Web royalties compromise means fee hike for Pandora, perhaps others

The proprietors of online streaming radio, including Pandora's Tim Westergren, are finding themselves surprised today to be cheering an agreement with performance rights holders that has them paying as much as 25% of their revenue in royalties. But that's better than all of their revenue, which was a literal possibility in 2007, and better than 70% which Pandora and other services were paying at this time last year.

Under the new deal announced today, webcasters are being offered a so-called "alternative set of rates and terms" by SoundExchange, the organization responsible for managing performers' royalties in the US. Those that agree to SoundExchange's terms must adopt a new and more rigorous reporting schedule for reporting their revenues right down to the dollar -- the reporting system that SoundExchange insisted upon two years ago. It's an even more rigorous reporting system than what the US Copyright Royalty Board agreed to last January, when it made a reluctant U-turn in favor of revenue-based royalties accounting.

As the RAIN newsletter reports today, webcasters agreeing to the plan must keep complete, per-performance records of what songs were played, and to how many listeners they were played, in logs that they must agree to keep available for at least four years. In exchange, royalty rates for those willing to submit to greater transparency, will be capped at 25% of reported revenue. Those who prefer not to agree to this reporting system will continue to pay the royalties rates set by the CRB earlier in the year.

"It's a creative, groundbreaking approach that we wanted to try, and we hope it will work well for everyone involved -- the artists, labels and eligible webcasters," SoundExchange Executive Director John Simson stated earlier today.
Westergren's response was a lot less formal, stating in his blog this afternoon, "Pandora is finally on safe ground with a long-term agreement for survivable royalty rates. This ensures that Pandora will continue streaming music for many years to come!"

But the change will not be without cost to some listeners, it turns out: Non-subscribers who have been listening to Pandora's free, ad-supported service for 40 hours per month or more, will be asked to contribute a $0.99 fee to continue listening for the remainder of the month. "We hate the idea of limiting anyone's listening, but we have no choice but to react the economic realities of the new rates," Westergren writes.

CBS-owned Last.fm had not issued a statement by press time.