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Music websites get a break on royalties

Large Internet radio providers strike a deal to pay lower per-song

July 08, 2009|Jim Puzzanghera

WASHINGTON — The music won't stop for Internet radio after a group of webcasters struck an agreement with SoundExchange, the organization that collects royalties for musicians and record companies, over payments for playing music online.

The settlement ends a 2 1/2 -year-old dispute that had threatened to silence the nascent Internet radio business and had forced some people who started online stations as a hobby to quit for fear of accruing expensive royalty bills.

The deal is part of a series of agreements made this year that cover various sectors of the industry, including small webcasters and conventional radio stations that simulcast their broadcasts online, and have resolved much of the controversy.

Tuesday's settlement allows websites that stream music to avoid per-song royalty payments that were set in 2007 by a special federal court and that many Internet radio sites said would force them out of business. Instead, Pandora Media Inc. and other large webcasters can choose an alternative rate structure that allows them to pay lower per-song royalties or 25% of their revenue -- a major break, given that many webcasters don't make much money yet.

"If the rates weren't resolved, we were sunk. So this is a huge relief," said Tim Westergren, co-founder of Pandora, the Oakland, Calif., webcaster that has about 30 million registered users. The company forecasts $40 million in revenue this year and hopes to become profitable next year, he said.

The new per-song rates start at 0.08 of a cent per listener for each song played and rise to 0.14 of a cent in 2015, when the agreement ends. The rates set in 2007 by the Copyright Royalty Board started at 0.0762 of a cent but were to more than double to 0.19 of a cent by 2010. Under the new agreement, large webcasters pay whichever is greater, the per-song fee or 25% of their revenue. Smaller commercial webcasters -- those with $1.25 million or less in total revenue -- would pay between 10% and 14% of their sales or 7% of their expenses, whichever is greater.

"It's a substantial reduction in the per-song streaming fee, and that was really the crux of the problem for us," said Westergren, who has been a leading voice in the fight against the royalty rates.

The Copyright Royalty Board allows SoundExchange to negotiate different rates on behalf of the musicians and record labels. And legislation passed by Congress allows a deal struck with one webcaster to apply to any others that want to accept it.

Tuesday's deal was struck with three webcasters -- AccuRadio, Radio IO and Digitally Imported, said John Simson, executive director of SoundExchange.

The Digital Media Assn., which represents webcasters and other online media providers, said it was pleased with the agreement and expected some of its members to opt for the deal. The agreement will help Internet radio grow, said Paul Krasinski, chief executive of Ando Media, an Internet radio tracking company.

SoundExchange came to agreements this year with the National Assn. of Broadcasters, which represents over-the-air radio stations, and the Corporation for Public Broadcasting, which represents public radio stations. It also struck a deal with small webcasters. But rates for large ones, such as Pandora, were unresolved until Tuesday. The deal is retroactive to 2006 and extends through 2015.

"We were able to come up with an interesting, experimental approach," said Simson, whose organization includes major record labels such as Sony BMG Music Entertainment and Warner Music Group as well as independent labels. "We're still in a developing business, so we said, 'Let's try something that gives us a really nice upside if they're successful.' "

The agreement works for "pureplay" webcasters -- those that simply play music, often supported by advertisements. Those sites may have very low revenue while the Internet radio model continues to evolve.

Websites that stream music but also sell other products won't find the deal so appealing because they must pay a percentage of all their revenue, Simson said.

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jim.puzzanghera@latimes.com

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