Pandora calls artist royalties flap an orchestrated 'lie'

Pandora struck back against critics Wednesday, calling accusations that the streaming radio service is trying to shortchange musicians "a lie."

In a blog post Wednesday, Pandora co-founder Tim Westergren accused the Recording Industry Association of America, the organization charged with defending the interests of musicians, of orchestrating and funding a "misinformation campaign" involving well-known artists. The RIAA believes artists should be paid more than they currently receive for their songs being played on the streaming service and has accused Pandora of trying to persuade musicians to accept a substantial reduction in royalties.

While saying he bore no ill will toward artists such as Pink Floyd, which recently penned an editorial criticizing Pandora, Westergren called the RIAA's assertion that Pandora was trying to reduce artist royalties by 85 percent a "falsehood:"

That is a lie manufactured by the RIAA and promoted by their hired guns to mislead and agitate the artist community. We have never, nor would we ever advocate such a thing. I challenge the RIAA to identify a statement from Pandora that says we seek to reduce royalties by 85%.

The 85% sound bite preys upon the natural suspicions of the artist community, but it is simply untrue. And although we compete directly with AM/FM radio, which pays zero performance royalties, we have always supported fair compensation to artists.

Westergren also wrote that there is "a tremendous amount of misinformation being spread" about how much money the service pays per song "spin." Westergren wrote that the company pays about $1,370 in royalties per millions of "spins." But he also claimed that a million "spins" on Pandora is equivalent to a single play on a large FM radio station, which Westergren pointed out pays nothing for playing the song:

If major market FM stations paid the same rates as Pandora, based on audience, some would be paying thousands of dollars for every song they played. How much do they pay performers right now? Zero. As Richard Conlon, SVP at BMI recently said: "One play on commercial radio is not the same thing as one play on Pandora." He is right.

Pandora has been fighting to win parity between its royalty costs and what traditional radio stations pay. The Oakland, Calif.-based company has sued ASCAP, charging discrimination and anticompetitive tactics. It also lobbied Congress to pass an Internet Radio Fairness Act that would set up a panel of judges to set rates.

Pandora announced earlier this month that it agreed to purchase KXMZ-FM, a terrestrial radio station in Rapid City, S.D. However, the move appeared geared more toward gaining access to more favorable royalty fees than expanding beyond the Internet.

Pandora pays two royalty streams, one for actual sound recordings and another to composers for publishing rights. The sound recording fees make up the lion's share of its content costs. But by buying a terrestrial station, Pandora can piggyback onto a settlement that gives better rates on that smaller fee stream.

CNET has contacted the RIAA for comment and will update this report when we learn more.