U.S. to rule on royalty rates for online broadcasts

WASHINGTON (Reuters) - A U.S. government panel will announce on Wednesday how much Internet broadcasters should pay musicians and recording companies

WASHINGTON (Reuters) - A U.S. government panelwill announce on Wednesday how much Internet broadcasters shouldpay musicians and recording companies for use of their songs,setting the ground rules for the growing "Webcasting" industry.

The decision will have an impact for years to come, say thoseinvolved in the negotiations, as more consumers tune in toInternet-based broadcasts from online music providers and existingradio stations over the next few years.

At issue is the royalty rate that Webcasters pay recordcompanies and musicians whose songs they play. Only fractions of apenny apart, the two competing proposals could mean a difference ofmillions of dollars in payments, negotiators said.

Unlike the music industry's much-publicized battles with Napsterand other online song-swapping services, neither side is disputingthe fact that money is owed for millions of broadcasts dating backto 1998. The issue is how much.

"Webcasters have built a business based on artists' work," saidAnn Chaitovitz, national director of sound recordings for theAmerican Federation of Television and Recording Artists.

"We want to pay and we want to pay fairly for their works,"countered Kenneth Steinthal, a partner with Weil, Gotschal andManges who represents Webcasters. "But that doesn't give them theright to charge whatever they want to."


Radio stations and other broadcasters are exempt from payingroyalties to performers, but the exemption does not apply todigital broadcasts.

The Copyright Office stepped in last summer and conductedhearings through the fall after the two sides were unable to reachan agreement on their own.

Record companies and musicians want four-tenths of a penny perlistener per song, while Webcasters have proposed payingfifteen-hundredths of a penny for each hour logged by a listener,roughly one-thirtieth the copyright owners' proposal.

Recording companies say the higher rate reflects the marketvalue of their material.

"Our request is based on deals that we've done in the marketwith other Webcasters who aren't part of the arbitration," saidSteve Marks, a lawyer with the Recording Industry Association ofAmerica.

Marks said the RIAA has signed agreements with 25 differentWebcasters, including Internet portal Yahoo Inc

Webcasters say their lower rate reflects the rate radio stationspay to songwriters, an amount Steinthal said totals between $300million and $400 million each year.

"The Webcasters' case was significantly more tied to facts andreasoned analysis, and I think we made that case in thearbitration," said Jonathan Potter, executive director of theDigital Music Association, which represents Webcasters.

Webcasters who agreed to the higher rates did so to curry favorwith the labels or for other unrelated reasons, Potter andSteinthal said.

In December, recording companies and established broadcasterslike Clear Channel Communications Inc. reached an agreement on therate that commercial radio stations should pay for onlinebroadcasts of their existing programs.

But the Copyright Office rejected the settlement after the twosides refused to disclose the terms of their deal due to fears thatit would influence the outcome of other matters before the panel,such as the rate online-only broadcasters should pay.

The panel's decision, due late Wednesday, must be approved bythe Librarian of Congress in May before it takes effect. The ratewill apply for Internet broadcasts made between 1998 and the end of2002, at which point the two sides must try again to reach anagreement.

Whatever the outcome, both sides agreed it will not be the endof the issue.

"We can anticipate that one or both sides are certain to appealthis decision, because everybody wants it to be always a littlebetter," Potter said.