By David McGuire
washingtonpost.com Staff Writer Friday, February 7, 2003; 3:45 PM
The multi-year legal struggle between upstart Internet radio operators
and record companies over music royalties kicked off anew Thursday, when the U.S. Copyright Office issued an order that could send the combatants back before an arbitration panel.
Web radio operators and music industry representatives must brief the Copyright Office by March 5 on their efforts to hammer out a compromise on royalty payments. If the negotiations are unsuccessful, the Copyright Office will restart the process to establish the royalties that "webcasters" must pay to artists and record labels.
The outcome of the debate -- which is slated to come before arbitrators
in August if no agreement is reached -- could determine whether online radio has a future, observers said.
The royalty debate has been down this road before. Just last year, arbitrators capped more than three years of wrangling by setting a per-song royalty rate for webcasters.
That rate -- which was adjusted and approved by the Library of Congress -- expired at the end of 2002. Neither side was pleased with the rate, and representatives from both said they wanted a private settlement so they could avoid another arbitration round.
But record companies and Internet radio stations disagree on what
constitutes a "reasonable" royalty rate, and members from both camps are gearing up to plead their cases to the arbitrators, anticipating that the private negotiations might fail.
Jonathan Lamy, spokesman for the Recording Industry Association of
America (RIAA), said record companies are optimistic that they can reach private agreements.
"We are still in the process of private negotiations and hope that those will bear fruit so we can avoid" arbitration, he said.
Kevin Shively, vice president of business affairs at online classical
radio station Beethoven.com, said that the record companies "still
are holding onto positions that would potentially bankrupt the
industry."
Congress in the 1998 Digital Millennium Copyright Act said that
webcasters must pay royalties to record companies and musicians, on top
of the royalties they already paid to songwriters and music publishers.
Broadcast radio stations must pay the publisher and songwriter royalty, but are exempt from paying royalties to record companies and artists.
Setting the royalty rates falls to Copyright Arbitration Royalty Panels
(CARP), which are supervised by the Copyright Office, staffed by
private-sector arbitrators and funded by the affected parties -- in this case, webcasters and record companies.
Smaller webcasters complained during the last arbitration session that
they were largely excluded from the process because they could not
afford the arbitrators' fees.
"We've already filed our notice to participate, but the challenge is the $300,000-plus to even sit at the table," said Webcasters Alliance
President Ann Gabriel.
The alliance, which represents nearly 300 small and mid-sized
webcasters, will push Congress to reform the arbitration process,
Gabriel said.
"Everyone we've talked to has been very receptive," she added.
Digital Media Association Executive Director Jonathan Potter said he
hopes that the webcasters and recording industry can negotiate a deal
without having to resort to arbitration.
"I expect that negotiations will resume at some point," Potter said. "We got to the end of the last CARP, nobody was happy with the result and everybody spent a lot of money. I hope people's self-interest will kick in," he said.
Potter, who represents many larger webcasters, said that his industry
would not cave to what he called unreasonable record industry demands.
"You always try to negotiate and hope you can come to some sort of
middle ground [but] webcasters are not going to give away the future in
order to save a few dollars on an arbitration," Potter said.
Responding to unrest over the arbitration process, Congress late last
year passed a bill allowing smaller webcasters to make less onerous
royalty payment deals.
A small percentage of webcasters have taken advantage of that law, but
many are still waiting to see what comes out of the still-unresolved
battle over Web radio royalties.
