Web radio stations win a last-minute stay of execution

After Congress intervenes, the recording industry agrees to let webcasters stream music until negotiations lead to fairer royalty rates.

By Farhad Manjoo

Published July 13, 2007 6:16PM (EDT)

Wired's indispensable digital-music maven Eliot Van Buskirk reports some good breaking news: Internet radio stations will not shut down this Sunday.

Many Web radio outfits feared closure as their legal fight against staggering new music royalty rates met failure this week. On Thursday, the D.C. Circuit Court of Appeals refused to block the new rates, which are scheduled to go into effect Sunday. But as a result of public outcry -- which, in turn, sparked congressional outcry -- SoundExchange, the recording-industry group that collects royalties, has agreed not to immediately enforce the rates, pending negotiations with webcasters.

I just spoke to Tim Westergren, the founder of Pandora, the hugely popular Internet radio station that allows people to create personalized music channels. I asked Westergren if Pandora will shut down Sunday: "No, we won't," he said.

On Thursday, the House Commerce Committee, chaired by Rep. Edward Markey, a Massachusetts Democrat, convened an emergency round-table meeting between both sides in the royalty dispute. At the meeting, SoundExchange agreed to cap the $500-per-channel fee that had threatened to wipe out Pandora and other stations that let people tailor radio channels to their taste. Westergren says the cap "was a precursor to any kind of negotiation, because that fee was so absurd. It was like a billion dollars for us and other large webcasters put together every year." Now, stations like Pandora will pay $500 for each radio channel they send out, with a maximum of $50,000.

Besides the per-channel fee, Internet radio stations also face a new per-stream fee that applies retroactively to 2006, and rises each year until 2010. The new schedule charges webcasters $0.00076 per listener per song for 2006; $.0011 for 2007; $.0014 for 2008; and $.0018 and $.0019 for 2009 and 2010. The rates are far more onerous than those imposed on satellite systems -- which pay a share of their revenue -- and for traditional "terrestrial" AM and FM radio stations, which pay no performance royalties for the music they play. (The music industry, though, is trying to change that.)

The negotiations between SoundExchange and the webcasters now center on these rates -- and they're taking place, Westergren notes, "under the watchful eye of Congress." And that, he says, is the main news today. "The reason this deal is happening is because of congressional pressure, and congressional pressure is happening because of people calling in. Everybody needs to know that. A million people in the last three months have called Congress about this. And Congress has said, Look, if you don't solve this, we will. That's very explicit."

Farhad Manjoo

Farhad Manjoo is a Salon staff writer and the author of True Enough: Learning to Live in a Post-Fact Society.

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