Information supplied by Kevin M. Goldberg of Fletcher, Heald and Hildreth

Washington - Mar 2, 2007 - Radio stations that simulcast an over-the-air signal on the Internet need to take note of a decision passed by the Copyright Royalty Board (CRB) that sets new royalty rates retroactive to 2006 for radio station non-subscription Internet transmissions. The CRB's action applies only to the payment of monthly royalties. The decision does not affect the recordkeeping or playlist aspects of streaming. The final decision has not been publicly released and likely will be appealed, but if finalized in its current form, the changes are unfavorable. Here are several comments as to the March 2 decision and its potential impact to consider.

1. This proceeding has been ongoing since 2005, as the previous royalty rates that applied to those streaming on the Internet were effective only through Dec. 31, 2005. Internet radio stations have been paying royalties through 2006 and into 2007 at the 2005 rates, with the understanding that these rates would be adjusted retroactively when the Copyright Royalty Board reached its final decision in this proceeding.

2. For the time being, those who are streaming and paying monthly royalties to Sound Exchange should continue filing the same statement of account forms until further notice. This is because the rates that were announced on March 2 may not be final. Though the new rates are expected to become effective even if an appeal is filed, they must first be published in the Federal Register, which could take as long as 60 days; in addition, there are several procedural hurdles that could result in changes to the announced rates.

a. The decision still has not been publicly released; the Copyright Royalty Board will do that after reviewing motions by the participants to redact confidential information from the final opinion.
b. Any party to the proceeding (in addition to Sound Exchange, seven groups representing webcasters participated on behalf of various sectors of the Internet radio industry), can request rehearing within 15 days. Given the sharp increase in royalty rates that is projected over the next four years, it is likely that someone will request rehearing.
c. Any party may appeal this decision in the United States Court of Appeals for the District of Columbia Circuit within 30 days of publication in the Federal Register.

3. The effect of these new rates will be felt by all radio stations that simulcast on the Internet. The Copyright Royalty Board has sharply increased the rates for commercial radio stations and noncommercial radio stations that exceed the monthly maximum of aggregate tuning hours, while also rescinding the reduced rates for smaller commercial webcasters. The penalty fee charged for late payment of royalty fees, and now applied to late filing of a statement of account form even if the fee is paid on time, rises to 1.5 percent per month.

Specifically, the new rate structure would affect the various classes of radio stations as follows:

a. Commercial radio stations streaming on the Internet will have to pay royalties at an increased rate for the years 2006 to 2010. Payments will be calculated on a "per performance" basis, with a "performance" defined as "the streaming of one song to one listener." A station with 100 listeners during a given song will have 100 performances to be charged at the rate below for that song. While the per-performance rate appears to be rather low, extrapolate that hypothetical 100 performances over an estimated 16 songs per hour, 24 hours per day, over an entire month and the breadth of these new rates are better understood. These new per performance rates are:

i. Payment of $ 0.0008 per performance for 2006
ii. Payment of $ 0.0011 per performance for 2007
iii. Payment of $ 0.0014 per performance for 2008
iv. Payment of $ 0.0018 per performance for 2009
v. Payment of $ 0.0019 per performance for 2010

b. Small Commercial Webcasters, defined in the Small Commercial Webcaster Settlement Act of 2002 as those with gross revenues of under $1.25 million per year, will no longer be able to take advantage of the reduced rates offered by that act. Even the smallest commercial stations will have to pay the same as larger ones.

c. Noncommercial Webcasters still pay an annual minimum of $500. This will continue to be all the station pays unless it exceeds the aggregate tuning hour maximum for a given month. That aggregate tuning hour maximum (calculated by multiplying the number of listeners by the hours of copyrighted material streamed in the month) has increased from 146,000 to 159,140 per month, but even noncommercial webcasters will pay at the commercial rates listed above if the aggregate tuning hour limit is exceeded.

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