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Copyright Royalty Board Puts Internet Radio On Death Watch

The Copyright Royalty Board has quickly and completely affirmed its own decision on performance royalties, set in accordance with recording-industry wishes, that will be assessed against Internet music-streaming and radio station sites. Because the rates, which were more than a year overdue, were much higher than the Internet radio industry expected, and retroactive for 2006, one possible result is that many small Internet radio operators will cease operations immediately and wait to see if Congress or the courts will provide relief.

The board in March adopted the recommendations of the recording industry, and the action created a storm of protest from broadcasters and the many small businesses that had been created to serve niche markets via the Web. The rate-setting decision more than doubled the rates for 2006, and mandates further major increases in 2007 and 2008.

The board invited requests for a rehearing, and then speedily ignored them, deciding yesterday that it had been right all along.

Exactly why the recording industry wants to radically restrict Internet radio eludes me. I wrote just earlier this week, in a review of music-discovery Web sites, that these services are just beginning to offer the music industry a real alternative to the declining broadcast radio business in terms of exposing listeners to the record companies' products. It looks like the music industry remains unable to overcome its inability to understand and deal effectively with technology.

There was one area where the board agreed with the rehearing petitioners, according to David Oxenford, who writes for the Broadcast Law Blog: it issued clarification requested by SoundExchange (the company formed by the recording industry to collect the performance royalties) emphasizing that the performance royalties apply not just to PCs, but to streaming received over mobile phones, too. Otherwise, wrote Oxenford, "The board did not specifically address the requests for rehearing of the $500 per channel minimum fee that could be interpreted to require a minimum fee for each stream created by a service like Pandora, and would certainly require huge royalties by services like Live 365 -- regardless of how many people listen to the streams. It also didn't even address the issue raised by the broadcasters, pointing to the fact that SoundExchange had offered an expert witness in the satellite radio proceeding who contradicted the expert witness offered by SoundExchange in this case -- the expert on whose testimony the Copyright Royalty Board's decision was based."

Internet broadcasters' hopes now rest on Congress and the courts. Rep. Edward Markey, D-Mass., chairman of the House panel on telecommunications and the Internet, has strongly criticized the Copyright Royalty Board's ruling, for example. The satellite radio case that Oxenford referred to, the merger of XM and Sirius, is another matter before Markey's committee, and testimony in that case had claimed that the growth of Internet radio would counteract any anti-competitive effect of a merger -- a statement that now appears a lot less certain.

The next procedural step, according to Oxenford, will be the publication of the royalty decision in the Federal Register by the Library of Congress. After that, interested parties will have 30 days to file a notice of appeal of the decision with the U.S. Court of Appeals for the District of Columbia.

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