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The sound of silence is playing on Internet radio today, and it's not the result of a Simon & Garfunkel retrospective.
Dozens of Internet radio stations are observing a day of silence Tuesday to protest the substantial Webcasting royalty rate increase mandated by a recent Copyright Royalty Board ruling.
The intent of the protest is to demonstrate what will be heard on July 15, the date that 17 months of retroactive royalty payments are due to SoundExchange, the collection organization for the music industry.
Faced with fees they say cannot pay, many Internet radio stations anticipate having to cease operations.
SaveNetRadio, a coalition of artists, labels, listeners, and Webcasters, is coordinating the protest. "Before this ruling was handed down, the vast majority of Webcasters were barely making ends meet as Internet radio advertising revenue is just beginning to develop," the organization said. "Without a doubt most Internet radio services will go bankrupt and cease Webcasting if this royalty rate is not reversed by the Congress, and Webcasters' demise will mean a great loss of creative and diverse radio."
SoundExchange characterizes SaveNetRadio as "a front for large Webcasters" and claims that these large companies are merely trying to maintain low rates and high profit margins. The 20 largest Webcasters account for 95% of the royalties paid to SoundExchange, according to a spokesperson for the organization.
"As they should," said a spokesman for the SaveNetRadio Coalition. "Under a percentage-based rate, they're still paying the lion's share because they're still making the most money."
It is royalty rate based on a percentage of revenue that Webcasters are fighting for. Satellite radio currently pays between 3% and 7% of its $2 billion annual revenue in royalties, according to SaveNetRadio.
The six largest Internet-only radio services, with a combined revenue of $37.5 million in 2006, will owe 47% ($17.6 million) of their revenue in sound recording performance royalties under the new Copyright Royalty Board rates.
The 2005 royalty rate was 7 cents per song per listener. By 2010, the new rate will be 19 cents per song per listener.
In 2006, Webcasters paid a total of $18 million in royalties to SoundExchange.
Last month, SoundExchange, at the urging of U.S. Reps. Howard L. Berman, D-Calif., and Howard Coble, R-N.C., offered to extend below-market royalty rates to small Webcasters through 2010 "to provide them additional time to build their businesses."
Negotiations are ongoing and it's hoped the two sides will reach an agreement, said a SoundExchange spokesperson.
Or not. "SoundExchange says there are talks under way," said the SaveNetRadio spokesman. "We are not aware of any."
Next stop: Congress. Ward said there are bills pending to address the situation in both the House and the Senate. With today's protest generating some 20,000 calls to government representatives so far, Ward hopes a hearing later this week will address his group's concerns.
This story was modified on June 26 to indicate that July 15 is date rolyaties are due.