Internet music broadcasters will have to start paying sharply higher royalties next week, after a federal appeals court yesterday refused to halt the royalty increase.
In March, a three-judge panel created by Congress to set digital music royalty rates decided on a big increase, retroactive to 2006 and extending through 2010. Broadcasters will have to pay 5 percent more in music royalties for this year and last. Then they'll face additional royalty hikes of more than 20 percent per year for the next three years.
Internet broadcasters ranging from giant firms like Yahoo Inc. to individual hobbyists say that the higher royalties will discourage Internet music broadcasts and force many small broadcasters to shut down. A coalition of online broadcasters asked the federal DC Circuit Court of Appeals, based in Washington, to block the new royalties. But yesterday the court refused.
Jake Ward, spokesman for the SaveTheNet Coalition, a group of Internet broadcasters, estimates that there are about 30,000 companies and individuals broadcasting music over the Internet, and that many of them will cease operations because of the royalty hike.
"A decision's going to have to be made whether they are able to pay the bill," Ward said.
Yahoo Music spokeswoman Carrie Davis said her company will not shut down its music service . "There will not be any changes to radio as we know it," Davis said. However, she added that Yahoo Music might make unspecified changes in its business model, to reduce its exposure to royalty payments.
The industry's last hope of a reprieve rests with Congress, which is considering legislation that would not only block the rate hike, but reduce royalties below their current level.
A rollback bill has acquired five sponsors in the Senate, including Massachusetts Democratic Senator John Kerry. A similar House measure has 130 sponsors. But no one expects Congress to act before the new rates take effect on Sunday.
A spokesman for SoundExchange, the music-industry organization that collects the Internet royalties, praised the court ruling, but added that music companies are open to compromise on the new royalty rates. Richard Ades said that SoundExchange is negotiating with small and non commercial broadcasters on a reduced royalty plan.
"SoundExchange is bending over backwards to deal with the unintended consequences of this issue," Ades said.
SoundExchange has offered reduced rates for small independent broadcasters, and for non commercial broadcasters. It's also offered to modify a requirement for an annual minimum royalty fee of $500.
Hiawatha Bray can be reached at email@example.com.