Give Internet Radio A Fighting Chance

I just called my senators. Over the weekend, Pandora founder Tim Westergren sent an urgent appeal to support the Internet Radio Fairness Act. With a push from Pandora’s 150-plus million users, this new law could finally make Internet radio a viable business.

As an Internet radio service, Pandora shells out roughly 55% of its revenue in royalty fees, paying more than triple what other types of radio pay. Satellite radio SiriusXM pays about 7.5% of revenue in royalty fees and cable 15%. Old-school on-the-air radio pays a few cents to a dime each time it spins a song. Saddled with such a high royalty rate, Pandora struggled for nearly 10 years. Until 2010, when the company first posted a profit, media outlets reported the Internet radio operated on the “verge of collapse.” 

Like most injustices regarding big-brand content on the Internet, the higher royalty rate for Internet radio can be traced to the Digital Millenium Copyright Act of 1998. Westergren wants to fix it - and he wants Pandora users to help by promoting his solution to legislators. His championed legislation, the Internet Radio Fairness Act proposed by U.S. Senator Ron Wyden (D-Ore.), and U.S. Representatives Jason Chaffetz (R-Utah) and Jared Polis (D-Colo.), would level this anti-Internet playing field - or as Techdirt put it, "bring some sanity back to webcasting royalty rates."

“Fourteen years ago, when online radio was in its infancy, the incumbent interests were successful at getting laws passed to discriminate against the Internet,” said Wyden in a statement on his site. “This bill puts Internet Radio on an even plane with its competitors, and allows the music marketplace to evolve and to expand - which will ultimately benefit artists and the internet economy.”

The RIAA-backed recording lobby group musicFIRST is proposing alternative legislation that would increase cable and satellite royalty fees to match Internet radio levels, instead of lowering the Internet radio rate. Pandora's decade long struggle to make a profit suggests that increasing the royalty fees would doom satellite and cable radio. This fact has yet to register with musicFIRST. 

“There’s nothing fair about pampering Pandora, with its $1.8 billion market cap, at the expense of music creators,” Ted Kalo, executive director of musicFIRST, told TechCrunch.

Westergren counters Kalo’s claim that lower royalties would hurt musicians, writing in his appeal: “As a lifelong musician, I'm fully supportive of artist compensation, but this situation can't continue. Internet radio is bringing millions of listeners back to music, and is playing the songs of tens of thousands of promising artists who would otherwise never be heard. It should be given a fair chance to succeed.”

As a listener of Pandora for years, I can personally back up Westergren's claim that Internet radio benefits musicians by increasing their audience.  My senators received a message today in support of the Internet Radio Fairness Act. Will yours?