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Net radio ruling fails to satisfy
Royalty rates are halved, but Webcasters say they still lose. Record industry wants more.
June 21, 2002: 3:12 PM EDT

NEW YORK (CNN/Money) - Internet music broadcasters scored a partial victory from Thursday's government decision that sets royalty rates, but no one involved in the dispute is all that happy with it.

The U.S. Copyright Office decided that Webcasters, companies that provide music programming over the Internet, will be charged at a rate that amounts to 70 cents per song for each one thousand listeners. That's half what an arbitration panel had recommended in February.

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At the same time, it decided that the rate for songs that are simulcast over the Web and regular radio stations would be charged at the same rate as Web-only broadcasts. The previous plan had been to charge a higher rate for Web-only broadcasts.

"There are elements of a win because the rate that was going to be in effect for the Web was cut in half, and there's no longer a two-tiered structure," said Alex Alben, a vice president at Real Networks, a top supplier of Webcasting technology and services.

"The negative part of the ruling is that the flat rate does not allow the Webcasters to scale their distribution of music to their revenue," Alben added.

Webcasters had been asking that the royalty rate be calculated as a percentage of their revenue, arguing that hundreds of start-up shops would be forced to close down if they were forced to pay the same rate as large corporations.

The royalty fees set by the U.S. Copyright Office will be retroactive to 1998, and the current rate will remain in effect until the end of this year.

Either side may challenge Thursday's decision at the U.S. Court of Appeals in Washington within 30 days, an option, the largest Web radio network, is considering.

"We're terribly disappointed," said John Jeffrey,'s general counsel.

The company provides services to both regular broadcast radio stations who want to simulcast their programming on the Web and to other companies that offer programming exclusively on the Web.

The Web-only radio stations represent roughly half of's revenue, and Jeffrey said the company fears many of them will be forced to shut down.

"For the independent Webcasting business, it means most of them will go out of business," Jeffrey said.

For its part, the recording industry appears wholly dissatisfied with Thursday's decision. The Recording Industry Association of America, the industry trade group that had lobbied for the higher rates, said the royalty rate determined by the Copyright Office "does not reflect the fair market value of the music as promised by the law."

"The import of this decision is that artists and record labels will subsidize the Webcasting businesses of multibillion dollar companies like Yahoo, AOL, RealNetworks and Viacom," RIAA President Cary Sherman said in a statement.

Although each side has the option to appeal the Copyright Office's decision, it is unclear whether either would do so. The court has denied most similar challenges in the past.

And since the current rates are set to expire in about six months, a renegotiation is the more likely scenario.

"I think that everyone would feel that a renegotiation that allows for a percentage of revenue would be the optimal outcome," said Real Networks' Alben.  Top of page