updated 05:20 pm EDT, Tue July 7, 2009
Online Radio Royalty Deal
Owners of Internet radio stations and music label groups struck a deal on Tuesday that should allow online outlets to continue streaming music. The agreement is now a scaling one and will ask larger stations to pay either 25 percent of their revenue or a per-track rate based on the year, ranging from 0.08 cents per song in 2006 through to 0.14 cents per song in 2015, depending on whichever is greater. Those companies that make less than $1.25 million per year will be asked to pay between 12 and 14 percent of their revenues.
Both sizes of streaming services also must agree to provide more information, including retaining their web logs for at least four years and tracking the ratings for each song for the sake of SoundExchange, the intermediary firm that distributes online royalties to the individual labels.
The deal is potentially expensive for those whose radio stations make up some or all of their business like Last.fm, SomaFM and Pandora, all of whom rely either on advertising or exclusive device deals to support their businesses. Pandora's Tim Westergren and others nonetheless view it as a much improved compromise over the original proposed plan from March 2007, which would have forced a non-negotiable 0.19 cents per song. Smaller outlets had warned they would almost certainly go out of business as the royalty rates were not only high but also backdated. In some cases, services like Pandora voluntarily shut off access to their services from outside the US to prevent future royalties from spiraling out of control.
SoundExchange executive director John Simson spun the deal by claiming that the original 0.19-cent rate would have been "appropriate and fair" but that his organization agreed to the new model in an "experimental" approach that would let companies establish a business model for online streaming music.
Critics have long attacked the push to charge royalties as an opportunistic approach, capitalizing on the shift to Internet radio to increase profits. Over-the-air radio is currently allowed to go without paying a per-song royalty, while Sirius XM is only required to pay a percentage of its revenue despite its size and the variety of channels.