is once more unto the breach for Pandora.
nation’s premiere online streaming music service has launched another website
with a crusading banner over the top. “Take action,” declares the home page. “Stop
discrimination against Internet radio.”
Pandora says it gets a raw deal when it comes
to paying performance royalties, compared to other radio services.
Pandora pushed hard for supporters to contact their representatives to
back the Internet Radio Fairness Act.
to “legislative and legal strong-arming” by the Recording Industry Association
of America, “Internet radio is subject to its own, very discriminatory
standard,” Pandora founder Tim Westergren declared in a recent blog post.
resulting bias is “staggering,” the commentary continues.
give you an idea, last year Pandora paid about half of all its revenue in
performance fees alone.” Citing a SiriusXM royalty bill of 7.5 percent, the company
says that, “no radio service anywhere in the world pays more than 15 percent of
its revenue in such royalties.”
Capitol Hill, offering a potential reprieve for Pandora and other streaming
services, Reps. Jason Chaffetz (R-Utah) and Jared Polis (D-Colo.) in the House,
and Ron Wyden (D-Ore.) in the Senate have sponsored Internet Radio Fairness
Acts in their respective chambers. These laws would put online “pureplay”
services on a performance royalty par with satellite and cable radio outlets.
That could dramatically lower net radio royalty charges.
Lot Has Changed Since 2009
the non-profit that distributes royalties to artists and labels, is panning the idea.
In a response statement published on its
official blog page, the operation claimed that Pandora “wants the law to be
changed so that the rate could be set at less than fair market value,
potentially much less.” SoundExchange asserted that this change would be unjust,
because music is “the main content of a digital radio service.”
now has an unexpected ally in this fight: the National Association of
Broadcasters. NAB Vice President Dennis Wharton sent Radio World a statement that
it “appreciates the leadership of Reps. Chaffetz and Polis and Sen. Wyden and
strongly supports legislative efforts to establish fair webcast streaming rates.”The trade group plans to work with the bill’s
for Pandora, this is not 2009 anymore. That was a tough year for streaming
music copyright policy. In those days, the company — then the
solitary symbol of Internet radio for most consumers — all
but got on its knees begging for performance royalty relief.
the big labels and Web streamers bitterly fought broadcasters over the
Performance Rights Act, a perennially stillborn law that would require the
latter industry to pay performance royalties just like digital streamers.
matters for Westergren is that now Pandora has lots of company in its niche.
The most likely reason NAB is sympathetic to the Internet Radio Fairness Act is
because, increasingly, traditional broadcasters are getting into the Internet
most important of these entrants is iHeartRadio progenitor Clear Channel of San
Antonio, Texas. Chaffetz lists Clear Channel as a supporter of his law. Other
endorsers include the influential Consumer Electronics Association.
has more allies now, but more competition too. Even Apple might join the party,
making noises about a Pandora-esque addition to iTunes. It’s worth looking at
the Internet Radio Fairness War from its beginning to get a sense of how the
pureplay streaming field has grown.
Fixed fees vs. percentages
question of how to compensate online streams goes back to the 1998 Digital
Millennium Copyright Act. That law put gave oversight over rates to the U.S.
Copyright Office and a Copyright Arbitration Royalty Panel.
regulators almost instantly began to quarrel over royalty rates. Congress wound
up pinch hitting. And so in 2004, Capitol Hill replaced the system with a
three-judge Copyright Royalty Board, which set to work and in March 2007
released performance tithes through 2010.
when the digital yogurt really hit the fan.
the uninitiated, CRB announcements are a blizzard of eye-glazing figures — tables
filled with lines like 0.0019 per song performance. But for webcasters circa 2004,
those numbers represented only half the problem. Particularly the smaller
outfits wanted schedules that billed them via a percentage of their revenue,
not on a song-by-song basis.
response, CRB judges released a rising schedule of annual rates that webcasters
insisted were established to please the RIAA. At this point the Internet radio
industry, led by Pandora, “went to the mattresses.”
