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Those Web-based radio stations could start costing you--perhaps in subscription fees or with a spurt of advertising--as the Webcasters and music companies go to arbitration to determine copyright fees.

The Digital Media Association is asking the U.S. government to set the royalty rates Webcasters will pay copyright holders--often the music labels--when they stream songs online.

Negotiations have so far failed to reach an agreement. In fact, the parties are proposing fees that differ by more than tenfold. The matter goes to a copyright arbitration royalty panel at the Copyright Office on July 30.

"Creators should get paid and consumers should get fair value," from any agreement, says Jonathan Potter, executive director of the Digital Music Association. The organization and its member companies, which include RealNetworks, America Online, and MTVi, have been unsuccessfully negotiating a Webcasting rate with the Recording Industry Association of America. That industry trade group represents the five major labels: Universal Music Group, Sony Music Entertainment, Warner Brothers Music Group, EMI Group, and BMG Entertainment.

Royalty Proposals Vary

At issue is the amount of copyright fees paid by Webcasters, which may be either radio stations that simulcast their programming over the Internet, or Internet-only radio. Currently, radio stations must pay a royalty to owners of the musical composition copyright, which is the copyright that governs the notes and lyrics of a song, not any particular recording. Fees are imposed for every song broadcast over the air.

The Digital Millennium Copyright Act of 1998 adds a Webcasting fee. It also requires payment to whoever holds the copyright for specific performances, which is usually music labels.

DiMA is proposing Webcasters pay a rate of $.0015 per listening hour of Webcasts, according to Ken Steinthal, an attorney with Weil, Gotshal & Manges and counsel to the 15 DiMA members involved in the arbitration.

But the RIAA is asking that the fee be more than ten times DiMA's number, although the exact number is private, Steinthal says. Also, royalty payments to the music publishers are subject to a separate negotiation, another issue to be settled. The fee paid to the publishers could be close to the $0.0022 they already receive for over-the-air broadcasts, Steinthal says.

DiMA's proposed fee was calculated by Adam Jaffe, a Brandeis University economist, who will testify on behalf on DiMA at the July hearing. Jaffe's guideline is the rate paid to music publishers for over-the-air radio broadcasts, which he determined is $0.0022 per listening hour, Steinthal says. Jaffe reduced the rate for the Net because Webcasts "have been very much in the promotional benefit" of the labels, according to Steinthal.

Jaffe and the DiMA propose each Webcaster pay a fee to the music companies based on calculation of the total number of aggregate listening hours (measured by the Webcasters) times $0.0015. Webcast fees would be retroactive to October 1998, when the DMCA took effect.

Sound of the Future?

Resolving the payment issue is important because Webcasting, as an industry, is still "in the infant stage," and will only continue to grow if financially feasible, says Alex Alben, vice president of government affairs at RealNetworks. Webcasts not only drive album sales, but also offer exposure to new artists in a way that heavily format-driven radio stations or MTV cannot, he says.

"Webcasting is poised to become a very big economic factor in the distribution of music," he says.

The Copyright Office hearing is expected to run three to four weeks with direct arguments, and one to two weeks for rebuttal, Steinthal says. Presiding is a three-member panel of arbitrators.

Also scheduled to testify on behalf of DiMA at the hearing are Michael Fine, the chief executive officer of SoundScan, which tracks record sales; and Jonathan Zittrain, a professor at Harvard University Law School's Berkman Center for Internet and Society.

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