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Webcasters Take On Capitol Hill.

Kim Hart

The fight over how much Internet radio stations should pay in royalty fees heats up again today on Capitol Hill.

At a hearing that is scheduled to start shortly, lawmakers will try to decide if traditional radio stations should have to pay more in royalties to performers of the music they air. But webcasters like Pandora are trying to convince members of Congress to reduce the fees that have been levied on them. Those performance fees, they say, will eventually put them out of business.

Last March, the Copyright Royalty Board nearly tripled the amount of royalty fees webcasters have to pay to performers. I caught up with Tim Westergren, founder of Internet radio site Pandora, yesterday before he started making the rounds to plead his case to Hill staffers. Westergren said the royalty fees amount to nearly 70 percent of the revenue Pandora can generate.

By comparison, he said, satellite radio companies pay about 7 percent of their revenue and traditional radio broadcasters pay even less.

So why is there such a disparity? Westergren said it seems like the board simply didn't understand webcasters' business model and probably overestimated the amount of revenue the company, which has 13 million registered users, brings in.

"We've never been adverse to paying royalties," Westergren said. "But we need it to be fair. This will knock out all webcasters...We're dying here."

Pandora chief executive Joe Kennedy will attend a hearing held by the House subcommittee on Courts, Internet and Intellectual Property. (Nancy Sinatra will be there as well.) The record industry is advocating higher royalty fees for broadcasters, arguing that broadcasters should have to pay royalties just as Internet radio, satellite radio and cable radio stations pay.

Last year, after the new rates took effect for webcasters, a campaign called SaveNetRadio formed and listeners protested the rate hike with a day of silence. Westergren said it seemed to get the attention of Congressmen, who ordered that broadcasters, copyright owners and musicians sit down together to come up with a solution that all sides could live with.

But a solution has yet to be found, he said. "It's just completely deadlocked."

Traditional broadcasters, as well as satellite radio companies, have a substantial presence in Washington. Webcasters, however, are relative newcomers.

Westergren expects that to change in the coming weeks. Pandora has hired lobbyists to take on the issue, and he expects other webcasters -- Live365, AOL Radio, for example -- to beef up their own lobbying efforts now that it's apparent that the mediation process isn't working. Traditional radio stations that rebroadcast music on the Web are also subject to the higher royalty fees, which means popular stations like KEXP in Seattle and even some college stations could be in danger of going under.

Westergren said he tries to stay hopeful that the issue will be resolved. Pandora's grown in the past year, and Hill staffers now use the site and understand how it works. He said he hopes musicians are also starting to understand that Pandora plays music by independent artists that typically wouldn't get airtime on traditional stations.

But there's a big fight ahead. "As soon as we see there's no hope, we'll pull the plug," he said. "I think staffers are sympathetic to us, its just a matter of getting over the inertia."

By Kim Hart  |  June 11, 2008; 11:07 AM ET  | Category:  Kim Hart
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