After two years of wrangling, Web radio has reached an agreement with the
Copyright Royalty Board that substantially reduces the fees online stations such as Pandora, Blip.Fm and Last.fm must pay to play music. Although the new settlement is more equitable than the 2007 ruling that put this great ball of fire in motion, Internet radio will still pay higher royalty fees than its more established cousin, terrestrial -- or traditional -- radio.
Internet radio gives listeners a choice of how they listen to music. It differs from terrestrial radio in which the station manager controls the playlist and is free to users, and satellite radio, which charges subscriptions and offers more targeted stations. Internet radio works in a similar fashion to an MP3 player: Users put together playlists, but rather than playing only those songs repeatedly, the station uses that information to include other artists that are similar to their preferences.
The royalty dispute began in 2007, when the Copyright Royalty Board ruled that commercial Internet radio stations, regardless of how large they were, would pay a higher flat fee to the record labels each time a song was played. The increase applied to songs played in 2007, and retroactively for 2006 at a slightly lower rate. Those new rates were more than double what they had been paying previously and threatened to bankrupt the entire industry.
Many felt terrestrial radio was threatened by the emergence of Web radio and were trying in effect to get the Copyright Royalty Board to force them into extinction.
The founder of Pandora was one of the most outspoken opponents of the 2007 Copyright Royalty Board royalty plan. In his blog, Tim Westergren noted that while pleased with the current settlement, the costs would require Pandora to reassess its pricing structure.
"We are going to 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 just $0.99," Westergren wrote. "In essence, we're asking our heaviest users to put a dollar (well, almost a dollar) in the tip jar in any month in which they listen over 40 hours. We hope this is relatively painless and affordable -- the same price as a single song download."
What Westergren is proposing is not outrageous. The system would cover Pandora's costs so it can continue to provide music. But the winding road has not exactly ended: A new effort in Congress is focused on the broader issue of how musical artists are compensated across all forms of radio. Currently, musical artists receive no compensation when their music is played on AM/FM radio. The Performance Rights Act (H.R. 848) aims to change that. Stay tuned.
