SoundExchange, webcasters in deal to cap royalty fees

SoundExchange Inc., the group set up by the Recording Industry Association of America to collect royalties for performers and record companies, said it has reached an agreement with the Digital Media Association whose members include large music webcasters, to cap royalty fees at US$50,000 per webcaster per year.

The groups are still negotiating to set the rates for each play of a song, the two groups said.

The new rates were set by the Copyright Royalty Board (CRB) of the Library of Congress in early March and went into effect May 1, retroactive to the start of last year. The first payments under the new rates were due July 15.

The rate increase would at least triple the amount of royalties Internet radio broadcasters must pay to copyright holders per song, and it has been challenged by webcasters, Internet radio listeners and more than 6,000 artists over the past several months.

"This agreement marks an important first step in the Internet radio royalty negotiation process," said DiMA Executive Director Jonathan Potter, in a statement. "We're encouraged by this development and the knowledge that good faith negotiations have begun. We look forward to the next step of negotiating the royalty rates that will allow for the growth of the Internet radio industry, a platform for music discovery for consumers."

The webcasters, including AOL, Live365, MTV, RealNetworks, Pandora.com and Yahoo Music, have also agreed to provide SoundExchange with all the data of songs they broadcast so SoundExchange can accurately distribute royalties to independent artists and record companies.

In addition, SoundExchange and the DiMA will form a committee to look into the issue of stream ripping, which copies sound recordings in webcasts, as well as antistream ripping technologies. SoundExchange seems to have backed off its previous request that the large webcasters implement this technology as part of the deal to cap the webcasters' fees.

"This agreement shows that we can address specific issues of concern to the industry through private negotiations while upholding the integrity of the CRB process and while protecting the interests of SoundExchange members," said John Simson, executive director of SoundExchange, in a statement.

Neither the DiMa nor SoundExchange could be reached for comment.

Earlier in the week, SoundExchange also extended an olive branch to small webcasters, those who earn $1.25 million or less in total annual revenue, offering them a discounted rate though 2010. As part of the agreement, small webcasters would pay royalty fees of 10 percent or 12 percent of their revenue.

Small webcasters have until Sept.14, 2007, to accept the agreement, or face paying the new rates.

However, David Oxenford, a lawyer representing small webcasters, said the offer is the same one SoundExchange proposed in May and doesn't address the criticisms of the offer the small webcasters had at that time.

Oxenford said the offer doesn't allow small webcasters to grow their businesses, "artificially condemning them to be forever small, at best minimally profitable operations, in essence little more than hobbies," he said in the statement.

In addition, Oxenford said the offer only allows the small webcasters to play the music of SoundExchange members. If they play the music of artists who are not members, they would have to pay the new, higher royalty rates.

"The only way to resolve these issues is through meaningful negotiations, or through legislation like that proposed in the Internet Radio Equality Act," he said in the statement. "Unilateral proposals simply don't address all the issues that have caused so much outrage over the CRB decision. In order for these independent companies to build profitable businesses that will promote music and be able to pay reasonable royalties, something more than what SoundExchange has offered must be available."

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