N E W Y O R K, May 21, 2002 -- The librarian of Congress and the U.S. Copyright Office today rejected a new royalty plan that might have shut down scores of Internet radio Web sites.
If approved, the plan would have meant that Web sites that play music would have had to pay royalties not only to songwriters and music publishers, which traditional radio stations also do, but to record labels as well.
The royalty fees would have been retroactive to 1998, meaning many Internet stations trying to stick it out would have had to face an unusually large one-time expense.
The Digital Media Association, a Washington-based Internet-industry lobbying group, said today's ruling "offers hope that the final royalty will be more in line with marketplace economics."
Bound for Bankruptcy?
At a congressional hearing on the subject last week, Frank Schliemann, founder of Onion River Radio in Vermont, said the royalty fees would cause his Web site "and hundreds of other Internet radio stations to file for bankruptcy."
Many stations also went silent on May 1 to protest the plan..
But record industry executives — many of whom are wary of Internet-based music services due to the popularity of file-swapping programs — welcomed a new fee structure.
"We fervently believe … that Webcasters can succeed while compensating the creators of the sound recordings upon which they have built their business," said Hilary Rosen, president of the Recording Industry Association of America, at a Senate Judiciary Committee hearing last week.
But Jonathan Potter, executive director of the Digital Media Association, told the Senate panel the proposed fee structure was "astronomically high, and bears absolutely no rational relationship to traditional copyright licensing benchmarks."
Decision Upheld in Court
Before today's rejection, the idea of assessing Internet radio stations the extra royalty fees has passed legal scrutiny. Last August, Philadelphia District Court Judge Berle M. Schiller upheld the Copyright Office's plan from December 2000, drawing a heated reaction from broadcasters at the time.
The court decision allowed the Copyright Arbitration Royalty Panel to propose in February of this year the plan that was ultimately rejected .
Those opposing the royalty charge to Internet stations had argued music that is heard via the Web benefits the record labels as a promotional tool every bit as much as music broadcast over the airwaves does.
Prior to today's ruling, Edward O. Fritts, president and CEO of the National Association of Broadcasters, had called the royalties "unfair and unreasonable."
He added: "Broadcasters, record companies and consumers have long enjoyed a symbiotic relationship whereby airplay on radio stations benefits all parties, along with generating enormous revenues for the record labels."