Innovation Suffocation

It doesn’t seem that long ago that Internet users flocked to Napster to download song after song to their personal computers. Were you one of them? Did you keep track of court rulings and race to download as much as you could before the service was shut down?

It seems like we are in the same place again. We won’t be hearing much from Webcasters on May 1. Why? Hundreds of Webcasters have declared this day a “Day of Silence,” when they will go silent to express their concern about an upcoming ruling from the U.S. Copyright Office. On May 21, the Office will be voting on a proposal for recommended royalty rates proposed by the Copyright Arbitration Royalty Panels (CARP) earlier this year.

The CARP recommended rates and terms for two separate statutory licenses, both of which deal with the digital transmissions of sound recordings. In one case, the statutory license allows a noninteractive, nonsubscription service to make digital transmissions of sound recordings, provided that the service observes the conditions of the license and agrees to pay royalties for all transmissions under this license.

The second license allows a Webcaster that chooses to operate under the Webcasting statutory license to make necessary reproductions of these same sound recordings for the sole purpose of facilitating the transmissions of these works. The license also covers the making of ephemeral reproductions by business establishments that make digital transmissions of sound recordings under an exemption of the law.

The problem is the cost of getting these licenses. Simply put, many Internet Webcasters may soon be out of business because of the steep recommended rates. In the center of the ring are the Digital Media Association (DiMA) and the Recording Industry Association of America (RIAA), the two trade organizations battling it out. The new rate, retroactively applied to Webcasts starting in 1998, is a compromise between the groups. Still, many think the rates will be too high for smaller Webcasters to absorb.

On April 22, 20 members of the House of Representatives sent a letter to the Librarian of Congress (who oversees the U.S. Copyright Office). The group’s main concern was that the new rates — set in compliance with the Digital Millennium Copyright Act (DMCA) — would stifle innovation on the Internet. The group is advocating for a fair and efficient license that enables the Webcast industry to be free of legal uncertainty, so that Webcasters can grow quickly and pay creators increasing amounts as the industry develops.

Additional tidbits from the letter state:

  • Congress has intentionally refrained from “over-regulating” the Internet.

  • Congress wishes to promote both competition and creativity to yield greater innovation and diversity in programming to benefit artists and consumers.

Jonathan Potter, executive director of DiMA, offered reluctant support for the CARP proposal but expressed hope that the final rates would be much lower:

We are extremely disappointed, however, that the Panel’s proposed rate is not significantly lower, as a lower rate would more accurately reflect the marketplace for music performance rights and the uncertain business environment of the Webcast industry.

Aram Sinnreich, senior analyst with Jupiter Media Metrix, said: “The fact that there is a price tag is good, but the price on the price tag isn’t great.”

Artists and recording companies must be compensated, but we need to achieve a balance when setting royalty rates. We cannot push out the little guys. Furthermore, we cannot penalize the Webcasting industry. Should the CARP report be accepted, rejected, or modified? Let’s hope the day of silence on May 1 doesn’t fall upon deaf ears.

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