By Andy Sullivan
WASHINGTON, May 15 (Reuters) - Internet radio stations warnedCongress on Wednesday that a proposed royalty rate that couldtake effect next week would probably drive many of them out ofbusiness.
Backed by data from market-research firm Arbitron, onlineradio stations who "Webcast" music over the Internet told theSenate Judiciary Committee that a rate proposed by a U.S.Copyright Office panel would require them to pay out more moneythan they could possibly take in from advertising.
"We will be bankrupted by royalties .... Please help thesecalamitous rates from being implemented," said Frank Schliemann,founder of Onion River Radio, a Vermont Webcaster.
Recording companies said they could live with the royaltyrate, although it was lower than they hoped, and urged thecommittee not to interfere with the Copyright Office's decisionwhen it is announced next Tuesday.
Unlike song-swapping services like Kazaa that allow users todownload songs for free, Webcasters have not been accused ofcopyright violations by artists and record companies.
Webcasters say they are willing to pay a fee for the right touse their songs. Record companies, for their part, say theywelcome the advent of Webcasters, who have grabbed the ears of 9percent of the listening public, according to Arbitron.
"If Webcasters don't succeed, artists and record companiesstand to lose an important new revenue stream," said HilaryRosen, chairman and chief executive of the Recording IndustryAssociation of America, an industry group.
But the two sides have been unable to come to an agreement,prompting the Copyright Office to step in.
Utah Sen. Orrin Hatch, the top Republican on the committee,said he was preparing legislation that would not address theroyalty issue but would encourage online music services by givingthem access to out-of-print music, among other things.
Committee Chairman Patrick Leahy, a Vermont Democrat, said hewould work to develop Hatch's proposal but had not reached anyconclusions about the royalty rate.
"If I had the power right now to come up with a solution, I'mnot sure what that solution would be," Leahy said.
PANEL'S DECISION INSPIRES PROTEST
Unlike conventional radio stations, digital-musicbroadcasters must pay royalties to the performers and recordingcompanies whose songs they use.
After the two sides were unable to come to an agreement ontheir own, a Copyright Office panel recommended in February thatthe royalty rate be set at 14/100ths of a cent per listener persong. Radio stations that Webcast their regular programs wouldpay half as much, while noncommercial broadcasters would payless.
The Librarian of Congress is expected to rule on the panel'sproposal on May 21.
Over the past two weeks, Webcasters have fanned out overCapitol Hill and pulled their signals off the Web for a day toprotest the proposed royalty rate.
The panel's attempt to determine a proper market rate wasskewed by the dearth of existing agreements that could serve as aguide, said Jonathan Potter, executive director of the DigitalMedia Association, a trade group.
The suggested rate would require a small Webcaster like OnionRiver Radio to pay out 78 percent of its total revenues forroyalties, Schliemann said.
Schliemann said he would be forced to pay more royalties ashe gained more listeners, while his Vermont-centric focus wouldlimit his appeal to advertisers.
A better model would be the arrangement worked out withsongwriters, where radio stations pay 3.5 percent of revenues, hesaid.