The Internet Radio Fairness Act: The Debate of the Royalties

BY: AMY STEIN

The Internet Radio Fairness Act has been recently proposed to Congress by House lawmakers, with the hopes of changing how the U.S. Copyright Royalty Board will pay out royalties to artists and music labels.  Pandora, an internet radio service, has consistently lobbied Congress, to convince lawmakers that the “current method is unfair because it charges Internet radio services disproportionately more than similar services provided by cable operators and satellite radio.” [1. Alex Pham, House bill would cut fees for Pandora, other internet radio services, Los Angeles Times (Sept. 21, 2012)]  Services like Pandora argue that the rates as they are now, create a heavy burden on the service, forcing them to stifle the industry. “If Pandora was not burdened with these punitive royalties, the company could introduce music services that could grow the industry and grow royalties. This will mean more music choices for consumers, a thriving Internet radio industry and more royalties for musicians.” [2. Id.]

However, the other side of the issue is the music industry, who argues that the proposed act will take away royalties that the artists and record labels have rightfully earned, and the government created royalty rate will instead “pad the pockets of Pandora executives. [3. Ben Sisario, Proposed Bill Could Change Royalty Rates for Internet Radio, New York Times (Sept. 23, 2012)]

The royalty rate set in place in 2009, allows services like Pandora to pay 2 cents per listener, or 25% or their gross revenue, whichever is greater.  In last year’s second quarter, Pandora has paid roughly $60.5 million of the company’s revenue in royalties. However, Pandora argues it should be treated similarly to satellite radio services, such as Sirius Satellite Radio, whose royalty payments are set an 8% royalty rate of gross revenue. [4. Id.]

Since it’s inception in 2009, Pandora has yet to turn a profit, but those against the proposed bill, such as the those invested on the artistic and publishing side of the music industry, contend that Pandora just needs to sell more ads to turn their financial problems around. However, Pandora’s position is supported by the National Association of Broadcasters and many other digital services. [5. Id.] This issue will be determined and debated upon the conclusion of the Presidential election in November.

2 comments

  1. I think the argument that Pandora could simply sell more ads to ramp up revenues, therein eliminating the need for a royalty break, is specious. As a publicly-traded company, Pandora is, every day, under pressure from its shareholders to turn a tidy profit. Those opposed to Pandora’s effort (and advancing the argument above) are implicitly assuming that Pandora is currently not trying to maximize revenues. That doesn’t stand to reason– why would they not already be monetizing to the hilt? Most likely, they’re already doing all they can on their own– they’re simply asking the government (which shouldn’t be involved in the first place, but that’s a separate issue) to level the playing field, and let them compete on the same terms as foes like Sirius.

  2. Also– Pandora lost $33 mil last year. If you’re losing that much $ as a business, pretty sure you’re probably already scrapping to sell as much ad time as possible.

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