Shaken Internet Radio Stations Face Specter of New Fees Sunday

Sunday will be a day of reckoning for Internet radio stations.

The D.C. Circuit Court of Appeals has refused to stop an increase in royalty and broadcasting fees, jeopardizing the future of some stations. As a result of the decision, handed down Wednesday, fee increases will take effect in two days.

Years after the fall of Napster, peer-to-peer file sharing programs continue to eat into entertainment industry profits. The industry has responded with an all-out legal assault targeting the programs' developers and users.

The Copyright Royalty Board, which is part of the Library of Congress, decided in March to almost triple royalty rates by 2010 and impose an annual $500 fee per station or channel. The decision was urged by SoundExchange, an organization created by the recording industry.

In recent months, some smaller Web stations shut down in anticipation of the higher fees. More say they will close as a result of the court decision. Web radio stations and their listeners have been lobbying Congress to pass legislation that would void the Copyright Royalty Board's decision and use a system that would assess royalties based on a station's revenue. But there has not been any legislative action on the proposal.

The four largest Internet-radio providers -- Pandora, Yahoo, Rhapsody and Live365 -- have tens of millions of channels among them. Pandora can afford to pay fees on Sunday but will continue to lobby Congress for changes, said founder Tim Westergren.

"This is just about the artists getting paid fairly," said Richard Ades, spokesman for SoundExchange. "Artists and labels just want a fair share of the pie.".

But as it stands now, starting Sunday, webcasters will retroactively pay artists and record labels the difference between the new and old royalty rates for 2006.

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