[JPL] New Net radio rules draw fire on Capitol Hill - EMAIL CONTACT

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New Net radio rules draw fire on Capitol Hill

By Anne Broache
http://news.com.com/New+Net+radio+rules+draw+fire+on+Capitol+Hill/2100-1028_3-6165336.html 

Story last modified Thu Mar 08 06:01:00 PST 2007


WASHINGTON--A key Democrat in the U.S. House of Representatives on 
Wednesday slammed new federal rules that would require many Internet radio 
services to pay higher fees to record companies.

Rep. Edward Markey (D-Mass.) had harsh words for 
a ruling released Tuesday 
by the U.S. Copyright Royalty Board. It proposes raising the amount that 
commercial Internet radio services pay to record companies by 30 percent 
retroactively to 2006 and in each of the next three years through 2009. 
Each station would have to hand over a minimum $500 royalty payment.

The pricing inquiries arose in part because Mel Karmazin, CEO of Sirius 
Satellite Radio, whose proposed merger with XM Satellite Radio is being 
scrutinized by House members, seemed to indicate at a House hearing last 
week that prices would never increase, even on the combined service.

"This represents a body blow to many nascent Internet radio broadcasters 
and further exacerbates the marketplace imbalance between what different 
industries pay," Markey said at 
a 
hearing here titled "The Future of Radio". The hearing was convened by the 
House panel on telecommunications and the Internet, of which Markey is 
chairman. "It makes little sense to me for the smallest players to pay 
proportionately the largest royalty fee."

Before the 
CRB's new rules (PDF), which are subject to appeal, most Webcasters 
calculated their requisite royalty rates based on a percentage of their 
revenue. According to calculations by the Radio and Internet Newsletter, an 
advocate for Net radio services, the new retroactive 2006 rate would 
require Webcasters to pay approximately 1.28 cents per listener per 
hour--enough to cripple some smaller services, the group argued.
"One can easily imagine Web radio looking more and more homogenized,"
--Robert Kimball, general counsel, RealNetworks

The CRB's decision has imperiled Webcasters by widening the gap between 
what Internet radio and satellite radio services must pay, RealNetworks 
general counsel Robert Kimball told politicians. He was also speaking for 
the Digital Media Association, whose members include Amazon.com, Apple, 
Microsoft and MP3.com, a property of CNET Networks, publisher of News.com.

If the decision is not overturned, "one can easily imagine Web radio 
looking more and more homogenized," Kimball said. That's because the higher 
rates may force Internet radio operators to reduce the number of songs they 
carry or increase their advertising prices and frequency, which could make 
it a less desirable place for advertisers to invest, he said.

Kimball suggested the 
proposed merger between XM 
and Sirius should be put on hold until Congress "corrects the Copyright 
Act's bias against the Internet," thereby allowing Internet radio companies 
to compete more fully with satellite firms.

For instance, the Copyright Act prohibits Internet radio from offering its 
own recording devices and portable radio devices, but it does not levy the 
same restrictions on other radio services, Kimball said. (A recording 
industry-backed effort is under way in Congress, however, to 
impose 
new restrictions on satellite radio devices.)

Copyright law also places a number of programming restrictions exclusively 
on Webcasters, Kimball said, including forbidding them from announcing 
upcoming songs and playing more than two songs consecutively or four songs 
over a three-hour period by the same artist.

Rep. Anna Eshoo (D-Calif.) said she believes Internet radio could face 
threats from another source: "broadband providers who have the ability and 
incentive to limit consumers' access to the content of their choice." She 
called for passage of 
Net 
neutrality legislation, which failed to pass Congress last year, that would 
prohibit such a practice.

Questions about XM-Sirius
Although Internet radio played some role in the hearing, many politicians 
continued to focus their questions about the proposed $13 billion merger 
between satellite radio players XM and Sirius.

Just a week after a House panel that oversees antitrust issues 
grilled 
him, Sirius CEO Karmazin agreed to field similar questions from Markey's 
committee.

Several politicians on the committee, including Markey, said they planned 
to scrutinize the proposed deal for potential conflicts with the public 
interest. Some voiced outright reservations about approval of the deal.

"It's hard to see how prices of satellite radio will go down" as a result 
of the merger, said Rep. Gene Green (D-Texas).

The broadcast industry opposes the deal on the grounds that combining the 
two companies would amount to a government-sanctioned monopoly. Consumer 
groups also have voiced fears that the merged entity would result in higher 
prices for satellite subscribers.

Karmazin again argued the combined companies would give more programming 
choices to listeners and would not result in raised prices--at least on the 
individual services. He reiterated that the same receiver would be able to 
get content from both services, eliminating the need for customers to 
purchase another device if the deal goes through.

"You will not pay more than $12.95 for that service after the merger," he 
told the committee. He added that the combined company plans to offer the 
option of purchasing smaller batches of channels for a lower price.

Pressed by Markey on the combined company's pricing plans, Karmazin 
acknowledged that customers who want to receive content from both XM's and 
Sirius's previous offerings may have to pay more than $12.95. He declined 
to give an exact figure but estimated that price would be "closer to $10" 
less than the $25.90 it would currently cost to subscribe to both services.

It will ultimately be up to the Federal Communications Commission and the 
U.S. Department of Justice to decide whether the merger favors consumers or 
would hinder competition. FCC Chairman Kevin Martin made it clear as 
recently as an interview published Wednesday in The New York Times that the 
companies have high hurdles to jump. The Senate Judiciary Committee also 
has scheduled its own 
hearing on the matter for March 20.

CNET News.com's Desiree Everts contributed to this report.

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