CHIRP: The Chicago Independent Radio Project

Julio Perez writes

Pandora May Be Pulling The Plug Due To Increasing Royalty Rates

It’s becoming clear that the crunch is on to remove the influence Web radio is having on the music industry. The promotion and distribution channels have been disrupted, and the recording industry is making every effort to regain control, so they can peddle homogeneity in a medium that is anything but. The RIAA has been at it for a while and it looks like the disproportionate fees levied against Webcasters is beginning to effect one of the more popular Webcasting services around.

Because of the increased royalty rates going into effect next year, fans of Pandora may find their personalized radio stations shut down as the fees begin to reach nearly 70 percent of Pandora’s projected revenue. The per song royalty rates, according to a ruling by the Copyright Royalty Board, have increased from 8 cents in 2006 to 14 cents in 2008, and is set to increase an additional 4 cents starting in 2009. This is an immense cost for a service like Pandora, which allows for hundreds of thousands of songs to be played simultaneously, unlike traditional radio where one song is played at any given time. 2009 was slated to be the first year Pandora would rise above operating costs, but due to the increased royalty rates pushed through by the RIAA, Pandora founder Tim Westegren has been quoted as saying, “we’re approaching a pull-the-plug kind of decision.”

SoundExchange, a spinoff of the RIAA, supports the higher royalties for Internet radio, because they believe musicians deserve a bigger cut of Internet radio profits. This is a little disingenuous, considering they’re so concerned with this issue, that they seem to have a problem finding artists they owe money to. Of course, if they can’t find these artist to pay them, SoundExchange, keeps the money for itself.

A competitor to SoundExchange, Royalty Logic, Inc., is fighting back by trying to unseat the CRB, because they claim its Judges were appointed in violation of the U.S. Constitution’s separation of powers. The CRB was set up in an effort to streamline the original long-standing royalty tribunal, which consisted of judicial members appointed by the president and Congress, but was dissolved in 2000 under President Clinton.

The fate of Pandora, and how the royalty rates will affect them, remains to be seen. I’m sure they will wait till the very last moment, but ultimately it’s going to come down to dollars and cents. Venture capital is what is supporting Pandora at the moment, and when you see 70% of your revenue going towards royalty rates, it’s only a matter of time before you find the box is empty.

Sources and additional reading

RIAA May Get Its Wish: Pandora Leaning Towards Shutting Down Over Webcasting Royalties

http://www.techdirt.com/articles/20080817/2203011998.shtml

Giant of Internet Radio Nears Its ‘Last Stand’

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/15/AR2008081503367_pf.html

Recording Industry Apparently Can’t Find A Bunch Of Its Stars To Pay

http://www.techdirt.com/articles/20060921/192446.shtml

Digital Music Royalty Checks Languish

http://articles.latimes.com/2006/sep/29/business/fi-sound29

Pandora Founder Says Rising Fees Threaten Webcaster

http://news.yahoo.com/s/nf/20080818/bs_nf/61399;_ylt=A0wNcyP78K1IFJgAZiExVrIF