Webcasting Bill to Wow Congress after July 15, Inslee Says

“There’s a mindset here that we have 20 seconds left on the game clock,” but July 15 is the “beginning of the real congressional action” on the bill, Inslee said. HR-2060 would scrap CRB rates, imposing royalty parity with satellite radio. Not scheduled to testify, he spoke after an earlier panel composed of webcasters, artists and labels.

Committee leaders hesitated to intervene legislatively, especially given their role in a 2002 compromise setting lower rates for small players, they said. Chairman Nydia Velazquez, D-N.Y., fears “unintended consequences” from legislation, she said, adding that in any case her committee cannot consider Inslee’s bill. But the U.S. needs to stay a webcasting leader, she said, alluding to webcaster threats to move offshore.

“I find it somewhat troubling that we are here revisiting these issues yet again just five years later,” Chabot said. Parties should “take a step back and look for common ground so July 15 is just another day” for webcasters. But Chabot said the CRB decision “may jeopardize the mutually beneficial relationship” between artists and webcasters. Webcasts share a core principle with patents, viewed under the Constitution as promoting creativity, he said. The dispute may raise awkward questions about the adequacy of the Copyright Act Sections 112 and 114, on webcasting, Chabot said.

Inslee called the CRB ruling’s $500 per channel fee a “secret little nuclear weapon” that, after July 15, will drive out not only small players but many large webcasters with thousands of customized channels. Noting that he represents Redmond, home to Microsoft headquarters, Inslee said he knows the value of intellectual property and the need for a proper licensing payment. But Congress has a “lack of perception” of how the channel fee will affect webcasting. “We're going to lose the lion’s share of music over the Internet,” he said.

In Inslee’s district, webcaster Big R Radio says it may relocate overseas to avoid an expected 150 percent rise in its royalty fees, he said. The webcaster, which plays ads every 20 minutes, draws 15,000 daily listeners. Small webcasters in particular will be hit hard by the CRB’s mandated switch to a per-song royalty from a percentage of revenue, he said. The committee should not be fooled by a five percent rate increase for 2007, which “balloons” to 149 percent by 2010.

People already think AOL and Clear Channel, not small players, are behind the bid to cut royalties, said Rep. Hank Johnson, D-Ga. “The lights are not going to go out July 15, will they?” Johnson asked. “I do want to see further justification” for congressional intervention, he said. He asked if jail awaits webcasters that keep streaming after July 15 but do not pay the new royalties. Inslee said larger parties have less risk if they keep streaming but also keep negotiating. He compared the streaming royalty system to the first U.S. attempt at the space shuttle: “I think we're heading for a crash here.”

The CRB decision will subject public radio to “dizzyingly complex reporting requirements” better suited to commercial stations, Cincinnati Public Radio President Richard Eiswerth said. The noncommercial threshold for paying the $500 flat fee is “arbitrary” and too near the commercial threshold, he said. To avoid paying higher royalties, stations may use technology that cuts off online listenership once it reaches a certain number. The Corporation for Public Broadcasting is supposed to pay for royalties “and other fees” that include infrastructure and training, meaning that higher royalty obligations will cut into other non-negotiable costs for public radio, he said.

Legislators leaned heavily on witnesses, urging them back to the negotiating table. “I really don’t think Congress should be the best vehicle” to set rates, Velazquez said. Most negotiation has been through “press releases,” Miller said. Silverman said he is willing to define “small” through a combination of listeners, time spent listening and company revenue, so small webcasters need not pay burdensome rates. Kelly seconded that idea, suggesting a “contingency plan” in negotiations that accounts for sudden traffic bumps at small webcasters who are at risk of being driven out of business by a spike in royalty obligation.

Johnson compared music to “lemonade on a hot day,” noting his beverage. The container maker must pay the lemonade maker for the right to package the lemonade, he said. “They don’t have a business if we haven’t made lemonade,” Fink said. “What if the cup costs more than the lemonade?” Allcorn said. “Some people want beer” instead, Eiswerth said, noting public radio’s statutory obligation to “underserved” audiences.

Rep. Dean Heller, R-Nev., seemed the most concerned among committee members over the new rates. In his district several towns only get radio via Internet and satellite broadband. Webcasters with solid business plans who take SoundExchange’s offer will survive, Fink said. That’s not true for niche stations like “gothic country,” Kelly said. “We went out of business twice” after dropping the FM station, Miller said, and so would AOL Radio and its four employees but for AOL’s corporate largesse.