExchange’s executive director.

Those large sites also are continuing to negotiate with SoundExchange over the exact royalty rate, while some small webcasters are trying to work out details of a new revenue-based cap.