Settlement Ends Online Royalty Crisis

There’s good news for Internet radio sites such as Pandora. A group of webcasters have reached an agreement with SoundExchange, the organization that collects royalties for musicians and record companies, over royalty payments for playing music online. The dispute has been going on for two and a half years and has threatened to silence the Internet radio business. The fear of expensive royalty bills has even caused some people who started online radio stations as a hobby to quit.

Now, thanks to the settlement, webcasters and conventional radio stations that simulcast their broadcasts online will be able to continue streaming music and avoid per-song royalty payments that were set in 2007 by a special federal court. These per-song royalty payments threatened to put many Internet radio sites out of business. Thanks to the settlement, Pandora and other webcasters can opt for an alternative rate structure that lets them pay lower royalties.

Under the agreement, the new per-song rates start at 0.08 of a cent per listener for each song played. The rates go up to 0.14 of a cent in 2015 when the agreement ends. The previous rates set in 2007 by the Copyright Royalty Board started at 0.0762 of a cent but were scheduled to reach 0.19 of a cent by 2010. With the new agreement, large webcasters must pay the per-song fee or 25% of their revenue, whichever is greater. Smaller commercial webcasters with $1.25 million or less in total revenue are required to pay between 10% and 14% of their sales or 7% of their expenses, whichever is greater.

"If the rates weren't resolved, we were sunk. So this is a huge relief," said Tim Westergren, co-founder of Pandora. Pandora currently has about 30 million registered users. The company has forecasted $40 million in revenue this year and hopes to become profitable next year.

The Copyright Royalty Board allows SoundExchange to negotiate rates on behalf of the musicians and record labels. Thanks to legislation passed by Congress, a deal struck with one webcaster can apply to any others that want to accept it. This most recent deal was struck with three webcasters: AccuRadio, Radio IO, and Digitally Imported. The Digital Media Assn., which represents webcasters and other online media providers, expects some of its members to opt for the deal as well.