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Broadcasters had objected to the panel's proposal, saying the higher royalty rates would make it impossible for the Internet radio industry to stay in business as a free service to consumers.
But the recording industry was disappointed by the decision, which it said favors Web giants.
"The import of this decision is that artists and record labels will subsidize the Web-casting businesses of multibillion-dollar companies like Yahoo, AOL, RealNetworks and Viacom," said Cary Sherman, president of the Recording Industry Association of America, in a statement. "The rate, which cannot be squared with the decision of the arbitration panel, simply does not reflect the fair-market value of the music as promised by the law."