Monday, October 1, 2012

Royalty Rates for Internet Radio

For now, copyright royalty fees for "Internet radio" in the U.S. are determined by the Copyright Royalty Tribunal (CRT), which is supposed to use the "willing buyer, willing seller" standard in determining the appropriate fee structure. I'm sure that the CRT talked to the "willing sellers" - the music industry.  But who represented the supposedly "willing buyers" those who stream music over the Internet?  (The music license for Internet is compulsory - the only "willing" choice is to pay or not stream music)
   When the current fee structure was announced last April, the music industry was the clear winner.  Not only were rates set significantly higher for "Internet Radio" than for any other medium, but it significantly expanded the definition of Internet "radio."  Internet radio, from a copyright royalty perspective, was expanded from covering streaming broadcast services, to cover interactive streaming services (such as Pandora), music that was bundled with other services (music blogs, sharing through social media), and streaming from Cloud storage systems.  The last seems particularly egregious, as now individuals who put music they've purchased already and stored in one of the myriad Cloud-based storage services will be asked to pay royalty fees for music they already own.  As I noted in April's post on this issue, the fees are likely to increase the price of music streaming and Cloud services 10-25%, and kill or delay implementation of many innovative online services.
  Concerns about the reasonableness of the CRT's last rates findings have led to the introduction of the Internet Radio Fairness Act in Congress.  The Act would direct the CRT to apply the same rate-setting standard for "Internet Radio" that it applies to setting rates for satellite radio and older media.  That standard would require the Copyright Royalty Tribunal to consider the impacts of proposed rates - the promotional value of playing the music, the impact on the music industry, and the impact on innovation and growth in the services playing music.
  To give you an idea about the difference in the two standards - streaming music service Pandora is required to pay a minimum of 25% of its annual revenues in royalties, while satellite radio service Sirius pays 8% of its total annual revenues.  Cable music channels pay around 15%.
"If Pandora was not burdened with these punitive royalties, the company could introduce music services that could grow the industry and grow royalties," said John Villasenor, a senior fellow at the Brookings Institution and a professor of electrical engineering at UCLA. "This will mean more music choices for consumers, a thriving Internet radio industry and more royalties for musicians."
  The music industry trotted out its usual over-the-top statement.  The executive director of music lobbying group MusicFirst, trotted out the standard strawmen -
“There’s nothing fair about pampering Pandora, with its $1.8 billion market cap, at the expense of music creators,” Mr. Kalo said in a statement. “Going from a fair market, ‘willing buyer, willing seller,’ rate to a government-mandated subsidy will break the backs of artists, while Pandora executives pad their pockets.”
  A different rate structure would help a lot of online music services, not only Pandora.  As for who represents the greedy big corporations, I'll note that Pandora has yet to turn an annual profit and pays out about half of its revenues in various rights and fees that go back to the music industry.  A music industry whose labels are so concerned about its artists that it typically pays them 10-25%, while retaining 30-50%.  (And the artist/label split increases with digital distribution).

  The music labels' rear-guard position appears to seek to maximize current label profits at the expense of promoting development of new online markets.  No wonder artists and others are exploring other business models - most of which give the artists greater control and a bigger cut of revenues.

Source - Proposed Bill Could Change Royalty Rates for Internet RadioNY Times
House bill would cut fees for Pandora, other Internet radio servicesLA Times
Pandora - Can You Make Money In Online Radio?  Seeking Alpha blog

Update - John Villasenor send me a link to his research paper on the subject - you can find it here.


  1. To give you an idea about the difference in the two standards - streaming music service Pandora is required to pay a minimum of 25% of its annual revenues in royalties, while satellite radio service Sirius pays 8% of its total annual revenues. Cable music channels pay around 15%.


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