INTERNET RADIO DEAL CONCLUDED WITH MUSIC LABELS

After several years of debate, webcasting radio stations have at last reached a deal with copyright holders regarding royalty rates. The non-profit SoundExchange a performance rights organization designated by the U.S. Copyright Office to collect royalties from digital playback of music announced a deal with Internet radio services on new royalty terms. Online radio has become increasingly popular because it has the ability to target music to niche audiences.

Before 1995, Sound Recording Copyright Owners in the United States did not have a performance right. The Digital Performance in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 altered that by granting a performance right in sound recordings. Consequently, the law now requires that users of music pay the copyright owner of the sound recording for the public performance of that music via certain digital transmissions.

A controversy arose in 2007, when the Copyright Royalty Board (CRB) issued royalty rates for Internet radio that many stations complained would put them out of business. The fees were going to increase next year to 0.19 cents a song each time they streamed a song.

Both sides negotiated for several years, eventually agreeing to legislation that let Internet radio and copyright holders work out a deal on their own. If they reached an agreement, the CRB's rates would be vacated. The Webcasters Settlement Act of 2008, and a second bill, the Webcasters Settlement Act of 2009, extended that deadline for another month after President Obama signed it on July 2.

The agreement treats sites according to their size and business model. Under the deal Internet radio stations are divided into three categories: large pureplay webcasters; small pureplay webcasters (i.e. those that earn $1.25 million or less in total revenues and have a cap on the amount of music streamed); and pureplay webcasters that provide bundled, syndicated, or subscription services.

Large pureplay stations will pay a pay-per-performance rate or 25 percent of their revenue, whichever is greater. They are required to report to SoundExchange on the music they stream to listeners. These rates are in place until 2015. Small stations will pay either a percentage of their revenue or a percentage of their expenses. They have the option of less rigorous reporting requirements if they pay a proxy fee. These rates are in place until 2014. Pureplay webcasters pay an annual fee of $25,000.

SoundExchange represents more than 3,500 record labels and 31,000 artists and whose members include both signed and unsigned recording artists as well as independent and major label record companies. The agreement applies exclusively to "pureplay" webcasters -- those that simply play music, frequently supported by advertisements. Those sites usually have minimal revenues. Websites that stream music and sell other products won't find the terms as tempting because they must pay a percentage of all their revenue.