Net radio operators lose appeal over fees

In a potential blow to Internet radio services, a federal copyright panel on Monday largely upheld a contentious decision that would elevate royalty fees Webcasters must pay to record labels.

The three judges on the U.S. Copyright Royalty Board said that after reviewing filings submitted by small commercial Webcasters, National Public Radio, and others, none of them had "made a sufficient showing of new evidence or clear error or manifest injustice that would warrant rehearing."

The board in its five-page order (click for PDF) also declined to postpone the May 15 deadline when the new fees are scheduled to kick in.

Released March 1, the new rules (PDF) prescribe rate hikes of .08 cents per song per listener retroactive to 2006. The rates would climb to .19 cents per song by 2010, which amounts to a 30 percent increase per year. Each station would also have to hand over a minimum $500 royalty payment under the ruling.

The judges in their decision issued two clarifications--one about the way royalties would be calculated for 2006 and 2007 and another stating that the royalty rules would also apply to music streamed over mobile devices. But they left a number of other questions about the ruling unanswered.

Internet radio operators argue that, when compared with broadcast and satellite radio, they already pay the highest royalty rates in proportion to their revenue, and any further changes could imperil their offerings. A group of artists, labels, Webcasters and listeners has formed the SaveNetRadio Coalition to pressure Congress to get involved.

"As a former touring musician myself, I'm no stranger to the challenges facing working musicians," Tim Westergren, founder of the Internet radio service Pandora, wrote in a Monday e-mail. "The issue we have with the recent ruling is that it puts the cost of streaming far out of the range of ANY Webcaster's business potential."

SoundExchange, the nonprofit organization that collects the royalty payments and lobbied for the changes in the first place, welcomed the board's action.

"Our artists and labels look forward to working with the Internet radio industry--large and small, commercial and noncommercial--so that together we can ensure it succeeds as a place where great music is available to music lovers of all genres," Executive Director John Simson said in a statement.

The next step is for the board to publish its decision in the Federal Register, according to an analysis at the Broadcast Law Blog. After that, parties will have 30 days to file a notice of appeal with a federal court in Washington.