Music Labels Reach Online Royalty Deal

NY Times:

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.