Small webcasters turn deaf ear to SoundExchange offer

The deal would give small Net radio stations more time to pay higher royalty rates

SoundExchange, the group that collects royalties from Internet radio broadcasters, is offering small Net radio stations more time before they would have to pay newly approved higher royalty rates to stream music online.

SoundExchange has offered small Internet radio stations until 2010 before they would have to pay higher rates set by the federal Copyright Royalty Board in March. Large radio stations would have to pay the new increased rates.

The offer by SoundExchange, which was set up by the Recording Industry Association of America to collect royalties for performers and record companies, puts a cap on the amount of revenue a small online radio station could earn and also caps how much music the webcasters could stream online. A small radio station is defined as having annual revenue of $1.25 million or less.

But a spokesman for SaveNetRadio, a group that represents online radio stations, slammed the proposal as "hollow" and said it would limit the growth of small webcasters.

Earlier this year, the federal Copyright Royalty Board set rates that would at least triple the amount of royalties Internet radio broadcasters must pay to copyright holders to play a song.

Under the board ruling, royalty rates will be changed from a percentage of revenue to a per-song, per-listener fee. The entities affected include pure-play Internet radio stations, digital music stations like Pandora.com and traditional broadcast stations that also stream their programs. The new rates, which would be retroactive to 2006, would increase until 2010.

Federal lawmakers have filed legislation that would reverse the board's decision.

SoundExchange said its offer comes as a response to a request from the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property to "initiate good-faith private negotiations with small commercial and noncommercial webcasters with the shared goal of ensuring their continued operations and viability."

"This offer is not about displacing the judges' correct analysis of the market, but rather about extending for a limited time the below-market rates that these small businesses received several years ago. We have heard the concerns of Congress and we are responding," said Michael Huppe, general counsel of SoundExchange, in the statement.

But SaveNetRadio is not impressed with SoundExchange's offer.

"It's a hollow offer and it's a bit insulting to small webcasters to think that they would be willing to limit their potential growth by accepting the terms of a proposal that would doom them to stay small forever by putting in place revenue caps and [usage caps] that SoundExchange still claims are up for negotiation," said SaveNetRadio spokesman Jake Ward.

"This was an attempt by SoundExchange to derail what is a very aggressive and legislative effort to find a structural solution that will allow the industry to survive and to grow as a whole and that will allow small webcasters to build an audience and become successful," Ward said. "With the rejection of this proposal, that [legislative] effort is going to continue."

Copyright © 2007 IDG Communications, Inc.

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