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http://www.mercurynews.com/business/ci_12771219?source=email

Online radio stations strike critical deal
By Joelle Tessler
Associated Press
Posted: 07/07/2009 04:25:08 PM PDT
Updated: 07/08/2009 06:44:27 AM PDT
WASHINGTON — The future of Internet radio appears more secure after a  
handful of online stations reached an agreement Tuesday to head off a  
potentially crippling increase in copyright royalty rates.

The deal is the product of two years of negotiations between  
Webcasters and copyright holders. In March 2007, a ruling by the  
federal Copyright Royalty Board dramatically raised the rates that  
Internet radio stations must pay artists and recording labels —  
leading many online radio stations to warn that the new rates would  
put them out of business by eating up as much as 70 percent of revenue.

At least one popular online radio service — Pandora Media of Oakland,  
which derives much of its revenue from advertising — said the new  
agreement will help ensure its survival.

"For us, it's hard to overstate how significant this is," said Pandora  
founder Tim Westergren. "It was either this or an ugly alternative."

The revenue-sharing deal announced Tuesday is between SoundExchange, a  
nonprofit that collects royalties for recording copyright owners from  
digital radio services, and three smaller Webcasters: radioIO,  
Digitally Imported and AccuRadio.

Westergren said Pandora plans to sign on to the new royalty terms,  
too. And Jonathan Potter, executive director of the Digital Media  
Association, which represents webcasters and other online media  
companies, predicted some of the association's other members will also  
join the deal.

Under the agreement, large commercial Webcasters will pay copyright  
owners up to 25 percent of their revenue or a "per-performance" rate  
that is below the rates set by the Copyright Royalty Board. Smaller  
Webcasters will pay either a percent of revenue or a percent of  
expenses.

In a statement, SoundExchange executive director John Simson said the  
deal will give Webcasters a chance to "flesh out various business  
models" and give artists and other copyright holders the opportunity  
to "share in the success their recordings generate."

Lawmakers also praised the agreement. Congress has already passed  
legislation making any deal reached between Webcasters and  
SoundExchange legally binding. Because Internet radio companies  
operate under a government license, these deals need congressional  
authorization.

Already this year, SoundExchange struck new online royalty agreements  
with the National Association of Broadcasters and the Corporation for  
Public Broadcasting.

Traditional AM and FM broadcasters are exempt from copyright royalty  
rates for over-the-air radio play, because that airplay is thought to  
provide free promotion for artists and labels. But the broadcasters  
are subject to the new rates for any songs streamed over radio station  
Web sites.