Agreement Reached on Internet Royalties

The contentious issue of Internet Radio and digital royalty rates has reached a tentative conclusion, at least as far as putting agreements on paper is concerned. In an made today, the warring parties entered what was termed as a "historic" agreement. Whether this new agreement will challenge the Magna Carter in 800 years remains to be seen, however, in the mean time it appears the feud has been settled.

Whenever an Internet radio station plays a song, it has to pay a royalty. That royalty rate remained firm at $0.000768 from 1995 until all hell broke loose in 2007. In early 2007, the US Copyright Royalty Board (a bizarre sect of the Legislative branch) increased the rates substantially. And not by a few hundred thousandths of a dollar - we're talking somewhere on the order of , enough to make Internet broadcast giants such as contemplate ceasing operations. Any business owner, large or small, would immediately tell you that an operating increase of that magnitude would immediately render their business bankrupt. Oh, and for added kicks the rate would be retroactive to January 2006.

Fortunately for Internet radio stations, the massive rate hike didn't take hold. Internet radio is no joke, and the technology may represent the future of broadcasting, much in the way the Internet is replacing TV as the video entertainment mechanism of choice. The demand for internet radio is significant, and with WIFI coming to the automobile, terrestrial radio's days could be numbered. With the economic potential of Internet radio facing a mortal crisis, the Congress of the US introduced the in an attempt to reverse the CBC's decision. It turned out a legislative approach wasn't necessary to reach a compromise.

Negotiations between SoundExchange, the organization that collects royalties from digital entities (internet radio, XM, Sirius), Internet broadcasters, represented by DiMA, and of course the RIAA ensued, and today's announcement is the culmination of an extraordinarily long negotiation process.
The new agreement appears to alleviate many of the fear associated with the 300%-1200% increase previously approved by the CBC, as the agreement tries to be more flexible for smaller broadcasters. Instead of shelling out a massive royalty for every song broadcast, the station operator will be charged 10.5% of his or her revenue per year. Not wonderful, but not the end of the world.

"Limited download and interactive streaming services will generally pay a mechanical royalty of 10.5 percent of revenue, less any amounts owed for performance royalties. In certain instances, royalty-free promotional streaming is allowed. Outside the scope of the draft regulations, the parties confirmed that non-interactive, audio-only streaming services do not require reproduction or distribution licenses from copyright owners."

DiMA was particularly pleased with the results:

“Innovative music services will enjoy a more stable business environment because of this agreement and that will benefit music fans and music creators alike,” stated Jonathan Potter, Executive Director of DiMA. “DiMA is particularly pleased with the agreement to end litigation and threats of litigation involving several of our member companies, so that they can focus on building innovative businesses that can effectively fight piracy, the music industry’s greatest threat.”

DiMA, who represents the larger broadcasters such as Pandora may be satisfied, however, many of the smaller broadcasters not represented have yet to comment. It’s impossible to please all of the people all of the time - and it stands to reason that even though a settlement has been reached, the consequences will still be considerable.


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