On Tuesday, the Librarian of Congress rejected proposed royalty rates that webcasters say would have caused them to go bankrupt and would effectively shut down Internet radio.
Librarian James Billington rejected a proposal by the Copyright Arbitration Royalty Panel (CARP), which recommended that webcasters pay recording companies $.0014 per listener for each song they play.
Billington will issue a final decision setting the new rates by June 20, according to the Copyright Office.
The new royalty rates could determine the livelihood of webcasters everywhere.
In October 1998, Congress passed the Digital Millennium Copyright Act (DMCA), which established that webcasters must pay royalties to record labels for the music they play.
Webcasters and digital music industry insiders lauded Tuesday's decision, saying that the CARP proposal runs counter to Congress' intent not to stifle innovation when it initially established statutory royalty rates.
"When Congress enacted the Internet radio statutory license it intended to promote a new medium and promote artists' welfare," said Jon Potter, executive director of the Digital Media Association (DiMA), in a statement.
"Today's decision by the librarian offers hope that the final royalty will be more in line with marketplace economics than was the arbitrators' proposal," Potter said. "If so, then the result will accomplish Congress' goals."
If the proposed fees were enacted, they would have forced independent webcasters like Bill Goldsmith, owner of RadioParadise, to declare personal bankruptcy to defend themselves against attempts to collect fees retroactive to October 1998, when the DMCA was first enacted.
"This is no big surprise, since there is not a single Internet radio operation in business today that could afford the proposed rates," Goldsmith said. "They would have destroyed our industry, which was clearly not the intent of Congress."
Although it's uncertain whether the Copyright Office will set a royalty rate that will guarantee a healthy Internet radio industry, webcasters say that Tuesday's decision is a step in the right direction.
"If the Internet radio industry was going to be saved, this had to be the next step," said Kurt Hanson, publisher of Radio And Internet Newsletter and one of the organizers of the "SaveInternetRadio.org" initiative.
Tuesday's decision follows a Day of Silence protest by hundreds of Internet radio stations last month against the proposed royalty rates, which were submitted on Feb. 20.
"The Day of Silence brought the issue to the attention of Congress, and has contributed to the groundswell of opinion there that at least some provisions of the DMCA need a second look," Goldsmith said.
The Recording Industry Association of America (RIAA) issued a statement on Tuesday emphasizing that it's still unclear what the librarian will eventually decide on royalty rates.
"The librarian has rejected the arbitration panel's determination, but we do not know why or what decision the librarian will ultimately make based on the evidence presented.... We look forward to the conclusion of this process on June 20, and to the day when artists and labels finally get paid for the use of their music."
The RIAA claims that CARP royalty rates are fair and that that these rates alone will not drive all webcasters out of business.
Traditional radio station broadcasters don't currently have to pay royalties to artists for music they play because they have a promotional value. Instead, radio stations pay a percentage of their revenues to compensate publishers and artists.
The RIAA has argued that webcasts aren't a form of promotion, but cost the music industry CD sales.
Meanwhile, webcasters say that the recording industry should work with them to come up with a voluntary rate that works for both sides.
"I would like to hope that the record labels will make a sincere written offer to webcasters for a royalty rate that is within the bounds of reason," Hanson said.
Webcasters are willing to pay fair usage fees that are similar to what they pay music copyright holders, which is somewhere between 3 and 5 percent of gross revenue.
"The record industry has yet to prove that the interests of the artists or labels are damaged in any way by the airplay of music on Internet radio," Goldsmith said. "All evidence shows that Internet radio airplay serves -- just as airplay on FM does -- to increase sales of CDs and to increase attendance at concerts."
Rather than reaping profits at the expense of artists, webcasters say they will only help musicians if their industry is allowed to thrive.
"This is a struggling young industry that's not making any sort of profits at all -- an industry that, if it's allowed to grow and flourish, can be a huge benefit to artists," Goldsmith said.
