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Internet Radio Reaches Deal On Royalties

Agreement means big changes for some listeners

By Mark Huffman
ConsumerAffairs.com

July 8, 2009

The standoff began in 2007 when the Copyright Royalty Board issued a formula based on how many people listened to a station – a system Web station owners said was not economically viable. Not wishing to killing the “golden goose,” music companies entered into negotiations.

In proclaiming the royalty crises over, Tim Westergren, founder of the popular Internet station Pandora, said the new rules will mean big changes for some listeners.

“The revised royalties are quite high -- higher in fact than any other form of radio,” Westergren said. “As a consequence, we will have to make an adjustment that will affect about 10 percent of our users who are our heaviest listeners.”

Because of the new rules, Westergren said Pandora will begin limiting listening to 40 hours per month on the free version of Pandora. In any given month, a listener who hits this limit can then opt for unlimited listening for the remainder of that month for a payment of $0.99.

“In essence, we're asking our heaviest users to put a dollar in the tip jar in any month in which they listen over 40 hours,” Westergren said. “We hope this is relatively painless and affordable -- the same price as a single song download. We hate the idea of limiting anyone's listening, but we have no choice but to react the economic realities of the new rates.”

Under the new royalty formula, Web stations are divided into three categories. Large “pureplay” stations will have to pay a pay-per-performance rate per song or give up 25 percent of their revenue, whichever is higher. Small stations will pay either a percentage of their revenue or a percentage of their expenses. Pureplay Webcasters will be required to pay an annual fee of $25,000 that can be applied to the royalties they owe.

The royalties will be collected by SoundExchange, which will also police Web stations to ensure compliance. Executive Director John Simson somewhat grudgingly accepted the compromise.

"Time will tell if revenue sharing is the right move for both the recording community and webcasters, but we're willing to take the risk in the hope that artists, rights holders and webcasters can all benefit," Simson said in a statement.

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