Congress to rescue the Internet radio star

Legislation would overturn ruling that boosted Web radio royalties, align them with what satellite broadcasters pay.

By Jeff Cox, CNNMoney.com contributing writer

NEW YORK (CNNMoney.com) -- Internet radio broadcasts, jeopardized by a royalty payment ruling earlier this year, would get a reprieve under bipartisan legislation introduced in Congress.

The Internet Radio Equality Act would roll back dramatic rate increases handed down earlier this year by the Copyright Royalty Board and instead charge royalty payments for Web-based radio broadcasting, or streaming, in line with those paid by satellite radio.

Under the rules issued by the CRB, an agency charged by Congress with overseeing royalty disputes, streamers would be charged .08 cents a song retroactively to 2006 - a rate that would increase to 0.19 cents a song in 2010. For public broadcasters, the CRB set fees at a flat $500 a month but only for a set level of listening hours per month, one that many station owners said they would easily exceed and thus have to pay much higher fees.

Internet streamers said the increases amounted to 30 to 300 percent increases over what they are paying now.

The new legislation, proposed by Reps. Jay Inslee (D-Wash.) and Don Manzullo (R-Ill.), would instead charge streamers a flat fee of 7.5 percent of their revenue through 2010. A companion piece is expected to be introduced in the Senate this week.

Advocates championed the bill as more in line with reality and a proper response to the public outcry from critics who said the ruling could kill Internet radio streaming. Inslee spokeswoman Christine Hanson said the congressman's office alone received about 1,000 complaints about the CRB fees, and members of Congress had received more than 400,000 e-mails demanding the fees be changed, so the sponsors are hoping quick action can be taken on the legislation

"You can't put an economic chokehold on this emerging form of democracy," Inslee said in a statement. "There has to be a business model that allows creative Webcasters to thrive, and the existing rule removes all the oxygen from this space."

Radio stations large and small as well as Internet-only broadcasters who have gotten into the streaming business were united in their opposition to the new royalty fees and had been preparing a court challenge.

A National Public Radio official praised the Internet Radio Equality Act. Congress "has recognized that public radio has a very different mission from commercial media and cannot pay commercial-level royalty rates," said NPR spokeswoman Andi Sporkin. "This bill will provide a long-term resolution that is fair for all sides."

The CRB rejected an appeal brought by broadcasters as well as NPR and others that sought to delay the May 15 deadline for the introduction of the new fees.

Tim Westergren, president and CEO of popular Internet radio station Pandora, attended a briefing Monday in Washington, D.C., on the legislation and said there was only a glimmer of hope that the new fees would be stayed pending the outcome of the legislation. A court order would be needed to stay the increases.

"Nobody has any idea, but the presumption is it will go into effect on or before the 15th," Westergren said. "On that day, on paper just about every Webcaster becomes officially bankrupt because they'll owe way more money than they have because the fees are retroactive."

Savings would vary among stations because of differing royalty structures. Stations now pay .07 cents a performance for AM or FM signals that simultaneously air online and 0.14 cents a performance for Internet-only broadcasts. Pandora, for instance, would pay less under the structure set up under the legislation than it does now, Westergren said.

SoundExchange, a performance rights organization that collects royalty payments for entertainers, supports the rate structure proposed by the royalty board. In a statement on its Web site, the company said the proposed legislation would result in a windfall of $50 million to large Webcasters like Clear Channel (Charts, Fortune 500), Microsoft (Charts, Fortune 500), AOL and Yahoo! (Charts, Fortune 500) while depriving artists of payments to which they are entitled. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.