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Online Broadcasters Protest Web-Music Royalties Change

A wide array of broadcasters and online companies on Monday challenged a ruling from a panel of copyright judges that they say could cripple the emerging business of offering music broadcasts over the Internet.

Clear Channel Communications Inc. (CCU), National Public Radio and groups representing both large and small companies providing music broadcasts online were among those asking the Copyright Royalty Board to reconsider key parts of its March 2 ruling.

That ruling, the challenging parties say, would greatly increase the amount of royalties that online music broadcasters would have to pay to record labels and performers as well as put unreasonable demands on them to track how many songs were listened to by exactly how many individuals online.

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The royalties in question only apply to digital transmissions of music, such as through Web sites, and are paid to the performers of songs and record labels. Webcasters also pay additional royalties to the composers and publishers of music, similar to those also paid by over-the-air broadcasters.

Digital performance rights were originally granted to record companies in 1995, in part with the intention of protecting them against the possibility that digital transmissions could erode the sales of CDs.

Under a previous arrangement, which expired at the end of 2005, broadcasters and online companies such as Yahoo Inc. (YHOO) and Time Warner Inc.'s (TWX) AOL unit could pay royalties based on estimates of how many songs were played over a given period of time, or a "tuning hour," as opposed to counting every single song.

Jonathan Potter, the executive director of the Digital Media Association, which represents major online companies affected by the decision, asked that the judges specifically allow a per-tuning-hour approximation measure for paying the royalties.

Potter also asked the judges to clarify a $500 annual fee per broadcasting channel, saying that with some online companies offering many thousands of listening options, counting each one as a separate channel could lead to huge fees for online broadcasters.

NPR argued in its filing Monday that the new rules would have "crippling effects" on public radio's ability to meet its mandate of serving the public interest, and it also objected to the $500 per-channel minimum fee.

A group of commercial broadcasters including San Antonio, Texas-based Clear Channel, the largest radio company in the country, also asked for a reconsideration of key parts of the ruling, saying that the methods used to calculate the fees were faulty.

The motions filed Monday covered relatively technical aspects of the ruling and mark the first of what is likely to be other legal challenges to the decision.

NPR said in its filing that it also intended, in due course, to appeal the overall decision by the copyright judges to the U.S. Court of Appeals for the Federal Circuit in Washington.

A previous agreement covering small commercial Webcasters, which also expired at the end of 2005, allowed those companies to pay a flat rate of 12 percent of annual revenues in lieu of calculating the total number of listener-hours as larger broadcasters and Web companies were required to.

The ruling makes no such provision, something that those companies are asking the judges to reconsider.

SoundExchange, an entity that collects royalties from digital music broadcasters and distributes them to rights holders, has said the ruling was fair and that the rapid growth in advertising revenues from online music broadcasting would more than allow Webcasters to cover the new fees.

SoundExchange pointed to research finding that those ad revenues grew from $50 million in 2003 to $500 million last year.