Small Internet radio stations are facing improved odds of survival after the House of Representatives approved a bill yesterday to make it more affordable for them to negotiate royalty deals with music publishers and the recording industry.
The House voted in favor of the Copyright Royalty Distribution and Reform Act, which would authorize a judge appointed by the Librarian of Congress to hear royalty disputes, eliminating a system that webcasters say excludes them from the process of determining the amount of money they pay to musicians, songwriters and record companies for broadcasting their music.
Under the current system, arbitration panels decide the royalty rates that Internet radio stations pay, but the cost of participating can run into the hundreds of thousands of dollars. The new system would charge participants $150 to argue a royalty case before a judge.
"Those are the folks your sympathy goes out to. They incurred incredible expenses before they even got to the point of hiring an attorney," said Rep. Lamar Smith (R-Texas), the bill's sponsor and chairman of a House subcommittee on intellectual property.
Under the Digital Millennium Copyright Act of 1998, Congress said that webcasters must pay copyright royalties to songwriters and record companies when they play songs online. The government-approved royalty rates that were negotiated in the arbitration panels proved manageable for large Internet radio operations owned by major companies but were prohibitively expensive for small webcasters.
That small webcasters have been able to survive so far is in some part because of a law signed by President Bush in late 2002 that allows them to negotiate royalty payment rates on a case-by-case basis with SoundExchange, the recording industry's principal royalty collector. Bush signed the bill after many webcasters complained to Congress that they could not afford paying .07 cents per song per listener as determined by the Library of Congress.
Smith's bill will make it more feasible for webcasters to challenge the Library of Congress's royalty rate, said Ann Gabriel, president of the Las Vegas-based Webcaster Alliance.
"It does give small webcasters a better chance to be heard," she said.
Gabriel said she expects a judge to do a better job tracking the effects of previous royalty rulings on the industry and keeping abreast of the complicated issues associated with royalty payments.
In hearings on the bill, Smith said all the major participants in the royalty debate have criticized the current arbitration process.
"It was clearly a system that everybody from individuals to large businesses felt was not working," Smith said. "There was a unanimous agreement among all our witnesses that the process itself needed to be streamlined and needed to be modernized."
Smith said he plans to meet with Senate Judiciary Committee Chairman Orrin Hatch (R-Utah) next week to discuss the legislation. He predicted that it could pass the Senate and go to the White House within one or two months.
Hatch aides were unavailable for comment.
Recording Industry Association of America spokeswoman Amy Weiss released a statement saying that the group "appreciate[s] this step forward in addressing important issues related to the process of determining the royalty rates for music delivered by digital services."
