With the November 15 passage of the Small Webcaster Settlement Act, initially the brainchild of U.S. Representative Jay Inslee, who represents Seattle's northern suburbs, the nascent Internet radio industry was pulled back from the brink of doom. The last-minute deal will save Internet radio, said proponents of the new medium, which allows for the audio transmission of radio shows over the Internet.

Remarkably, the legislation even won cautious support from the politically powerful recording industry, whose intense, and initially successful, demands for royalties greater than the total revenues of most webcasters precipitated the Congressional intervention.

Among its many provisions, the bill (which President Bush is expected to sign) nixes a recent government decision ordering webcasters to pay untenably high royalties to the recording industry, and instead empowers a direct negotiating process between the two groups. As a starting point for those negotiations, recording-industry negotiators verbally committed in principle to allowing small webcasters to pay a royalty likely to be around eight percent of their revenue, rather than an inflexible fixed rate per listener per song that was greater than most webcasters' total revenue. A legislation mandates a final deal by December 15 for commercial webcasters; noncommercial outlets have until June 2003 to work out terms.

The heated royalty question stands at the heart of the issue. Though traditional radio stations have never paid royalties to labels and artists (they do to composers), the Recording Industry Association of America (RIAA) asked Congress to impose them on webcasters. The rationale? The RIAA characterized webcasting as a direct threat to record sales--fearing that listeners would find ways to make perfect-quality digital copies of music--and dismissed the free public exposure the medium provides to unheralded artists ignored by traditional radio stations.

Though the webcasting movement countered that streaming technology does not allow easy, high-quality pirating of music--unlike, say, Napster--and in fact boosted record sales (just as regular radio does), in 1998 Congress passed the Digital Millennium Copyright Act, which essentially sided with the RIAA.

The battle then turned to setting those royalty rates. Earlier this year, the RIAA again emerged victorious, winning a flat rate of 70 cents per song per thousand listeners. At that rate, retroactive to 1998, royalties alone would have cost several times the total revenues of most small webcasters, Internet radio expert Kurt Hanson wrote in Radio and Internet Newsletter in May. This would effectively put almost all of them out of business.

In stepped Inslee, along with a few other tech-savvy members of Congress. A staunch New Economy proponent, Inslee learned about the medium's problem from a number of Seattle outlets, including noncommercial, University of Washington- affiliated powerhouse KEXP and RealNetworks, which produces software that allows streamed audio to be played on home computers. Inslee expressed satisfaction with the final agreement, stating, "Helping webcasters can only have a positive effect on the difficulties currently faced by the Northwest's economy by helping this nascent high-tech industry."

Like most webcasters, Vickie Nauman, director of KEXP online, says she's "thrilled the bill passed, because it takes [the] government out of the position of dictating market forces." KEXP's web presence has more than doubled to 250,000 listener hours per month in just the last year, she states, adding that for webcasters of KEXP's size, the new deal is likely to save tens of thousands of dollars annually, and will go a long way toward making such operations financially viable.

While the altered royalty structure wins wide praise, some say webcasters face other onerous restrictions not addressed by the legislation. Nauman says royalty reports for her station alone run to 500 pages a month, while KBCS Station Manager Steve Ramsey says his station, on the campus of Belleview Community College, abandoned webcasting earlier this year.

His main complaint is not monetary; he points to restrictive content rules, and those aren't likely to change with the new deal. For instance, a rule that webcasters can't play more than two tracks in a row off the same disc makes it pointless for KBCS, which likes to cover artists in depth, to webcast, he says. Despite almost 500 listener e-mails in favor of webcasting, until such restrictions are lifted, KBCS will not participate in the new medium.