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New hope for webcasters?

Soundexchange SoundExchange, which collects digital broadcasting royalties for labels and performers, announced this morning what appears to be an important concession to webcasters specializing in customized playlists, such as Pandora and Yahoo's LAUNCHcast (download the press release here). The agency proposed to cap the administrative fees it collects at $2,500 per service. The move -- three days after hundreds of webcasters shut off their signals in a "day of silence" --  would eliminate one of the most perverse features of the new royalty regime announced in March by a panel of federal arbitrators, a provision that threatened to push even such powerhouse webcasters as Yahoo and RealNetworks out of the business.

Those webcasters face an insurmountable increase in royalties when the rates take effect July 15 (with the increase retroactive to Jan. 1, 2006). Not only did the copyright royalty judges call for a steady increase in the royalties owed per song (more than doubling the rates by 2010), but they also imposed a minimum fee of $500 per station. For companies that offer hundreds of channels -- a "nichecasting" approach that takes advantage of the Web's ability to personalize -- the new minimum amounts to a one-way ticket to bankruptcy. Pandora, Yahoo and RealNetworks alone would have to pay more than $1 billion a year just in minimum fees, their attorneys said in a court filing.

Many multi-channel webcasters face a total bill for minimum fees that exceeds their revenue from advertisers or subscribers. Capping those fees, however, would keep more webcasters in business, which means labels and artists would collect more royalties in the long run. In its press release, SoundExchange reiterated a point it's been making ever since the new rates were announced: under pressure from Congress, the agency is trying to fix a problem caused by the webcasters' failure to make a good case to the copyright royalty judges. Or, in the words of SoundExchange's general counsel, Michael Huppe:

“The idea that the per-channel minimum might have a disproportionate impact on certain Internet Radio stations was never presented to the Copyright Royalty Judges. Nonetheless, at the request of Congress, we are trying to work with the small subset of affected webcasters, and are offering this proposal in the hopes of addressing those concerns.”

That's a bit of revisionist history. The judges didn't invent the $500-per-channel figure -- the major labels proposed it. So there's plenty of blame to go around for this fiasco. Still, the good news for webcasters is that SoundExchange is now actively working on three of the major problems caused by the new royalty rates. In addition to the proposed cap of minimum fees, it also has offered deep discounts for non-commercial webcasters and a percentage-of-revenue alternative for small commercial online broadcasters. That's not to say that it's morning again in Webcasterville -- the steep increase in rates could still be ruinous to mid-sized webcasters and popular non-commercial stations -- but at least it's progress.



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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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