updated 9/30/2008 2:29:35 PM ET 2008-09-30T18:29:35

Congress is close to passing legislation that would buy extra time to finalize an agreement intended to save the emerging Internet radio market from a crippling hike in copyright royalty rates.

The House on Saturday unanimously passed a bill sponsored by Rep. Jay Inslee, D-Wash., that would greenlight an anticipated agreement between Webcasters and SoundExchange, a nonprofit that collects royalties on behalf of recording copyright owners and artists from Internet radio stations and other digital radio services.

The two sides have been negotiating new royalty rates following the federal Copyright Royalty Board's ruling in March 2007 that dramatically increased the rates that Internet radio stations must pay artists and record labels. Internet radio stations say the new rates — which most but not all are paying — would effectively put them out of business.

After months of talks, Webcasters and SoundExchange have recently moved closer to a deal. But because Internet radio companies operate under a government license, any final agreement needs congressional authorization. And with Congress preparing to adjourn at least until after the elections — and possibly until next year — lawmakers probably will not be around to provide approval when an accord is reached.

Inslee's bill would enable the two sides to continue negotiations through Feb. 15 and make any deal struck while Congress is in recess legally binding. The bill would provide congressional approval for any agreements that SoundExchange reaches with Webcasters represented by the Digital Media Association, a trade group made up of companies that operate in the online audio and video market, and with other types of Webcasters, such as National Public Radio and college or religious Webcasters.

The Senate is expected to take up the bill before it adjourns this week.

"There may now be a light at the end of the tunnel in the fight over Internet radio royalties," Inslee said in a statement released Sunday.

Tim Westergren, founder of popular Internet radio company Pandora Media, said more affordable copyright royalty rates are critical to the future of the young industry.

"Absent an agreement, Webcasters will go out of business and that's bad for everybody — artists and listeners," Westergren said Monday. Pandora, which is based in Oakland, Calif., has threatened to shut down if the rates set by the Copyright Royalty Board are not lowered.

Under the current rate structure, copyright royalties could eventually eat up as much as 70 percent of Internet radio industry revenue, Westergren said. He estimates that up to $17 million of Pandora's projected 2008 revenue of roughly $25 million could go to copyright royalties if the existing rates are left intact.

The Digital Media Association, SoundExchange, the Recording Industry Association of America and NPR have praised Inslee's legislation. Besides Pandora, other DiMA members include Yahoo Inc., RealNetworks Inc., Microsoft Corp. and Inc.

The National Association of Broadcasters, which represents traditional AM and FM broadcasters, has withdrawn its own objections to the measure.

Traditional broadcasters are currently exempt from copyright royalty rates for over-the-air radio play since — under the logic of existing law — that airplay provides free promotion for artists and labels and helps drive record sales. But they are subject to the new rates for any songs streamed over radio station Web sites.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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