Licensing requirements and royalty rates for online uses of music are undergoing sweeping changes — spurring litigation, appeals and even legislation in Congress. As a result, Webcasters are scrambling to re-evaluate and redirect their business models, as they may soon be forced to pay for huge increases in royalties to recording artists.

The controversy began in March, when the Copyright Royalty Board (“CRB”) created a new royalty payment scheme under which Webcaster payments would be based on a “per-performance” calculation rather than the “aggregate tuning hours” basis more commonly used in the past. The board also set royalty rates through 2010 at significantly higher levels than in the past. Although this decision was met with fierce opposition from Webcasters, the board denied all requests for reconsideration and rehearing. Despite this ruling, the CRB created an optional transition period during which Webcasters may make limited use of the aggregate tuning hours option, and extended the date on which the new royalties become effective to July 15. In the weeks surrounding this deadline, both sides took an active role in renewed litigation in court, pending legislation before Congress and ongoing settlement negotiations. The payment due date has passed, however, and the outcome of this controversy is still uncertain.

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