Dan Costa - PC Magazine
Pandora Radio is the canary in the coal mine. With about a million listeners every day, Pandora is one of the most successful Internet radio stations on the Web. I'm more of a Slacker fan personally, but Pandora's music-matching technology is among the best in the business. And it generates revenue, perhaps as much as $25 million this year alone. But that isn't enough to pay the royalty fees.
Last summer, the Copyright Royalty Board doubled the fee that Internet radio stations have to pay to broadcast a song. The royalty structure is pretty straightforward. In 2008, Internet broadcasters have to pony up $.0014 to stream one song to a listener. That fee is scheduled to climb to $.0019 in 2010. It doesn't seem like much, I know, but it's likely to add up fast. So fast, in fact, that it may kill off Internet radio entirely.
Pandora Radio Founder Tim Westergren claims that his company may have to shut down because of royalty fees. Westergren estimates that Pandora will have to pay $17 million this year. Pandora may be adding new listeners every day, but that's just driving up its costs. And if one of the largest, most successful stations on the Net can't get ahead of this curve, who can?
Frankly, I don't know exactly what the royalty rate should be for an Internet radio station. Surely they should have to pay something to the record labels, but it should be an amount these businesses can bear. And right now, Internet radio broadcasters pay the highest royalties in the business.
What do terrestrial radio stations pay to broadcast a song? Nothing. The rationale is that broadcasting music would drive record sales, and it did that for a long time. Now record sales are falling, downloads—both legal and illegal—are increasing, and the record labels are rewriting the rules of Internet radio.
What do satellite radio broadcasters pay? A percentage of their revenue. The real numbers are hard to come by, but satellite radio mashup Sirius XM is thought to be paying about 6 or 7 percent of its revenues in royalty fees. By comparison, paying per track will cost Pandora about 70 percent of its revenue. That makes no sense.
The enforcement of copyright laws has never been purely about getting rights owners paid. Protection for public interests is written into copyright law. Those interests include making of creative works available, respecting relative roles of owners and users, and avoiding the disruption of industries, even nascent ones like Internet radio. Nonetheless, the current royalty scheme seems to be designed solely to fill record label coffers.
Labels argue that the solution for Internet radio stations like Pandora is that they simply need to make more money. And to be fair, the company could probably be a little more aggressive here. Why is the excellent Pandora Radio app for the iPhone free? And Internet radio stations need to think about selling more than eyeballs looking at banner ads. Where's the merchandising? How about selling tickets to live shows?
Even so, the real problem is that the record industry is organized, unified, and well funded in this fight. And despite the best efforts of groups like SaveNetRadio.org, the Internet radio listening public isn't. We don't have any leverage.
Or do we?
Every month, 72 million people log on and listen to Internet radio. Calls like the one I got from my stepfather show that the audience is diverse, mainstream, and likely willing to spend a little cash to enjoy their music. These consumers may not be united in the fight for more sensible royalties, but they are hardly powerless.
Don't forget, vast illegal file-sharing networks are still operating just a few clicks away. The RIAA's legal Whac-A-Mole has barely slowed them down. If this unfair royalty scheme kills off legal, legitimate businesses like Pandora and the recently shut-down Muxtape, those users will simply go somewhere else. And that destination is more likely to be BitTorrent than a record store. The record industry may think it is killing off Internet radio, but it's merely opening Pandora's box.
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