“The RIAA has effectively convinced this
federal committee to establish rates that make online radio a non-viable
business,” Westergren declared in a March 6, 2007 blog post.
also launched a public relations campaign that culminated in a National Day of
Silence for Internet radio, paralleled by a blitz of Congress. Once again, the
House and Senate came through, passing the Webcaster Settlement Act.
WSA gave SoundExchange authority to circumvent the CRB and cut alternative
royalty fee deals with Internet radio outfits. The agency did just that on July 7, 2009 — offering revenue
based schedules for most services.
declared victory. “For more than two years now I have been eagerly anticipating
the day when I could finally write these words: the royalty crisis is over!” he told followers in a July 9 statement.
not exactly. Pandora tacked on a 99 cent fee to users who accessed the service
for more than 40 hours a month, prompting Westergren to add that he felt the “system
as it stands today remains fundamentally unfair.”
Meet the new players
the gripes, the Pureplay Settlement of 2009 offered Internet radio breathing
room, and the industry grew. Pandora went public, reporting an astounding 80
million registered users and more than $90 million in revenue by October 2011.
veritable battalion of “pureplayers” either joined the fray or expanded their
presence there. These included British streamer Last.fm, acquired by CBS
Interactive in 2007; Rdio, created by the progenitors of Skype; Spotify, which
allows users to create web interfaces of their playlists; Soma.fm, which offers
listener supported channels; and Turntable.fm, a service that lets deejays
create “decks” they can play hits to “rooms” of followers.
came along in April 2008, representing a hybrid online model, allowing
subscribers to access the company’s 800 radio stations or use the service as a
Pandora-like streamer of recommended music.
success of that venture became apparent when, in December of 2011, Clear
Channel and Cumulus Media joined forces. The latter gave the former access to
its “daily deal” SweetJack advertising service. In return, Clear Channel began
airing Cumulus’ then-570 stations on iHeartRadio.
around the same time, another Texas-based outfit upped the ante on Internet
broadcasting. Decade-old online AM/FM station aggregator TuneIn radio added a
song search feature that made it easier for mobile users to find both streaming
and over-the-air stations. A tune query might land you on a neighborhood FM
station or a Soma.fm channel.
late 2011, pureplay radio was no longer the terrain of online mavericks; it was
merging with over-the-air radio. The good old boys were getting into the act
and winning market share.
Fair burden of proof
this season of sprinting still hasn’t been easy for Internet radio. Growth is
one thing; profit, another. Although Pandora scored record revenue gains in
late 2011, it still lost money overall —
about $17 million over the last two
years. Many of these companies struggle with tricky models that combine
advertising with pay subscriptions for mobile users. There isn’t much room for
error, which means that performance royalty rates can make or break a pureplay
business. That’s why Pandora and pals still go hat-in-hand before Congress.
Wyden’s version of the Internet Radio Fairness Act is a complex affair. The
gist of the law is that in any performance royalty setting proceeding, royalty seekers
will have to demonstrate that payments “do not exceed the fees to which most
copyright owners and users would agree under competitive market circumstances.”
Copyright Royalty Board market benchmarks must mirror rates “that have been
agreed under competitive market circumstances by most copyright users.” The
idea is to tether royalties to the lower rates paid by satellite and cable
are the chances of this legislation getting to a president’s desk? Govtrack.us gives the bill odds of about
3 percent, which is actually better than the prospects for most legislation in
these hyper-partisan times. Nothing is going to happen with this proposed law
until Congress holds hearings on it, of course. Wyden’s bill is housed in the
Senate Judiciary Committee at this writing.
we asked for a comment from Public Knowledge, one of the most influential
beltway think tanks when it comes to copyright policy. A spokesperson told us
that they were still reviewing a draft. But even if this particular initiative
sputters for a while, support for it hints at a growing consensus in favor of a
kinder system for streamers of all sizes and business models.
Postscript: On Oct. 25,
several organizations including Clear Channel and Pandora together launched the
“Internet Radio Fairness Coalition” to urge Congress to support the Internet
Radio Fairness Act of 2012.
Matthew Lasar teaches
history and technology history at the University of California at Santa Cruz.
His writings on media technology appear in Ars Technica, Radio Survivor and