Small Webcasters May Escape Bankruptcy Thanks To New Deal

House of Representatives passes bill that would mean lower royalty payments.

Small Internet radio stations may find salvation yet.

The House of Representatives unanimously approved a deal Monday (October 7) between the recording industry and online radio stations to implement a royalty rate based on a percentage of revenue rather than on a per-song, per-listener basis, according to an RIAA spokesperson.

The deal dictates that smaller webcasters, defined as those who have grossed less than $1 million from November 1998 to June 2002, are required to pay 8 percent of their revenues or 5 percent of expenses, whichever is larger.

Next year, smaller webcasters, who earn less than $500,000 in gross yearly revenues, would have to pay 10 percent of the first $250,000 and 12 percent thereafter up to $500,000; or 7 percent of expenses. In 2004, smaller webcasters are redefined as earning less than $1.25 million and must pay 10 percent of the first $250,000 and 12 percent thereafter up to $1.25 million; or 7 percent of expenses.

“We are pleased with the unanimous vote in the House of Representatives in support of this legislation,” read a joint statement from the RIAA and the Voice of the Webcasters organization. “We both want fans to have the best musical experience possible, and this legislation helps us move forward together toward that goal.”

A lower but similar basis for royalty rates was set for nonprofit entities.

In June, the Librarian of Congress decided on a rate that required all online broadcasters pay 0.07 cents per listener per song. Both sides claimed they would appeal the decision before the October 20 deadline when payments were scheduled to begin. The RIAA considered the rate too low, while webcasters objected because they thought it too high.

The proposed rates were most damaging to smaller stations, some no more than students operating out of dorm rooms, since it was to be retroactive to October 1998. The four-year backlog could add up to several thousands of dollars for some stations.

The fees remain retroactive in the newly proposed deal. The money will be distributed to featured artists and to the independent administrators for nonfeatured musicians and vocalists.

The per-song, per-listener rates still apply to larger webcasters such as America Online and Clear Channel Communications.

This bill still must be approved by the Senate and then signed by President Bush before it becomes law.