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Why Last.fm isn't sweating the RIAA's royalty hike

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Last.fm, the popular custom radio and music network, will press on with expansion plans, despite the threat to internet radio from the record industry lobbyists in the US.

A battle is currently being fought Stateside over how much royalty should be paid for streaming radio. Until the tail end of last week, the future of online radio looked bleak in the US, when collection society SoundExchange, backed by the RIAA, defeated an appeal to the Copyright Control Board to overturn a tripling of the royalty.

The appeal was brought by a coalition of webcasters who said the new regime would destroy an embryonic and as-yet unprofitable business, but it fell on deaf ears.

Speaking to The Register, Last.fm founder Martin Stiksel said the RIAA had succeeded in masking the fact the huge payday their new royalty scheme would grant would not be passed on to artists. "They've managed to lead the discussion, when they shouldn't have been allowed to," he said.

On Friday, a bill was introduced in Congress aimed at guaranteeing internet radio parity on royalty payments with satellite broadcasts by capping the rate payable to collection societies at 7.5 per cent of revenue. SoundExchange and the RIAA have argued that the bigger potential audience for internet radio means it should pay more.

History shows the RIAA as a powerful force in Washington, so uncertainty reigns over the bill's fate. Stiksel said the threat to his firm may have been overstated in some quarters.

Although the firm is based in London, about 25 per cent of Last.fm's audience accesses the site from the US. Referring to the firm's heritage of dealing direct with labels and artists, Stiksel said "there may be ways around" the fee hike. The station has bagged two of the four major labels - Warner and EMI - and Stiksel said Sony BMG and Universal were set to close shortly.

Sound recording performance royalty collection is more complex in the US than in the UK, where pretty much everything goes through PPL. Unfortunately, stuck between a rock and a hard place, PPL has repeatedly slipped on promises to organise a universal streaming royalty regime in the UK. When Last.fm launched in 2002 it was told to go and deal directly with labels, while the huge number of interests which compose PPL's hive mind began the still ongoing debate of what to charge for webcasting.

So as it turns out, this apparently tiresome trudge into the most arcane corners of the music industry may turn out to be a boon for Last.fm. Pandora, its biggest rival in custom radio, has only launched in the US so far, where it is bigger than its UK-based rival, but therefore more exposed to the threat from the Copyright Control Board's decision.

Pandora pays the record companies through the architects of the new system, SoundExchange, which is why Pandora founder Tim Westegren resorted to an impassioned email plea for listeners to petition politicians through the savenetradio.org campaign site, which features a countdown timer to "the day the music dies".

In an interview, Westegren said: "We don't have very deep roots in Washington. The best recourse for us is looking to rally listeners and try to get a new bill passed."

Cynical observers might suggest you know you've got problems when you're facing down the RIAA lobbyists armed with a petition. Ironically, until 1995 there was no performance royalty for sound recordings in the US.

There may be another, more hard-boiled reason why Last.fm isn't sweating the flap over royalties in the US. Speculation last week said it was being eyed as a $450m acquisition target by media conglomerate Viacom. Stiksel declined to comment on the rumours. ®

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