New Bills Seek Internet Radio Royalty Parity

U.S. Representatives Jason Chaffetz (R-UT), Jared Polis (D-CO) and Senator Ron Wyden (D-OR) introduced versions of Internet Radio Fairness Act on Friday to address the high royalties paid by some digital radio platforms.

The bills are an attempt to change how royalties are negotiated. Internet radio services pay a statutory royalty that is set by a three-person Copyright Royalty Board. The new bills aim to use what is called an 801(b) standard that is used for satellite radio and cable, both of which pay a far lower percent of revenue.

Different businesses with different business models do indeed pay different royalties as a percent of their revenues. Satellite radio company Sirius XM Radio will pay SoundExchange 8% of its revenue for performance royalties in 2012. In contrast, Pandora paid over 50% of revenue for content in 2011 and nearly 63.9% in the six-month period ending July 31, 2012.

The bills had been expected for a new of months. Internet radio company Pandora has been active in Washington, D.C., in recent months and has been especially outspoken about parity in royalties this year.

"It is a very important bill for Pandora," Pandora founder Tim Westergren wrote at the company's blog on Friday. "For the first time since 1998, it will finally bring fairness to the way performance royalties are determined for Internet radio."

Various trade groups immediately voiced their support for the bills. The Consumer Electronics Association called it "a common sense bill," while the National Association of Broadcasters said it "strongly supports legislative efforts to establish fair webcast streaming rates."

But the musicFIRST Coalition, a trade group representing artists and performers, argued the Internet Radio Fairness Act would repeal the current fair market rate being paid by services like Pandora.

"There's nothing fair about pampering Pandora, with its $1.8 billion market cap, at the expense of music creators," musicFIRST coalition executive director Ted Kalo said. "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.  We support rate parity that addresses the greatest inequity of all, the lack of a performance right for terrestrial radio, and is fair to music creators."