College and high school radio stations that broadcast online are closely watching as events unfold that could decide whether they must pay costly new royalty fees.

Internet radio broadcasters got a reprieve in their struggle against higher music royalties as the deadline for paying fees under the new system was postponed by two months, to July 15, but many officials still fear that paying those royalties will cause some internet radio stations to close.

According to the final ruling of the Copyright Royalty Board (CRB), a panel of three judges that determined the new rates, the first fees are no longer due on May 15, something that many smaller internet radio companies said would force them out of business.

The delay was disclosed two weeks ago when the board’s decision was officially published in the Federal Register, according to David Oxenford, a lawyer representing many of the webcasters. That also started a 30-day clock within which webcasters can file a notice to appeal the decision in federal court, something they have said they plan to do.

The royalty board came up with the new fee structure in March after the webcasters, which include several small companies but also major internet companies such as Yahoo Inc., Microsoft Corp.’s MSN site, commercial radio stations, and AOL, a unit of Time Warner Inc., failed to reach agreement with the owners of music copyrights on a new royalty system after a previous set of agreements expired in 2005.

The CRB’s rate hikes of .08 cents per song, per listener, for commercial radio stations are retroactive to 2006, and then would climb 30 percent every year until 2010. In 2007, the rates would reach .11 cents per song, per listener, and they would climb to .14 cents in 2008, .18 cents in 2009, and .19 cents per song, per listener, in 2010. For large radio webcasters, those fees can reach into the hundreds of thousands of dollars. The board said that each station, including noncommercial ones such as college and high school stations, would have to pay a minimum $500 royalty payment per year.

“We’re not [a] business, and I think that makes the difference for us, and makes us distinct from some of the other entities that are having to face this grim situation,” Stephen Croes, dean of Berklee’s music technology department, said in a broadcast of Future Tense, an online daily podcast.

Berklee recently established the Berklee Internet Radio Network (BIRN), the school’s first-ever radio station. Users will be able to take advantage of four free 24-hour radio channels.

“We are very hopeful that internet radio will survive and will be broadly available. As it happens, Berklee is a not-for-profit educational entity, and because of that we have a license to use music on campus for educational purposes–and it’s clear that this internet radio station is for educational purposes,” Croes continued.

“These are very tricky times for anyone who is looking at the future of internet radio, and we are keeping ourselves informed about developments and hopeful that we will be able to keep this broadcast going,” he said.

The new royalties apply only to digital broadcasts of music and are paid to the artists and record labels. Satellite radio broadcasts also are digital and are subject to similar royalties, though at a lesser rate. These new royalties are paid on top of other fees already paid to the publishers and composers of music, which are also paid by traditional radio stations. Those stations don’t pay the digital broadcast fee, however, because airplay is considered to be a form of promotion for record sales.

SoundExchange, a group that collects and distributes digital music royalties on behalf of copyright holders, has said it wants to see the internet radio business thrive, and it disputes claims from the broadcasters that the new fees are onerous.

However, John Blackledge, an industry analyst at JPMorgan, said in a recent report that the newly issued royalties could “potentially shutter smaller internet radio companies” and hurt the profitability of larger operators as well.

Small broadcasters have received relief from Congress in the past, benefiting from a law passed five years ago that gave them a break on royalty rates. The legislation allowed them to pay about 12 percent of their revenues instead of having to calculate per-song, per-hour rates like larger companies had to.

In early May, dozens of internet radio webcasters met with congressional staffers to lobby for the Internet Radio Equality Act, introduced by U.S. Reps. Jay Inslee, D-Wash., and Don Manzullo, R-Ill.

“This titanic rate increase is simply untenable for many internet radio broadcasters,” said Inslee, a member of the House Energy and Commerce Subcommittee on Telecommunications and the Internet.

The legislation would provide royalty parity for internet radio providers. It would vacate the CRB’s March 2 decision and apply the same royalty rate-setting standard to commercial internet radio, as well as satellite radio, cable radio, and jukeboxes. A transition rate of 7.5 percent of revenue would be set through 2010.

SaveNetRadio, a coalition made up of artists, labels, listeners, and webcasters, “believes strongly in compensating artists, but internet radio … will not survive under the new royalties,” said the group’s web site.

Many internet radio services could be immediately bankrupted on the due date for the rates–past due royalties alone might be enough to wipe out almost all small and medium-sized webcasters, according to reports on the coalition’s web site.

“We feel strongly that Congress could not possibly have intended a structure whereby internet radio services pay 60 to 300 percent of their revenue in royalties, [when] satellite radio pays 5 to 7 percent, and [traditional] broadcasters pay zero, and we urge [lawmakers] to support H.R. 2060, the Internet Radio Equality Act,” said representatives for SaveNetRadio. “This legislation achieves that necessary balance by setting internet radio rates equal to that of satellite radio, while also providing the same important and preferential rules for public and noncommercial internet radio.”

Links:

U.S. Copyright Royalty Board’s Ruling
http://www.loc.gov/crb/fedreg/2007/72fr24084.pdf

Intercollegiate Broadcasting System<
http://www.frontiernet.net/~ibs/DCMA.html

SaveNetRadio
http://www.savenetradio.org

Berklee College of Music’s BIRN
http://www.thebirn.com