Pandora's success means more bucks for artists

For years, Pandora and other Web radio stations fought to reduce the royalty rates they were required to pay artists and record labels.

Last July, the music industry and Webcasters reached an agreement and it now appears both sides are reaping the benefits. On Friday, SoundExchange, the group appointed by Congress to collect royalties on behalf of artists and copyright owners, said it has begun distributing $51.7 million, the largest quarter the nonprofit group has ever recorded.

The amount represents a 135 percent increase over the same period last year and is nearly $10 million larger than the previous largest quarter. In addition to Web radio stations, SoundExchange collected the money from satellite radio and cable TV music channels.

The negotiated agreement on digital royalty rates called for large ad-supported radio services, such as Pandora, to either share 25 percent of revenue with the music industry, or pay a per-stream rate of 0.08 cent retroactive to 2006, whichever is greater. The terms called for a number of rate increases until topping out in 2015 at 0.14 cent.

Sure, SoundExchange stuffed its piggybank, but the settlement also appears to have worked out for Pandora. The Web's top radio station said in January that the private company posted its first quarterly profit last year. The number of Pandora's subscribers has reached 48 million.

Westergren told Digital Music News last month that Pandora accounts for 44 percent of SoundEchange's non-interactive streaming hours. Non-interactive streams describe when a service chooses the songs that are heard--similar to traditional radio. Interactive streams are when users are enabled to choose the songs. Westergren said Pandora and SoundExchange's success is largely due to the fact that a settlement was reached.

"It is not that absent a settlement there wasn't an established fee structure in place (by the Copyright Royalty Board)," Westergren wrote in an e-mail. "It's more that absent a settlement no one would have survived to pay it."

Prior to last summer, Westergren had warned many times that without pricing concessions from the music industry, Pandora and others would have been forced to close their doors.

Should traditional radio pay, too?
Maybe traditional radio stations and the music industry can learn something from that deal.

Over-the-air broadcasters pay publishing rights but don't pay royalties to artists or copyright owners. That's a significant competitive advantage over Pandora and other Webcasters. The Recording Industry Association of America (RIAA) is backing legislation in Congress called the Performance Rights Act, that would require traditional broadcasters to pony up.

"(SoundExchange's record quarter) is great news for the music community and a sign of the importance of these platforms to the future of music," said Mitch Bainwol, chairman and CEO of the Recording Industry Association of America. "It also highlights the lack of parity in the marketplace. Why should one form of radio appropriately compensate artists and labels, but not the other? That's exactly why the Obama administration said recently that there should be a performance rights for AM and FM radio."

Last month, the Obama administration said it would offer "strong support" for the music industry's efforts in requiring traditional broadcasters to pay royalty rates similar to those collected from online stations.

Dennis Wharton, a spokesman for the National Association of Broadcasters, said the RIAA wasn't interested in parity or fairness. He said the group that represents the four largest recording companies wants money.

"All of those other platforms combined, if you added up their listener base, would pale in comparison to the 239 million listeners of free local radio every week," Wharton said. "The bottom line is that this is a money grab by foreign-run record labels whose business model was destroyed by the Internet and they are looking to bite the radio hand that has nurtured both the artists and labels for the last 80 years."

Correction: This story incorrectly stated the percentage of SoundExchange's overall royalties that Pandora contributes. Pandora makes up 44 percent of non-interactive streams, not revenue.