Mike McGuire

Finally, some important and good news on the digital media front: an agreement on royalty rates and revenue sharing for webcasters such as Pandora will pay to music publishers, labels and other rightsholders. This ends a set of negotiations that lasted two years and was either going to eviscerate the online earning power of artists and labels or was going to put the new webcasters down for the count – depending on who was doing the talking.

As much as anything, the new agreement clearly underscores the recent willingness of the content companies and rightsholders to take a more nuanced and long-term perspective when negotiating license agreements with online service providers. 

The new agreement, retroactive back to 2006, will have large pure-play (those which make the bulk of their money from Internet radio) ad-supported online radio services, such as Pandora, pay either the newly agreed upon per-stream royalty or 25 percent of their gross U.S. revenues, whichever is greater.  “Large” webcasters are defined as those making more than $1.25 million or more per year. Those making less than $1.25 million can pay 12% of their first $250,000 in gross U.S. revenues, and 14 percent of revenues above that. However, the smaller webcasters have a cap on the amount of music they can stream.  The rates were originally set in 2007 by the Copyright Royalty Board.  The new per stream rates are: $.0008 for 2006, $.00084 for 2007, $.00088 for 2008, $.00093 for 2009 and $.00097 for 2010).

While some might have viewed the Pandora and Slackers of the world as “new” radio, these sites have shown they’re much more than merely the online progeny of Marconi.

In the case of Slacker and Pandora, they are as much as search-discovery-recommendation tools as they are "online radio” providers.  In addition to delivering some revenue back to labels, artists and rightsholders via advertising, these services can help direct-payment transactions by reducing friction in direct-payment transactions. Here’s how. Radio, even with the advent of metadata transmission (which sends info like call letters, song titles etc.), of the past past couple of years, is inherently passive.  Pick a station, listen. Hear something you like? Write down the title, buy it later on. Maybe. And for labels and artists – which do not get a performance royalty for terrestrial radio – getting plays on radio was about marketing and promotion, not revenue

For Pandora and their ilk, they can provide a similar listening experience but can add more value to consumers (by providing data on the relationship between songs, or artists or genres), while also providing multiple benefits to artists/labels (promotion and revenue in the form of royalties). Another benefit these sites have over (most) terrestrial radio: the shortest distance between hearing a song and buying a song.  For example, Pandora’s Music Genome sets up a playlist of related artists and songs – which Slacker has a set of curated playlists, as does satellite radio –  but both usually a “buy” button next to the song which allows a user to iTunes and Amazon’s MP3 store.

So here’s to an agreement on the rates – it appears to be a balanced agreement given that, as Pandora’s founder Tim Westergren noted in a Billboard story, none of the parties got all that they wanted.