A report has surfaced that Pandora -- the popular music-mix service for computers and mobile devices such as the iPhone -- may have to stop music streaming as royalty fees drain its cash.
In an interview published Saturday by The Washington Post, Pandora founder Tim Westergren said, "We're reaching a pull-the-plug kind of decision. This is like a last stand for Webcasting."
Fees not Equal?
At issue are the royalty fees paid by online, satellite and land radio stations. Each has a separate fee structure, and proponents of Webcasting radio feel the rates for their medium is unfairly targeted.
Satellite radio pays royalties based on the subscriber base -- an easy enough number to determine from week to week, and the fees amount to 1.6 cents per listener per hour, according to some estimates.
Traditional radio stations pay no performance royalty fees. So far, so good.
But the fees imposed on Internet-based radio are byzantine and difficult to track. Under the terms of a 2007 ruling by the Copyright Royalty Board (CRB), Internet-based services must pay a minimum of $500 per channel of content, plus about 60 cents per user per month. Per-song royalty rates from the CRB ruling were .0008 cents in 2006, .0011 cents in 2007, and .0014 cents this year, rising to .0018 cents in 2009 and .0019 cents in 2010.
Westergren estimated before a Senate subcommittee last month that these fees will amount to 70 percent of Pandora's revenue. And it's about to get worse. Under the 2007 agreement, fees will nearly double by 2010. If that weren't enough, hearings to begin soon will set royalty rates for 2011 and beyond, and many assume those rates will be even higher.
The Copyright Royalty Board is comprised of a three-judge panel, selected by the Librarian of Congress. In essence, the fate of all musical-performance royalties is decided by three men selected by the nation's librarian. Royalties are funneled from the board and dispersed to music-industry royalty-collection groups. The most prominent of these groups is SoundExchange, a division of the Recording Industry Association of America.
More Fights Ahead
In an interesting appeal to the Webcasting ruling, one firm, Royalty Logic, a competitor of SoundExchange, argues that the CRB is unconstitutional in nature, and questions the validity of its formation. The CRB is a recent invention.
In 2000 President Clinton dissolved the long-standing royalty tribunal which consisted of judicial members appointed by the president and Congress. The CRB which took its place was deemed more streamlined and efficient by the administration.
According to sources, Pandora is in negotiations with the recording industry to try to fashion a royalty rate which would not scuttle the online music industry. And a movement is afoot to make those brick-and-mortar land radio stations their share.
A statement on SoundExchange's Web site threatens: "The U.S. is the only country in the industrialized world that does not mandate payments to recording artists and content owners for music played over the air. We strongly believe this unfair exception in copyright law needs to be addressed by Congress."
So while Westergren and others believe the current rate structure threatens the existence of Webcasting, traditional radio might not be far behind.