Web radio, music industry reach agreement on royalties

After two years of negotiations, larger online radio stations agree to pay music industry 25 percent of revenue or a flat per-stream rate, whichever is greater.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
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Tim Westergren CNET News

Internet radio got a break Tuesday when the sector reached an agreement on streaming-music royalty rates with SoundExchange, the group that collects royalties on behalf of artists and labels.

The two sides announced the deal, which comes after more than two years of negotiations, political maneuvering, and fans pleading with lawmakers to save Webcasting. It should be noted, however, that Webcasters are still at a disadvantage when competing with traditional broadcast radio. Over-the-air stations aren't required to pay royalty rates to artists or labels.

Steve Marks, an executive vice president for the Recording Industry Association of America and one of the people who helped close the deal, said the settlement is proof that the music industry wants to partner with technology firms.

"Supporting new business models through innovative licensing agreements is critical to the future of our industry," Marks said. "We are pleased to have found an alternative in the hope of avoiding costly litigation in favor of building partnerships."

The agreement calls 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. That rate will increase until reaching 0.14 cent in 2015.

Sites that generate less than $1.25 million in revenue must pay 12 percent to 14 percent of sales for streaming rights.

Lower rates were vital to the survival of Internet radio stations, Tim Westergren, Pandora's founder, said in September. The Copyright Royalty Board set a performance rate at 0.19 cent but Webcasters argued that the rates would drive them out of business.

But here's the rub: Pandora's heaviest users will now have to pay, according to a story in the blog All Things Digital.

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Westergren told the blog that Pandora will begin charging listeners who use the service for 40 hours a month to pay $0.99 to hear more music after hitting that mark.

"There's a very small percent of listeners who are using it a ton," Westergren told the blog. "That's great, except when you're paying per song."

As for why Webcasters must pay these royalties and traditional broadcasters do not, that is at the center of a struggle going on now on Capitol Hill. The music industry is trying to get the Performance Rights Act passed in Congress, which would force over-the-air broadcasters to pay the fees, while the National Association of Broadcasters is pushing its own legislation designed to shield it from the royalties.

Dennis Wharton, an NAB spokesman, said that the Webcasters are subscription services that are trying to get people to pay, just as Pandora is doing now. He also says that traditional radio is a huge promotional tool for the major music labels and Web radio's following is still tiny.

"I think there is big recognition that the sheer number of people who listen to over-the-air radio generates a massive amount of revenue for the record labels and artists," Wharton said. "If you added up the competition, say Pandora, or Live365, we would dwarf them."