Battle Heats Up Between Pandora, Record Industry Over Royalties

Battle Heats Up Between Pandora, Record Industry Over Royalties

Internet Radio Fairness Act would allow Internet Radio royalty rates to be determined by the same long-established process applicable to satellite and cable radio providers, but MusicFIRST, a coalition of record industry stakeholders, thinks Congress ought to be working to raise royalty rates, not lower them.

The battle over music royalties in the era of declining album sales continues to heat up with the recent introduction of legislation that would actually lower the rate paid by online radios services like Pandora and bring it in line with their satellite and cable competitors.

“The Internet Radio Fairness Act will address this discrimination by extending to internet radio the same standard used to determine virtually all copyright rate-setting processes, including satellite and cable radio, allowing us to compete on a level playing field,” says Pandora in a press release.

Because it pays the higher rate, Pandora, which has yet to show a profit since its June 2011 IPO, winds up paying a majority of its profits to music companies.

Last year, Pandora paid some 54% of its revenue for “content acquisition” (aka royalties) while SiriusXM paid 7.5%.

“No radio service anywhere in the world pays more than 15% of its revenue in such royalties,” adds Pandora. “The anti-internet bias in federal law is nothing short of absurd.”

Pandora managed to enlist the help of Senator Ron Wyden (D-OR) and U.S. Reps Jason Chaffetz (R-UT) and Jared Polis (D-CO) to introduce the Internet Radio Fairness Act to address the issue by allowing copyright to establish royalty rates based on factors they have long used for other types of broadcasters.

Under current law, the royalty rates prescribed for Internet Radio are established based on what a panel of three copyright royalty judges determines to be a “marketplace” rate for musical licenses.  But there is no functioning “market” for these licenses and these judges are left to determine rates based on different rights for similar types of services.

Pandora is hoping it can muster an anti-SOPA-like grassroots coalition in its defense, and has been urging its 150 million listeners to come to its aid.

For its part MusicFIRST, a coalition of record industry stakeholders, counters with a study arguing that Congress ought to working to raise royalty rates, not lower them.

It says the bill would “pad Pandora’s pockets at the expense of artists, music creators,” and reduce many artists to poverty.

“Congress shouldn’t pick winners and losers in the digital marketplace, and shift costs to artists living paycheck to paycheck,” it says.

If imagery of near starving artists wasn’t enough, MusicFIRST uses the hypersensitive word “subsidy” to describe what a lower rate payment would mean.

“There’s nothing fair about pampering Pandora, with its $1.8 billion market cap, at the expense of music creators,” said musicFIRST coalition Executive Director Ted Kalo. “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. ”

MusicFIRST coalition member and Live Nation Executive Chairman,  Irving Azoff, railed against Pandora recently, saying the online radio company is “on our shit list,” and it shows.

“It’s horseshit,” Azoff said. “The market cap for Pandora is like $1.8 billion. That’s roughly the market cap of Live Nation, and they are whining about wanting to pay artists less.”

That may be so, Pandora does, after all offer an an arguably inferior internet radio experience than the competition, but when the guys down the street are paying 8% and you’re paying more than half how long can you expect to compete? The music industry has a long history of killing the goose that laid the golden egg, and it’s only been because of strong, and intelligent men like Steve Jobs that we even have a healthy digital music marketplace.

Either way, the battle is far from over, but at some point Pandora has to make money or those artists that allegedly rely on Pandora so much will wind up “living paycheck to paycheck” whether they like it or not, and then that 8% will seem a whole lot better than 0%.

Stay tuned.

[email protected] | @jaredmoya