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Internet radio stations have rejected a compromise proposal from the US music industry on higher music licence payments. It would allow small stations to keep the old fee structure, but stations claim the deal is designed to stunt net radio's growth.

The US Copyright Royalties Board (CRB) will implement higher charges for online radio music licences from 15th July. Net radio stations say that the increases will put them out of business, with retrospective charges for 2006 exceeding stations' total advertising revenue.

A new offer has been made by SoundExchange, a non-profit music industry body that collects royalties on behalf of labels. It has said that it would allow 'small' online radio stations to continue paying the current royalties, but larger stations would have to pay the new amounts.

Internet radio station representative group SaveNetRadio has rejected the plan, saying that the plan is designed to stifle the growth of online radio.

“The proposal made by SoundExchange would throw 'large webcasters' under the bus and end any 'small' webcaster’s hopes of one day becoming big,” SaveNetRadio spokesperson Jake Ward said. “Under Government-set revenue caps, webcasters will invest less, innovate less and promote less. Under this proposal, internet radio would become a lousy long-term business, unable to compete effectively against big broadcast and big satellite radio – artists, webcasters, and listeners be damned.”

The deal would allow stations to pay 10% of their revenue in royalties until they earned $250,000. After that they would pay 12% of revenue, but it is not clear what the upper revenue cap on 'small' stations would be. Beyond that cap, though, stations would move to a per-song payment of 0.08 cents per song per listener for 2006 and 0.11 cents for 2007, rising to 0.19 cents by 2010.

SaveNetRadio said that this kind of charging would put internet radio out of business, and is not what was intended by US lawmakers.

"A standard that would set a royalty rate more than 300% of a webcaster’s revenue was not what Congress had in mind, and it must be adjusted if the industry is going to survive," said a SaveNetRadio statement.

Satellite radio services currently pay just 7.5% of their revenue in royalties, while traditional broadcast radio does not pay anything because labels consider airtime to be promotional.

The Internet Radio Equality Act is currently before the US Congress. This proposed law would set internet radio royalties at the same 7.5% level as satellite rates until 2010.

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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