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Radio royalties: the ticking timebomb under the RIAA

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An obscure backroom deal that took place in Washington DC last Fall - unreported by the specialist music press, then dismissed as insignificant after extensive coverage here at The Register - could yet be the undoing of the Recording Industry Association of America.

At stake is the RIAA's right to set punitive royalty terms for webcasters - royalties that terrestrial analog radio stations don't have to pay. But lurking in the background is the RIAA's legitimacy to police copyright terms for online, digital music. In the closing stages of the Napster trial, even Judge Patel questioned whether the RIAA had a right to perpetuate its distribution monopoly into the digital age.

Being unable to pursue its valuable copyright claims on electronic music would reduce the RIAA from being one of the richest and most powerful lobby groups into a museum piece.

But Perry Narancic, attorney for the Webcaster Alliance which this week threatened to file a suit alleging anti-competitive actions by the RIAA, stesses that this is early days.

"This is not a class action on behalf of 10,000 small webcasters," he told us. The Webcaster Alliance was born out of the acrimonious deal, reported here (see 96 pc of Net Radio' to close after backroom deal screws grassroots 'casters ) No suit has yet been filed.

Narancic explains that under Section 16 of the Clayton Act a trade association has right to injunctive relief. Also under examination is the RIAA's claim to negotiate sound recording royalites, which he argues may fall foul of Sections 1 and 2 of the Sherman Antitrust Act, regarding monopolization claims.

Why does he feel confident that the Webcaster Alliance could succeed where Napster had failed? Narancic says that the tradition of judicial conservatism effectively tied Judge Patel's hands in the Napster hearings.

"We believe RIAA and members control 85 to 90 per cent of the dominant market for music. They're seeking to eliminate a distribution channel that is absolutely vital to competing music from independents," he argues. "Music has a very difficult time getting exposure through traditional means. And yet the regulatory barriers are very low - Internet radio is a great way to distribute music in a convenient fashion." Raising the barrier to entry cuts off the air supply to thousands of smaller webcasters.

So what happened last Fall? Webcaster were astonished when a bill, HR.5469 hit the floor of the House. An earlier version was expected to be a simple affair which called for a moratorium for royalty payments: a six-month cooling off period. But instead the 28-page bill bound webcasters of a certain size into quite detailed rates and terms.

The revised bill, which gave interested parties only minutes to digest the new terms, was the result of a shotgun compromise between the RIAA and a group of breakaway webcasters, who styled themselves the "Voice of Webcasters". The thirteen, later eight, webcasters who signed up to the terms of HR.5469 had been under intense pressure from high-ranking Senator James Sensenbrenner, Chairman of the House Judiciary Committee. According to those present, Sensenbrenner - anxious for a result and under pressure from the AFL-CIO - threatened to use his own staff to set the terms.

In November, Senator Jesse Helms - under pressure from the religious broadcasters - introduced a third, revised version of HR.5469.

The Webcaster Alliance now argues that the backroom deal was anticompetitive.

At the core of the argument is how streaming media stations should pay performance royalties. All legitimate radio stations pay publishing royalties to the songwriter direct which are collected by BMI and ASCAP (unless the songwriter doesn't belong to these organizations or choose to waive the royalty).

Under the DMCA, the RIAA is entitled to collect performance royalties too, which, unusually, terrestrial stations in the United States are not required to pay. The RIAA argues that a streamed broadcast equates to a reproduction, not broadcast, even though most streams are well below the quality of CDs, and stream ripping software is itself illegal under the DMCA.

But as Kevin Shively of Beethoven.com, who withdrew his endorsement from the VoW deal, told us last October, outside the USA the performance royalties rarely exceeds the publishing royalties. "There's no way a station needs to pay a multiple of songwriter royalties," he says. "And in some cases proposed it reaches double digits."

"We're counting on the financial and moral support of the public," Alliance attorney Narancic told us this week. The Webcaster Alliance reported with scorn to comments made by John Simson, Executive Director of the RIAA's royalty collection arm SoundExchange in The Register this week, which characterized the 300-strong Webcaster Alliance as an organization of hobbyists.

Most of the 300 members are for-profit or non-profit organizations, said Alliance president Ann Gabriel. "For John Simson to classify our members as 'hobbiests' - members who have taken the time to form corporations and other legal entities so they can provide services to streaming media enthusiasts is laughable,"she said. "I consider SoundExchange the 'unincorporated division' of the RIAA to be more of a hobby than any type of operation our Webcaster Alliance members are conducting right now."

"The RIAA is a public relations nightmare unto itself," adds Narancic. This, you already know. ®

Related Stories - chronological

[the deal]
'96 pc of Net Radio' to close after backroom deal screws grassroots 'casters
RIAA-backed webcast bill 'a disaster for the US'
'RIAA-written' Net radio bill served to Senate
Civil disobedience promised after net radio royalty bill falls

[the recriminations]
New Alliance for webcasters
Webcast relief defers Day of Judgement
RIAA engineered webcast split - former exec

[compromise relief legislation]
Helms explains webcasting deal
Bush signs Webcast Act
RIAA agrees webcasting rates... with non-webcasting AOL, Microsoft
AOL Time Warner takes grip of net radio
RIAA faces antitrust suit

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