House Bill Would Set Internet Radio Royalties Equal to Satellite

A bill introduced yesterday before the US House of Representatives by Rep. Jay Inslee (D - Wash.) and Rep. Don Manzullo (R - Ill.) would explicitly nullify the findings of the Copyright Royalty Board, which set forth last month a royalty fee for Internet streaming performances that online providers say could put them out of business entirely.

In its place, the Inslee/Manzullo bill, currently called the Internet Radio Equality Act, would establish a flat per-listener hour rate of 33 cents, or a third of a dollar for every individual who listens to music over the Internet for one hour. The rate would be retroactive to 2006, so the nation's #1 streaming music provider, AOL Radio, could find itself owing past-due royalties for last year in the amount of $916,000, by BetaNews estimates.

But that's better than the $23.7 million fee AOL it might have to pay - again by BetaNews estimates - if the CRB's per-performance rate were enacted on May 15 as planned.

The $0.33 cents per hour flat rate (that's 33 cents, not a third of a cent) would remain in effect through 2010 if the bill passes, allowing the natural rate of industry growth to be reflected in royalty fee uptakes. This formula was chosen, industry insiders say, because it's the same performance royalty fees that satellite radio providers XM and Sirius currently pay. Under the terms of the bill, Webcasters would have the option of capping their royalty payments to 7.5% of their revenue from streaming, which would include advertising and subscription fees.

Non-commercial streamers such as National Public Radio would have their fees determined under a separate schedule, which would presumably be much lower - as it has been up until now. In a statement, NPR vice president Andi Sporkin responded very favorably: "Since 1976, Section 118 [of the Copyright Act] has recognized that public radio has a very different mission from commercial media and cannot pay commercial-level royalty rates. This bill will provide a long term resolution that is fair for all sides."

Based on industry listenership projections, should the bill pass, the SoundExchange performance rights organization could still stand to collect over $25 million from all streaming music providers in 2007. Given the projected growth rate of the industry, that figure could rise to $51.2 million by 2010. Compare that to $2.3 billion, which BetaNews estimated the streaming media industry would pay in 2010 (assuming it could afford to), based on data given us by industry insiders.

The bill could find some powerful backing in the form of the National Association of Broadcasters. In a statement late yesterday, NAB executive vice president Dennis Wharton noted the bill "would overturn the Copyright Royalty Board's disappointing decision to dramatically raise fees for companies that stream music over the Internet. We will work with Congress to craft a solution that helps ensure the survival of a fledgling audio platform."

That statement indicates Wharton may stop short of supporting the bill outright for now. Broadcasters with Internet radio interests find themselves competing head-on in this new space with independents such as Pandora and online giants such as AOL Radio and Yahoo's LaunchCast - firms whose broader interests the NAB may not want to be seen as representing just yet.

The online campaign SaveNetRadio.org is urging individuals to call their congressperson to voice their support for the bill, which doesn't have much time for debate if Congress intends to pass it before the May 15 due date for 2006 royalties goes into effect.