| Music Labels Reach Online Royalty Deal |
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| Written by CLAIRE CAIN MILLER | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tuesday, 07 July 2009 00:00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Internet radio, once on its deathbed, is likely to survive after all. On Tuesday, after a two-year battle, record labels and online radio stations agreed on new royalty rates that cover music streaming. Many of the music sites had argued that the old rates were so high that they were being forced out of business. That could have come back to haunt the record labels, since for many people the sites are becoming a useful way to discover music. “This is definitely the agreement that we’ve been waiting for,” said Tim Westergren, the founder of Pandora, one of the most popular Internet radio sites with 30 million registered users. In 2007 a federal royalty board ruled that all so-called webcasters needed to pay a fee, set to increase to 0.19 cent a song next year, each time they streamed a song for a listener. Webcasters said the fees would eat up most of their revenue, which generally comes from advertising on their sites and in their music streams, as well as from subscriptions and fees they earn when a listener clicks to buy a song from a digital music store. The sites in question often provide customized music streams, but listeners do not get to directly choose which songs they hear, and they are not permitted to store the music on their computers. For example, on Pandora users type in the name of an artist they like, and the service begins playing music with similar characteristics. The new agreement treats sites differently depending on their size and business model. It applies to companies that make most of their money from streaming music, so webcasters like CBS Radio, which runs online music services for AOL and Yahoo, are not part of it. It covers the period from 2006 through 2015 for big sites and through 2014 for small sites. Webcasters with significant advertising revenue, like Pandora or Slacker, will pay the greater of 25 percent of revenue or a fee each time a listener hears a song, starting at .08 cent for songs streamed in 2006 and increasing to .14 cent in 2015. Pandora had $19 million in revenue last year and expects that to rise to $40 million this year. Small sites with less than $1.25 million in revenue, like AccuRadio, Digitally Imported and RadioIO, will pay 12 to 14 percent of it in royalties. All stations will be required to pay an annual minimum fee of $25,000, which they can apply to their royalty payments. Webcasters also agreed to give more detailed information about the songs they play and how many people listen to them to SoundExchange, the nonprofit organization that collects and distributes digital royalties on behalf of artists and labels. In a statement, John Simson, the executive director of SoundExchange, said that the original, disputed rates had been “appropriate and fair,” but he called the agreement “an experimental approach” that will give “webcasters the opportunity to flesh out various business models and the creators of music the opportunity to share in the success their recordings generate.” Tim Bajarin, president of Creative Strategies, a technology research and consulting firm, said the music labels had been overly rigid when dealing with radio sites like Pandora. “They clearly didn’t understand the potential of the medium and its reach,” Mr. Bajarin said. “From the beginning they should have been very flexible and realized that this was an opportunity for them to gain even broader audiences.” With the audience for old-fashioned broadcast radio shrinking, online listening has become an increasingly valuable outlet for music companies and artists. Internet radio services can appeal to niche audiences by tailoring individual streams, and they feature independent artists who might never get played on broadcast stations. Such services “have been very important for us to find an audience, because we’re an independent band and we don’t have the reach, advertising-wise, that other bands have,” said Nils Erickson, the guitarist for 20 Minute Loop, a San Francisco band. Other kinds of streaming sites will pay different rates. Under an agreement reached in January, the Corporation for Public Broadcasting made a single royalty payment of $1.85 million to cover the online streams of the nation’s public radio stations through 2010. Many of the streaming music sites had argued that all sites should pay a percentage of revenue rather than a per-song fee. They added that satellite radio stations pay a cut of their revenue, while broadcast stations pay nothing to artists and labels. Under the new agreement, though, almost all Internet radio stations will pay the new, lower fee for each song, because that will be more than 25 percent of revenue. “Under the circumstances, my clients are satisfied with this deal,” said David D. Oxenford, a lawyer at Davis Wright Tremaine in Washington, who represents a group of small Internet radio stations. “It’s better than the alternative that was on the table.” Kurt Hanson, founder of AccuRadio, said he hoped that Congress would eventually change the law so that all forms of radio pay the same royalty rates. “Internet radio is one of the few bright spots in the music industry, giving airplay to dozens of genres and thousands of artists that never received airplay before,” Mr. Hanson said. Webcasters, he said, make it easier for listeners to buy music than any other form of radio does.
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