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U.S. Web radio stations silently protest royalty hike

NEW YORK (Reuters) - Thousands of U.S. Internet radio stations held a “Day of Silence” on Tuesday to protest an increase in performance royalties paid to musicians and record companies that they warn could kill the fledgling industry.

Campaign organizer SaveNetRadio estimated about half of the 30,000 U.S. Webcasters were silent, partly silent or playing announcements urging an estimated 50 million U.S. listeners to act against the hike by calling lawmakers in Washington.

Under a Copyright Royalty Board ruling in March, Webcasters will pay a performance royalty of $0.0008 for each listener of each song in 2006, rising to $0.0019 in 2010. The first payment, backdated to January 1, 2006, is due on July 15.

The new ruling means the six biggest Internet radio stations -- Pandora, Yahoo, Live365, RealNetworks Inc, AOL and MTV Online -- will pay 47 percent of their anticipated 2006 combined revenue of $37.5 million in performance royalties, said SaveNetRadio.

“The industry will be decimated by these new rates,” said Jake Ward, spokesman for the Washington-based group that seeks lower royalty rates for Webcasters. “We’re paying more than our fair share as is and they want to give us a rate hike.”

He said broadcast radio stations earn around $20 billion a year in revenue and do not pay any performance royalties.

Broadcast stations pay royalties to composers and publishers but no performance royalties thanks to a federal exemption granted under the argument that the airplay helps to sell music.

Ward said satellite radio stations earn about $2 billion in revenues annually and pay half of the performance royalty rate paid by Internet stations.

SoundExchange -- a non-profit group representing more than 20,000 artists, 2,500 independent record labels and four major record companies -- collects the royalties from Internet and satellite radio, as well as digital cable.

“They want the music but they don’t want to pay for it,” said Richard Ades, a spokesman for Washington-based SoundExchange, adding that about half of Internet stations were not complying with laws on reporting and paying royalties.

He said SoundExchange had offered in May to extend discounted rates for Webcasters earning less than $1.25 million until 2010 whereby they would pay royalties of 10 percent of revenues up to $250,000 and 12 percent above that.

The discounted rates were introduced in 2002 after a similar “Day of Silence” protest by SaveNetRadio.

Ward said Tuesday’s “Day of Silence” urges listeners to put pressure on Congress to pass legislation to cut the royalty rate to 7.5 percent of a company’s annual revenue, bringing Internet radio in line with the rate paid by satellite radio.

In a letter on www.pandora.com, the station’s founder Tim Westergren described the Copyright Royalty Board ruling as a “disastrous turn of events that threatens the existence of Pandora and all of Internet radio.”

“Left unchanged by Congress, every day will be like today as Internet radio sites start shutting down and the music dies,” he said.

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