After being passed unanimously by the House of Representatives Oct. 6, legislation that offers significant discounts in digital-performance royalty fees to small-company Webcasters with annual gross revenue of less than $1 million is finding a rocky road in the U.S. Senate.

Small Webcasters had complained to Congress that the rate set by the Librarian of Congress June 20 was exorbitant and would drive them out of business. The rate amounted to 70 cents per song per 1,000 listeners. In many cases, it would have been hundreds of times higher than the songwriter royalty rates already paid by both traditional broadcasters and Webcasters. If the bill becomes law, small-company Webcasters believe they stand a chance to survive.

By law, Webcasters—unlike traditional broadcasters—must also pay royalties to record companies and recording artists. The new bill gives smaller Webcasters a break on record-company and artist rates between 1998 and 2004. The fees will be based on a percentage of gross revenue and will be due in three installments.

Since the House passage, several groups—ranging from the powerful National Assn. of Broadcasters (NAB) lobby to small, noncommercial university broadcasters—have contacted Senate lawmakers with reservations about the legislation.

A spokesman says, "NAB has expressed concerns about this bill regarding the precedent it could set and has suggested some possible revisions."

Hundreds of radio stations terminated their Internet simulcasts in the past two years due to concerns regarding large royalty and union payments. The bill under consideration does not address these matters for larger broadcasters, only for small companies.

NAB is involved in a pending court case regarding digital royalties. The group seeks to extend the broadcasters' exemption from record-company and artist royalties to the digital realm. If NAB loses that case, the Webcaster bill would set a precedent for Webcasters to pay record-company and artist royalties.

According to a source, NAB has not asked legislators to place a "hold" on the bill, which would prevent it from being presented for a quick voice vote.

Senate Judiciary Committee chairman Sen. Patrick Leahy, D-Vt., is reviewing the legislation. If no changes are needed or if House leaders agree to any small changes, the bill is expected to go to the Senate floor for a voice vote before Congress adjourns, which could be by Wednesday (16).

Representatives from the record industry, small-company Webcasters, and recording artists' groups hailed the bill, the fruit of a negotiated agreement from those parties. The Recording Industry Assn. of America (RIAA), in a joint statement with the Voice of the Webcasters coalition, said they were pleased with the House vote, adding, "We both want fans to have the best musical experience possible, and this legislation helps us move forward together toward that goal."

Ann Chaitovitz, director of sound recordings for the American Federation of Television and Radio Artists (AFTRA), called the bill "a win-win-win solution from which the public benefits as well. The RIAA and the Webcasters deserve credit for maintaining open minds and a creative approach throughout these discussions." AFTRA worked on artists' issues along with the American Federation of Musicians, the Music Managers Forum, the Recording Artists' Coalition, the National Academy of Recording Arts and Sciences, and the AFL-CIO.

The House voice vote came hours after the industry and artists' groups cleared up two remaining sticking points: legislative language for direct payment of the royalties to artists and deductible expenses. The RIAA agreed to a provision allowing for direct payment of the artists' share of royalties, and the artists' groups agreed on language to allow such nonprofit rate collection/distribution groups as SoundExchange to deduct a small percentage of the fees pay back start-up costs, including the expenses involved in the lengthy and expensive Copyright Arbitration Royalty Panel proceeding on rates and terms held last year, which were rejected by the librarian.

The legislation, was offered by Rep. F. James Sensenbrenner Jr., R-Wis., as a substitute for a bill withdrawn last week that called for a six-month suspension on Webcaster royalties that were to be due Oct. 20, to allow challenges to be ruled on by the courts.

Facing opposition from Democrats, Sensenbrenner, the chairman of the House Judiciary Committee, withdrew his bill and gave the parties time to come to an agreement (Billboard, Oct. 12), which was reached Oct. 7.

The substitute bill presents a complicated series of adjusted rates for small Webcasters. The highlights are 7% of gross revenue or 5% of operating expenses—whichever is greater—for the years 1998-2002. Those installments are due Nov. 30, 2002; May 1, 2003; and Oct. 1, 2003.

There will also be an escalating annual fee, from a retroactive $500 for 1998 to $5,000 for the years 2003-2004. Those fees are due every six months. Nonprofit Webcasters will pay a reduced rate of 20 cents per song per 1,000 listeners.