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WASHINGTON--After a week of nonstop negotiations, Webcasters and the recording industry have struck a deal designed to keep small Internet radio stations in business.

The compromise permits significant discounts in the royalties that small commercial Webcasters must pay to music companies. The largest online stations will pay the rate originally imposed in June by the Librarian of Congress, which said Webcasters would have to pay .07 cents per song per listener, starting October 20--retroactive to when they went online. Webcasters said the rate is too high and would force them out of business.

The new rates were approved by the House of Representatives on Monday. The bill goes next to the Senate for approval, where another lawmaker expects to usher the measure through before Congress adjourns.

In Harmony

"The act embodies compromises for everyone involved," said the Recording Industry Association of America and the Voice of The Webcasters in a joint statement. "We appreciate the assistance of congressional leaders in helping move this process along. We look forward to building business partnerships that create the best possible music experience for fans."

This measure may buy small Webcasters some time to build their business, says Paul Maloney, editor of Radio And Internet Newsletter.

"I think a lot of the smaller Webcasters are not happy with the details, but it will prevent them from going bankrupt," Maloney says.

The initial proposed fees often exceeded revenues of small Web-based stations. For example, St. Louis-based 3WK Underground, launched in 1997, faced back royalties of $50,000, although it earned only $10,000 last year.

The compromise "certainly is a rate that we can live with," says Jim Atkinson, 3WK co-owner.

The agreement is good news, agrees John Simson, executive director of SoundExchange, an organization comprising recording companies and artist representatives.

"For four long years, artists and record labels have awaited compensation for the music that Webcasters have used as the foundation for their business," says Simson. "This bill brings a measure of long-awaited certainty to a developing marketplace."

Legislative Champions

At first, several congressional representatives tried to push back the deadline for royalties, to give Webcasters time to appeal the ruling and give Congress time to examine the decision.

Representative F. James Sensenbrenner (R-Wisconsin), House Judiciary Committee chairman, delayed a vote last week to give both parties an opportunity for compromise. Recording industry representatives and the Webcasters on Sunday reached an agreement, which was entered into the bill before the House Judiciary Committee. It was passed by a voice vote Monday.

Patrick Leahy (D-Vermont), Senate Judiciary Committee chairman, says he will support Senate action on the bill when it arrives from the House.

"Time is short in this congressional session, but I believe that final action on this solution is possible," Leahy says.

Sliding Scale

The agreement is based on a sliding scale. Webcasters making less than $250,000 per year would pay 8 percent of revenue for 1998 to 2002.

For 2003 through 2004, Webcasters who make less than $250,000 would pay 10 percent of revenue or 7 percent of expenses, whichever is greater.

Webcasters making between $250,000 and $500,000 would pay the larger of 12 percent of revenue or 7 percent of expenses.

The minimum payment must be $2000, and it may be paid in three installments. The Webcasters and the recording industry will have to return to the negotiating table to determine rates for 2004.

Larger Webcasters making more than $500,000 would fall under the original Library of Congress assessment.

Sensenbrenner's bill does not address noncommercial Webcasters and broadcasters streaming on the Web. Those issues will be resolved in court.

"I would hope that next week will go smoothly, and we finally get back to running our business rather than working on the copyright issue," says Webcaster Atkinson. "As soon as it's all over I'll be relieved."

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