Facing a possible death sentence, Net radio wins a brief reprieve.

Internet radio may have found an unexpected ally in, of all people, the Librarian of Congress. On May 21, James Billington rejected a proposed royalty fee that would have spelled doom for one of the Net’s fledgling industries.

At issue are the tens of thousands of webcasters who have been streaming everything from Afro-pop to zydeco — and leaving the piper unpaid. As part of 1998’s Digital Millennium Copyright Act, the government must still decide on a fee to compensate performers whose music gets played online. The U.S. Copyright Office suggested a fee of 14/100 cent per song per listener, retroactive to 1998. Given the millions of tunes webcast over the years, even that minuscule number would have forced some stations to pay up to six figures in royalties — certain bankruptcy for small outlets. Billington rejected this figure and has until June 20 to render a final determination.

His ruling was perceived as a victory for Net radio stations. ”This is exactly what webcasters had hoped for,” says Kurt Hanson, publisher of RAIN: Radio and Internet Newsletter (readable at kurthanson.com). Hanson, who vigorously lobbied against the proposed fee, continues: ”Setting a rate that would kill the industry doesn’t make any sense.” What webcasters want is the same consideration given to offline radio stations, which are exempt from paying performance royalties because of their perceived promotional value. ”The Internet gives exposure to music that doesn’t get FM airplay,” argues Hanson. The real catalyst, he believes, is the industry’s panic over online bootlegging: ”It’s frustration over piracy being taken out on something that isn’t piracy.”

Just a few months ago, the music biz blamed online piracy and CD burning for a 10 percent drop in 2001 sales. Even so, it’s not post-Napster fears that are the motivation, says John Simson, executive director of Sound-Exchange (soundexchange.com), a coalition of music companies established to collect performance royalties. Rather, Simson sees an opportunity to set a precedent that should have been established long ago: ”We’ve subsidized the radio industry for 70 years, and [stations] are using our music to sell ads. The fact that they may sell records is irrelevant to them.” A Net radio royalty structure, he says, ”is Congress’ way of saying we’ve allowed broadcasters to be subsidized and we’re going to stop it in a new technological era.”

Still, no matter what Billington decides, the diversity of online music won’t fade anytime soon: Net radio stations outside the U.S. won’t be affected by the ruling, and artists and labels will be free to strike their own deals with webcasters. But for the next few weeks, webcasters will undoubtedly be looking at their playlists — and their calendars.

(Additional reporting by Sarah Schmidt)