Web radio faces costly future

In a scramble to end their session, senators have left small commercial Webcasters with an uncertain--and potentially expensive--future.

Online radio stations and the recording industry, including the Recording Industry Association of America Inc. (RIAA), had agreed on royalty rates that would considerably discount what Webcasters are to pay music companies, but the rates required the approval of Congress.

Both groups expected the Senate to approve the rates late Thursday night, but 20 minutes before the vote Senator Jesse Helms (R-North Carolina) put a hold on the bill at the request of small religious broadcasters in North Carolina.

"Our constituents did not have full opportunity to participate," says Joe Lanier, a Helms aide. He says Congress was moving too fast and overlooked the interests of these Webcasters.

For now, Webcasters must pay the higher rates that they were trying to avoid through negotiations.

Initial Tune

The road to the delayed Senate vote is one of negotiation and lobbying, with smaller Webcasters fearing they'd be taxed out of existence.

The Librarian of Congress in June imposed a rate of .07 cents per song per listener. This rate--which now takes effect on Sunday--is retroactive to the date the Webcasters started business. Many Webcasters object that the rate is too high and will force them off the Internet.

In fact, the proposed fees exceeded revenues of some small Webcasters. St. Louis-based 3WK Underground, launched in 1997, would have to pay back royalties of US$50,000, though the company earned only $10,000 last year.

Wanda Atkinson, co-owner of 3WK, says business has been on hold since the Librarian of Congress put the rates in place.

At first, members of Congress drafted a bill to extend the royalty deadline by six months. That effort was abandoned on October 1 when small commercial Webcasters and the recording industry said they could reach an agreement.

House Judiciary Committee Chairman F. James Sensenbrenner (R-Wisconsin) gave them a week to strike a deal, and agreement was reached October 6.

Sensenbrenner introduced a bill outlining the compromise, which creates a sliding fee scale based on revenue for the next two years.

"What started out as a negotiation for small Webcasters morphed into legislation," Atkinson says. Sensenbrenner's bill passed by a voice vote in the House last week.

The bill's sponsors, the recording industry, and several Webcasters expected the Senate to approve the bill by unanimous consent Thursday, three days before the Librarian of Congress's rates went into effect.

"Every effort was being made to prevent many Webcasting streams from going silent next week," says Senator Patrick Leahy (D-Vermont).

Then Helms halted the process.

Lingering Chorus

Sensenbrenner's bill does not address radio broadcasters streaming on the Web or noncommercial Webcasters, also called hobbyists.

Deborah Proctor, general manager of WCPE, a public radio station in Wake Forest, North Carolina, also streams its classical music broadcasts over the Internet. She says her station wanted to be a part of the negotiations.

"Unless you had six digits to pay for the arbitration process, you couldn't even comment," Proctor says.

Another Webcaster questions the deal.

"I think that the people that went along with the bill did so under duress of closing their doors," says David Shively, director of interactive media for Beethoven.com.

"It would be unfair to say that Senator Helms killed the bill," Shively adds. "He worked to ensure the relief that it creates is relief that helps as many people as possible."

The religious broadcasters would be willing to pay the Library of Congress rates in short term in order to negotiate a different deal, says a source familiar with the negotiation. The group would have preferred a six-month extension.

Next Verse

"The ball is in the copyright holders' court," says Shively. "It's up to them whether they want to be reasonable or lenient or if they want to be aggressive and go after these companies."

Atkinson says that most small commercial Webcasters will pay something to SoundExchange, the agency that collects the royalty payments. "The artists have been waiting forever and they deserve it," she says.

Late on Friday, SoundExchange announced a temporary payment policy allowing eligible Webcasters to pay only the $500 annual minimum fee up to a maximum of $2500.

"We are surprised and disappointed that the small Webcasters' legislation was not passed as expected by the Senate," says Hilary Rosen, RIAA chairman and chief executive. The Senate will not meet again until November 12, when Leahy is expected to try again to win Senate approval of the bill.