'Net radio firms hear a sour note from appeals court

U.S. federal appeals court denies a petition from music webcaster associations

A U.S. federal appeals court Wednesday denied a petition from music webcaster associations for an emergency stay of new royalty rates that Internet radio companies have to start paying on Sunday.

"[The] petitioners have not satisfied the stringent standards required for a stay pending court review," the U.S. Court of Appeals for the District of Columbia Circuit wrote in its brief and to-the-point opinion.

The stay, if granted, would have delayed the July 15 due date of the increased royalty payments that are owed by music webcasters to SoundExchange, the nonprofit organization set up by the Recording Industry Association of America to collect so-called digital performance royalties for recording artists and record companies.

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 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.

The appeals court's decision dealt a blow to efforts to overturn the new rates, acknowledged Jake Ward, a spokesman for the SaveNetRadio coalition.

"We are disappointed, surprised, not discouraged -- but certainly we recognize it as a setback," Ward said. "We're putting a lot of pressure on Congress today and tomorrow. [But] if this comes and goes on July 15 without congressional action, webcasters will have a choice to make."

For many, Ward added, the available options are all bad because they simply don't have enough money to pay the new royalty rates.

"What they'll be forced to choose is whether they want to continue broadcasting in noncompliance with the royalty board's rates or declare bankruptcy," he said. "But if they shut down, they're still violating the royalty board's decision because the rates have been in place since May 1 and are retroactive to 2006."

In a statement issued Thursday, Jonathan Potter, executive director of the Washington-based Digital Media Association, said his group -- which represents large music webcasters and is known as DiMA -- was also disappointed by the appeals court's ruling.

Webcasters "are now forced to make very difficult decisions about what music, if any, they are able to offer," Potter said. "The result will certainly be fewer outlets for independent music, less diversity on the Internet airwaves and far fewer listening choices for consumers."

He added that DiMA officials are "hopeful" that Congress will take action on the issue, and that webcasters and SoundExchange "will find a way to compromise and maintain the diversity and opportunity of Internet radio."

Under the new rate structure set by the CRB, royalties will be changed from a percentage of revenue to a per-song, per-listener fee. Affected entities include pure-play Internet radio stations, digital music stations and traditional broadcast stations that also stream their programs online. The new rates would remain in effect until 2010.

In April, two federal lawmakers filed a bill that would reverse the CRB's decision. However, it doesn't appear that there is much Congress can do about the issue before Sunday.

Christine Hanson, a spokeswoman for U.S. Rep. Jay Inslee (D-Wash.), said that the only way Congress could delay the inevitable is if both the House and Senate pass the proposed legislation and President George W. Bush signs it before Sunday.

The chances of that happening are "zilch," Hanson said, adding that Inslee hopes the recording industry and webcasters can reach a compromise before the higher payments kick in. Inslee planned to speak with representatives from both sides today, according to Hanson.

"If Internet radio goes silent, I will fight to make sure the silence is brief," Inslee said in a statement sent via e-mail. "One thing is sure: After July 15, national pressure for a resolution of this travesty only will increase. We are not going away."

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