WASHINGTON (Reuters) -- The U.S. Copyright Office on Tuesday rejected proposed royalty rates for Internet broadcasters and said it will come up with a final plan within a month, offering hope to online radio stations that said they would be bankrupted by the proposed rates.
Register of Copyrights Marybeth Peters and Librarian of Congress James H. Billington rejected the proposed rate of 0.14 of a cent per listener per song that was proposed by a special arbitration panel in February.
A final decision will be issued by June 20, the two said in a statement.
Unlike conventional radio stations, Internet "Webcasters" must pay performers and recording companies on a per-song basis.
Webcasters had protested that the arbitration panel's proposed rate is too high and could force many of them out of business, pressing their case with a one-day blackout and dogged lobbying.
The Copyright Office did not indicate whether the final rates would be higher or lower than those recommended by the panel, but Webcasters sounded an optimistic note.
"Today's decision by the Librarian offers hope that the final royalty will be more in-line with marketplace economics than was the arbitrators' proposal," said Jonathan Potter, executive director of the Digital Media Association, a trade group that includes Webcasters.
Software maker RealNetworks Inc., whose media players are often used to listen to Webcasts, said the decision is a positive sign that regulators had heard the Webcasters' message.
Recording companies, which would split royalty revenues with the artists, had initially sought a higher rate than what the arbitration panel proposed, but later said they could live with the panel's decision.
However, Cary Sherman, president of Recording Industry Association of America, emphasized that the decision did not necessarily mean a victory for Webcasters.
"We do not know why or what decision the Librarian will ultimately make based on the evidence presented," Sherman said.
Unlike Kazaa and other song-swapping services that allow users to download songs for free, Webcasters have not been accused of copyright violations by artists and record companies.
Webcasters say they are willing to pay a fee for the right to use the songs. Record companies, for their part, say they welcome the advent of Webcasters, which have grabbed the ears of 9% of Americans aged 12 and older, according to market research firm Arbitron.
But despite years of negotiations, the two sides had been unable to agree on a royalty rate, prompting the Copyright Office to step in.
Webcasters will be liable for back royalties once a final agreement is reached.
The head of an organization that would distribute some royalties once an agreement is reached said it is high time that Webcasters start paying for the songs they use.
"Over the past three years, Webcasters have paid for bandwidth, rent, hardware, software and other business expenses," said SoundExchange executive director John L. Simson. "It is time that they finally start to pay the artists and record companies whose creative output is the most important component of their business."