Pandora sees relief ahead in net radio fee talks

7:15 am PST September 30, 2008 - Pandora's Tim Westergren says he's "more optimistic than ever before" that his webcasting service won't be yanked offstage, as the House passed a bill letting net radio stations extend royalty rate negotiations with labels and artists.

The Webcaster Settlement Act of 2008 would give Congressional blessing for SoundExchange, the music industry's collection service, to work directly with the Digital Media Association, which represents online services such as Pandora, as worked out by an industry agreement last week. The permission to negotiate rates would circumvent rate levels set in 2007 by the Copyright Review Board.

Those rates would have, by 2010, demanded performer royalties totaling as much as 70 percent of station revenues, far exceeding those paid by satellite radio or by over-the-air AM/FM radio -- which, for the record, pays no performance royalties at all.

That royalty gap -- which dates back decades -- has been "the elephant in the room" in the long-running negotiations, Westergren tells BetaNews. Back in the 1930s and 1940s, composers -- not singers or musicians -- had most of the bargaining power when it came to negotiating fees for broadcast-radio play. To this day songwriters get royalties for radio play of their songs while performers console themselves, or don't, with the record-selling publicity that airplay provides. But as music styles changed and performers rose in importance, they were able to push for greater parity with songwriters, not to mention more lucrative deals with satellite radio and, now, webcasters.

Westergren, a performer himself, says that webcasters aren't seeking a return to AM/FM (non)-pay rates; they're not fair. But stratospheric rates for Webcasters are even less fair in light of net radio's proven ability to sell records. Once again getting played has promotional benefit -- and "the irony is there's not a performer alive that wouldn't want [to be played]" -- but online, the "promotion" of playing an irresistible song is powered by the rocket fuel of instant online-shopping gratification.

Pandora has gathered a great deal of data on how its 16 million users shop, and Westergren says that those studies show that online listeners are most definitely bigger music buyers.

"The industry right now is wrestling with, 'What is a sale?' -- whether that's 99-cent singles, or CDs, or whatever. As the retail impact [of Net radio] becomes better known," says Westergren, "I hope the RIAA will start to be able to recognize a friend." He says that Pandora has offered to pay for additional studies showing the impact of net radio play on sales, but the company's offers have been RIAA-rebuffed.

The Recording Industry Association of America has had a famously unfriendly relationship in general with music on the Internet. "The perception of RIAA is that interactivity equals cannibalism," says Westergren, whose service is more interactive and less like traditional radio than one such as competitors Live365 or Shoutcast. "But the only thing that should matter is data around purchase habits."

He acknowledges that changes to the system, however overdue as law catches up to the technology, will continue once all sides have entered into the "period of reconciliation" he sees ahead. The music business is "a schizophrenic industry -- there are wild extremes, there's a tremendous amount of internal debate" about how to proceed online. But webcasters "have been at this long enough that some strategies are either bearing fruit, or they're futile."

And though the gap between the law and technology may have strained the nerves of both principal players and the tens of thousands of net radio fans who hit the phones whenever Pandora and other stations were threatened, Westergren's quick to say that "artists and consumers should be thanking the government" for dragging all parties to the negotiating table once again.

Rep. Jay Inslee (D - Wash.), long a presence in the net radio debates, sponsored the current bill, officially known as HR 7084; the four co-sponsors are Reps. Howard Berman (D - Calif.), John Conyers (D - Mich.), Donald Manzullo (R - Ill.) and Lamar Smith (R - Tex.). Westergren also cited the support of Sam Brownback (R - Kan.) and Ron Wyden (D - Ore.), who sponsored the Radio Equality Act of 2007. That legislation was widely credited with dragging the RIAA-radio tussle over fees back from the edge of the abyss last year.