The debate over the royalty rates set by the Copyright Royalty Board for Internet radio continued on Capitol Hill today as business executives and artists testified before the House Small Business Committee. But as the July 15 deadline fast approaches for webcasters to pay 2006 royalties at the new rates to SoundExchange, even artists couldn't agree whether the CRB decision should be overturned by proposed legislation.

"Internet radio provides an important opportunity to diversify listening options and promote lesser known artists who otherwise would not have their songs broadcast," said Rep. Nydia M. Velázquez, D-N.Y., chairwoman of the committee. "This is a new and exciting field with vast potential for growth, but the CRB regulations will be a major obstacle for expansion of the industry."

Cathy Fink, a Grammy-winning songwriter, musician and producer of children's
music, argued that the CRB made an independent determination of fair rates during a proceeding that lasted for more than 18 months. Fink, who also testified during that proceeding, explained to the committee what it costs to create recorded music.

She testified that it cost about $40,000 to build her home studio. In addition, she must rent studio time for each project for about $100 per hour and pay an engineer and other musicians for their time. She and the musicians use more than 50 instruments for their music -- and a good acoustic guitar alone can cost from $2,000-$10,000, she said. With other administrative, employment and travel costs, it can take several years to recoup the cost of each project, she added.

Fink then pointed out that Last.fm, which was recently sold to CBS for a reported $280 million, had received a discounted royalty rate from SoundExchange in the past as a small webcaster. Last year, Last.fm paid less than $5,000 in total royalties to SoundExchange, she said, yet none of the multi-million-dollar purchase price was shared with the creators of the music used to help build their business.

Country music artist Joey Allcorn testified that traditional radio won't play his music. But Internet radio stations like Last.fm and Pandora will play it. With a "buy" button on their sites, he's able to sell CDs and have his music heard. "Yet three judges I've never heard of" have set rates, Allcorn said, that he believes will put Internet radio - big and small - out of business unless the CRB decision is changed.

Tom Silverman, chairman of Tommy Boy Records, noted that just likewebcasters, hundreds of thousands of musicians and thousands of indie labels are small businesses.

"In the old days, one winner paid for five losers," Silverman said as he explained how record companies stay afloat while investing in new talent. "Today, one winner doesn't even pay for one loser. These days, we are becoming increasingly dependent on the royalties due us from the flourishing business of Internet webcasting and satellite radio. These are businesses totally dependent on our work product -- the creativity and high-risk investment of the record label and the creativity, passion and hard work of the recording artist. Without us, these businesses would not and could not exist. Yet what we continue to hear from the webcasting business is that they want to pay less, not more. I think it only fair that these businesses ... fairly compensate those whose work they webcast."

Silverman said he would support a discounted rate for small webcasters if SoundExchange, which was a party to the CRB proceeding, tells him it's okay
to offer that discount for a limited time.

Richard Eiswerth, president/CEO of a Cincinnati Public Radio, said that the fundamental flaw with the CRB decision is that it will degrade public radio stations by treating them like commercial stations -- requiring them to work through complex rate calculations and pay commercial rates (if the number of listeners exceed a certain amount). He argued that the decision may place an artificial limits on the number of listeners public radio webcasters and simulcasters may have, which would be contrary to their mission of reaching
the broadest possible audience.

Thomas Lee, president of the AFM, noted that the union's 90,000 professional-musician members earn a median wage of $17.85 per hour. They rely on royalties from several sources, including webcasting, to earn a living.

Bryan Miller, GM of Cincinnati-based indie rock webcaster WOXY.com, testified that his station plays more than 400 songs from new artists, about 10 times the number of songs that an average terrestrial station plays in a year's time -- and about five times the number of indie artists. He said that smaller webcasters are struggling to get by. With costs for bandwidth, hosting, royalties and monthly expenses, "the economics are daunting at best."

Miller argued that the new rates are grossly out of sync with the costs of webcasting. Although his station was acquired by a large company which now subsidizes the webcaster, "the new royalties would have been the end of the road" if the webcaster were still a standalone entity, he said.

Kieran Kelly, co-owner of Queens, N.Y.-based Stunning Models on Display Records, represents six artists and bands. He said that the new CRB rates will do "tremendous damage" to Internet radio and indie labels if left unchanged.

A source close to the committee tells Billboard.biz that the members hope the hearing will prompt the parties to find a way to resolve the disparity before the July 15 deadline. There is no indication that the Internet Radio Equality Act, which would set aside the, could be passed before that date.