A final deal between the Digital Media Association, which is representing the Web sites, and SoundExchange, which collects royalties on behalf of the music labels and other copyright owners, isn’t expected until later this year. But “the hard stuff has been done,” says Pandora founder Tim Westergren, who has become the public face of Webcasters during negotiations.

In September, Congress agreed to let the two groups hash out new terms that would replace the ones that the government-appointed Copyright Royalty Board signed off on last year. Since then, Web radio sites, led by Pandora, have bitterly complained that rates would force them out of business.

The existing deal calls for Webcasters to pay an escalating fee to copyright owners every time they play a song for a listener. This year, for instance, Web radio stations are supposed to pay 14 hundredths of a penny ($.0014) per song streamed, per listener; site operators figure that will cost them about 2.1 cents per user, per hour.

That doesn’t seem like much, but in order to cover those fees alone (before bandwidth and other costs), operators would need pull down many more advertising dollars then they’re getting now.

Site advocates figure they’d need to be able to generate a so-called CPM rate of about $21 for every thousand visitors (over the course of an hour) under the current fee structure. That’s a hard rate for big professional Web sites to achieve. And since users generally turn on a Web radio station, then look at other sites while it runs in the background, the format is a tough sell for ad buyers.

So what’s the new rate going to be? Westergren wouldn’t comment, except to argue that the compromise still calls for “tremendously unfair” payments when compared to the fees paid by satellite radio operator Sirius XM (SIRI). That company is supposed to pay between six percent and eight percent of revenue between now and 2012.

What about conventional radio? Those stations don’t pay a penny for so-called “performance” royalties, though the cash-starved music labels have asked Congress to change that. Good luck!

The big question: Will the new rates allow Pandora, and the many smaller Webcasters, to surive? Westergren says Pandora is on track to generate $20 million in revenue this year, but he wouldn’t say whether that would allow him to break even with the new proposed rates.

But Web advertising in general is under pressure, and ad buyers say that their clients are increasingly skeptical about trying out “experimental” mediums like Web video. So unless the rates get very, very low, or Westergren’s company has hired some very, very persuasive sales people, it’s going to remain a struggle.

At least not yet. Internet broadcasters will not have to start paying sharply higher royalties next week, though the U.S. Court of Appeals in Washington, D.C., yesterday refused to halt the royalty increase. SoundExchange, the organization that collects and distributes Internet music royalties, said late yesterday that online radio outlets can continue to operate under their old licenses next week without fear of legal action. “For the people who want to comply with the law and are in bona fide negotiations with us, we don’t want those people to be intimidated,” SoundExchange Executive Director John Simson told Radio and Internet Newsletter. “And we don’t want them to stop streaming. That’s just so long as they’re continuing to pay under the license they had. … Look, Monday’s not that magical a day. It’s going to be business as usual at SoundExchange–trying to process data, trying to get deals done. We’re not gonna be filing lawsuits.”

Thoughtful, yeah? But don’t mistake Simson’s remarks for benevolence. Because this isn’t a reprieve, it’s simply a stay of execution.

At least not yet. Internet broadcasters will not have to start paying sharply higher royalties next week, though the U.S. Court of Appeals in Washington, D.C., yesterday refused to halt the royalty increase. SoundExchange, the organization that collects and distributes Internet music royalties, said late yesterday that online radio outlets can continue to operate under their old licenses next week without fear of legal action. “For the people who want to comply with the law and are in bona fide negotiations with us, we don’t want those people to be intimidated,” SoundExchange Executive Director John Simson told Radio and Internet Newsletter. “And we don’t want them to stop streaming. That’s just so long as they’re continuing to pay under the license they had. … Look, Monday’s not that magical a day. It’s going to be business as usual at SoundExchange–trying to process data, trying to get deals done. We’re not gonna be filing lawsuits.”

Thoughtful, yeah? But don’t mistake Simson’s remarks for benevolence. Because this isn’t a reprieve, it’s simply a stay of execution.

Although a royalty rate like this is typically 4% to 5% of revenues in other media (e.g., satellite radio), for other rights (e.g., the musical compositions), and in other countries–the rates set by the Copyright Royalty Board judges equate to roughly 50% of revenues for large webcasters like Yahoo LAUNCHcast (and probably many terrestrial station streamers), 150% to 300% of revenues for small webcasters like AccuRadio, radioio and Digitally Imported, and, for Webcasters with large numbers of channels like Rhapsody and Pandora, well more than 1,000% of revenues.”

SoundExchange–an organization spun off from the Recording Industry Association of America to collect royalties on the behalf of sound-recording copyright owners–argues that the royalty increase, slated to go into effect July 15, is fair payment for the right to stream digital music. But 50% to 300% of revenues does seem a bit steep, doesn’t it?

Steeper still, when you consider the fact that SoundExchange doesn’t always manage to disburse all the royalties it collects. That’s right. In the first quarter of 2006, the organization collected some $14.2 million in royalties, but distributed just $8.5 million. Where’s the remaining $5.7 million? SoundExchange says it’s being “held in reserve for artists and sound-recording copyright owners that have not been identified or located.” And it is. Until June 30, when those missing artists–all 8,353 of them–forfeit it to SoundExchange.

The irony is enough to make your head explode.