August 19, 2008
Web Royalty Fees Could Close Pandora's Box
Last year when the U.S. Copyright Royalty Board substantially hiked the royalty fees for songs that are Webcast, online broadcasters sounded an alarm. At the very least, they said, the raised fees would force some online radio stations to cap their audiences. At worst, the broadcasters warned, the royalty board could end up writing Internet radio’s swan song.
Now it looks like those grim predictions may come to pass. The founder of one of Internet radio’s leading lights, Pandora, tells The Washington Post that Web royalties may soon force his station out of business. The fees now soak up 70 percent of Pandora’s $25-million annual revenue, according to Tim Westergren. “We’re approaching a pull-the-plug kind of decision,” he says.
What’s striking is that Pandora is no fly-by-night operation: The Web-radio service, which lets users build radio stations to match their own tastes, reaches about a million listeners every day, and its recently created iPhone application has become one of the most popular downloads for the device. But the rules of the marketplace, as currently drawn up, are none too favorable to online broadcasters. Terrestrial radio stations don’t have to pay per-song royalties, and satellite radio providers pay only small fees. But by 2010, Webcasters can expect to pay between two and three cents per hour per listener.
Pandora isn’t dead yet: Rep. Howard L. Berman, a California Democrat, is working to arrange an eleventh-hour deal between online broadcasters and record companies. But the talks don’t seem to be progressing, and another proposed legislative fix — the Internet Radio Equality Act, which would apply the same royalty rate to terrestrial, satellite, and online radio stations — seems all but stalled. —Brock Read
Comments
Commenting is closed for this article.
Previous: Score Zero for Privacy: Princeton Review Reveals Student Test Results to the World
Next: NSF Grants Four $10-Million Expeditions in Computing Awards
Some days I don’t know how I’d make it through the routine items without the variety of Pandora.
— Johannes Aug 19, 04:59 PM #
Killing the golden egg-laying goose is typical of media and publishing companies and this will simply force such projects to shutter or move to other countries. Killing Napster didn’t stop music sharing, that is for sure.
— Jeff McNeill Aug 19, 05:17 PM #
What the media companies, in their typically myopic way, fail to see is that services like Pandora expand their consumer base by introducing listeners to music they were unfamiliar with previously…thus leading them to go out an buy it.
— Jarrod Aug 20, 05:39 AM #
When the BBC had a lock on broadcasting in Britain, ‘pirate’ broadcasters moved offshore. Soon, there was commercial broadcasting on the island. I suspect there will be a version of pirate stations on the Internet soon. I wonder if the data haven concept in the novel Cryptonomicon might suggest a way: a third-world country which is not party to international agreements about intellectual property offers unregulated webcasting (and file storage/sharing of all kinds) to anyone who can afford it, and creates the media companies’ worst nightmare.
— BobP Aug 20, 06:49 AM #
These posts are SO predictable! FREE! We want everything for free! Oh, except the services WE provide. We expect to be paid handsomely for those.
“We” all work for a living and the people who produce and publish the stuff that helps you get through those “routine items”? They’ve gotta eat too.
Your “free” is me not getting paid for your entertainment.
— Rich Aug 20, 07:21 AM #
Rich—Speaking of predictable posts… I don’t think anyone on this blog is saying that people shouldn’t pay a fair price for what they get. For one, my post wasn’t even taking a position on what should be—only speculating on what could happen. In my opinion, the problem with current law is that it tilts power too far in favor of media companies, granting them oligarchical power over what we see and hear. I’m happy to pay you for your creativity and sweat, if you produce something I want. But when media oligarchies control whether I even have a chance to see or hear your work, and then take the lion’s share of the profit that should go to you, I have a problem.
The Internet has radically changed the media landscape, and many media companies are trying to gain a stranglehold on it. Essentially, they’re trying to maintain a 20th century business model against 21st century reality.
— BobP Aug 20, 08:22 AM #
Oops—I meant ‘oligopolistic’ (which I hope is an actual variation of ‘oligopoly’) and ‘oligopolies’ rather than ‘oligarchic’ and ‘oligarchies’ in the previous post. Sorry for the error.
— BobP Aug 20, 08:29 AM #
Close it down then set up your own and charge more money. Sweet
— mathew Aug 20, 09:03 AM #
70% of Pandora’s revenues goes towards royalties – Rich, that hardly seems free. Industry does its best to kill or overrun any business that is fresh and innovative, especially those that are free to the consumer – there’s [more] dollars to be made, after all. Those of us who remember the idealistic concept of the Internet in its infancy remember the free exchange of ideas and information – corporate bullies have shifted that to trying to grab every penny they can, in any way they can. Thanks for, once again, Corporate America, for killing a good thing. See also, copyright issues with Scrabulous on Facebook. Despite the fact they could be PART of it (Hasbro/Mattel), instead they must kill the most popular application on Facebook. My friends and I played the board game MORE at home, once we were re-introduced on Facebook.
— Julie Aug 20, 09:07 AM #
… Considering that by listening to Pandora prompted me to find 6 new artists which I promptly bought about 18 CDs for, I consider the idea of shutting down Pandora a vast insult. Had I not listened to this “free” radio station, I never would have heard of these artists, or heard enough of their music to decide “okay, that’s sweet, I think I’ll go get the album” – I don’t like listening to the conventional radio, where you hear ONE song from an artist, and are expected to make a decision based on ONE track from an album. I had enough of that in the 80s where I’d hear a hit song, love it, buy the record and ask myself “why did I just spend $22.50 on an album that I can’t stand so I can wear out track two on side two because it’s the only song I like?”
Instead, I heard enough material to prompt me to spend $150 on CDs – and I honestly don’t like purchasing CDs from stores and such – I know how little of that money the artists actually see. It all goes to the recording/publishing companies.
I’m glad to support an artist for their work. I’m an artist myself, and like to be supported. But in order for me to support an artist, I have to know they exist, and hear/see enoughof their work to consider it worth my dollar.
These days, that $150 I spent on music, had I bought the music blindly, would have been two weeks worth of commuting costs to and from work.
Think on THAT if you will.
People aren’t spending as much on frivolity considering it costs a rediculous amount of money to just survive day to day, and not everyone makes $100k per year.
— KM Aug 20, 09:52 AM #
Speaking of 20th century business models, internet radio is charged a significantly higher price than satellite/traditional radio. How long do you suppose it will take to educate the powers-that-be on the nature of the internet?
— Debbie C Aug 20, 10:52 AM #
Rich – I agree that people shouldn’t expect things for free. However I’d like to see Pandora’s royalty fees on par with those (lower fees) for terrestrial and satellite broadcasters. That seems quite reasonable to me. In the months that I’ve listened to Pandora, I’ve discovered a ton of great artists I’d never have heard on conventional radio in the small-ish town I live in, and that’s prompted me to start buying CDs again.
— AC Aug 20, 01:38 PM #
The problem isn’t that music should be free, the problem is that internet radio stations like Pandora are charged as much as 3x the royalty rates of am/fm radio stations. It’s not about free, it’s about fair.
— rudy Aug 20, 03:35 PM #
The royalties ARE disproportionate. I’ve written my representative and both senators about this.
— Al Aug 20, 06:30 PM #