Court Ruling Could Doom Webcasters

N E W   Y O R K, Aug. 13 -- The world of online music has long been the land of the free, for listeners and providers alike. But a recent court decision means Internet radio companies will have to pay up — and that could make a lot of them close shop, too.

On Aug. 1, District Court Judge Berle M. Schiller in Philadelphia upheld a decision made last December by the U.S. Copyright Office, which determined that radio stations must pay royalties to record companies on music played over the Web.

The double whammy of the Copyright Office's decision and last week's ruling has broadcasters steamed.

"Broadcasters currently pay in excess of $300 million annually in music licensing fees to compensate songwriters and music publishers," says Edward O. Fritts, president and CEO of the National Association of Broadcasters. "Any additional fee to compensate record companies would be unfair and unreasonable."

Radio stations do not currently pay fees to record labels for the songs they broadcast over the airwaves — only to music publishers and writers. But the court ruling compels broadcasters to cough up cash even if a radio station simply streams its content over the Web, as many stations do.

The same goes for Internet-only operators, like NetRadio of Minneapolis, one of the first Web music stations, and music services like AOL Time Warner's Spinner.com. As a result, Internet music outlets that can't afford the fees could quickly go out of business.

The NAB's position is that since radio stations don't pay record companies fees for songs broadcast over the air, they shouldn't for songs played on Webcasts, either. Fritts argues the broadcast exposure promotes record sales and is responsible for "generating enormous revenues" on behalf of the labels.

Record Companies: Make Us an Offer

The Recording Industry Association of America, the umbrella group for the record labels, has welcomed the ruling. It expects a decision by the Copyright Office on the size of the royalties will be announced within six months, and will be enforced by early 2002.