On Dec. 4, 2002, the president signed the Small Webcaster Settlement Act of 2002, which effectively allows the recording industry and small webcasters to negotiate webcasting royalty fees lower than those established earlier this year by the Librarian of Congress. Those rates were set at .07 cents per performance for most webcasters, and .02 cents per performance for noncommercial broadcasters who are not affiliated with the Corporation for Public Broadcasting.
The Act empowers SoundExchange, the recording industry’s royalty collection clearinghouse, to enter into royalty rate agreements with small commercial and all noncommercial webcasters. The Act does not specify rates but requires that any such agreements must base royalty payments on a percentage of revenue or expenses, or both, and include a minimum fee. Any resulting agreement shall be on terms available to all noncommercial and small commercial webcasters. The Act does not define what constitutes a “small” commercial webcaster.
Despite the Act’s failure to define “small” commercial webcaster or to specify rates, all indications are that the parties’ final negotiated terms will closely resemble the definition and rates provided in an earlier version of the bill. Under that earlier version, eligible small commercial webcasters were those who did not have total gross revenues exceeding $1 million for the four-year period between Nov. 1, 1998, and June 30, 2002. To remain eligible under the earlier version of the bill, webcaster revenues would have to be less than $500,000 in 2003 and less than $1.25 million in 2004. The earlier bill established royalty rates of 8 percent of gross revenue or 5 percent of expenses, whichever is higher, for the period from Nov. 1, 1998, to June 30, 2002, with slight increases for 2003 and 2004, subject to minimum annual fees in the range of $2,000 to $5,000.
This legislation constitutes a significant victory for small and noncommercial webcasters since the Librarian of Congress had specifically rejected suggestions that webcasting royalty fees be based on revenues rather than per performance. The Act does not require SoundExchange to negotiate such agreements, however, and if no agreements are reached, the rates established by the Librarian of Congress would govern.
Under the Act, SoundExchange and small commercial webcasters must enter into any such agreements by Dec. 15, 2002. The deadline for agreements with noncommercial webcasters is May, 31, 2003. Any resulting negotiated agreements would govern rates from Oct. 28, 1998, to Dec. 31, 2004.
The Act also provides a grace period for certain back payments. For noncommercial webcasters, royalty payments owed for the digital performance of sound recordings and for the making of ephemeral copies between Oct. 28, 1998, and May 31, 2003, do not have to be paid until June 20, 2003. For small commercial webcasters, SoundExchange may delay the requirement for payment by the licensees for amounts owed for those dates until Dec. 15, 2002.1
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1 Shortly after House and Senate passage of the Act, SoundExchange announced that it was temporarily suspending the royalty obligations of small commercial webcasters meeting certain criteria through Dec. 15, 2002.