Yes! Internet Radio Royalties Prove Compromise Possible

Pandora and other Internet radio stations on Tuesday reached an agreement with copyright holders over a long-contentious subject: the royalties those copyright holders should be paid for content streamed over Internet Webcasts.

If the terms of the new agreement, brokered by royalty collector SoundExchange, mean Pandora and others must limit the amount of free content they can provide, so be it: the takeaway is that an ostensibly beneficial arrangement for both sides was reached at all. Compromise over a supremely touchy subject -- how to pay and how much to pay for copyrighted content available over the Internet -- is indeed possible.

Back in March 2007, the federal Copyright Royalty Board ruled that all Webcasters, such as the popular Pandora, needed to pay flat royalty fees of 19 cents per copyrighted song, per play. The ruling set off a backlash from Pandora and others, which largely depend on online advertising for revenue and complained that the royalties would destroy business in short order. The Webcasters Settlement Act of 2008, and then of 2009, mandated that the Webcasters and copyright holders needed to come to an agreement on a fair royalty system by the end of July 2009.

Under that new agreement, finalized Tuesday, royalties are prorated based on how big Internet Webcasters are, how they derive their revenue and how their broadcast options reach listeners. Pandora is described as a large pure-play Webcaster, one of three categories of Internet broadcaster that also include small pure-play Webcasters earning less than $1.25 million and that have a cap on the amount of music they can stream, and other pure-play Webcasters that bundle or syndicate their content or provide subscription service packages. The term "pure play" refers to stations that only play music.

Provided it agrees to the terms, Pandora and other large pure-plays must now pay either a royalty-per-song of .08 cents or provide 25 percent of its total revenue, whichever is the higher number. Pandora founder Tim Westergren said the royalties were "quite high" in a Tuesday blog post discussing the royalty structure and said Pandora would limit the amount of free radio it could offer listeners to 40 hours per month.

"We hate the idea of limiting anyone's listening, but we have no choice but to react to the economic realities of the new rates," Westergren wrote, adding that users who exceed the 40-hour-per-month limit would be asked to pay a 99-cent-per-month fee or could opt to upgrade to Pandora One, the radio station's premium subscription.

Credit goes to SoundExchange, the nonprofit organization authorized by the Copyright Royalty Board to collect and distribute radio royalties, for continuing a string of productive negotiations with broadcasters. The organization has already reached royalty fee agreements this year with public radio stations, over-the-air radio stations and some small Webcasters.

And even if the new deal means Webcasters like Pandora no longer have carte blanche over how much free content they can provide, the agreement is, at least on paper, "survivable," as Westergren described. That point alone, for a still-fledgling market segment like Internet radio, is enormous.

"The royalty crisis is over. Pandora is finally on safe ground with a long-term agreement for survivable royalty rates," wrote Westergren. "This ensures that Pandora will continue streaming music for many years to come."