SoundExchange Strikes Deal to Keep Web Radio Alive

Written by Ryan Lawler

Tuesday, July 7. 2009 at 04:40 PM EDT Post a comment

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UPDATED -- In an inexplicable fit of common sense, music labels have decided not to kill online music services with licensing fees, opting instead to shift to a revenue-share model with pure-play Internet radio stations.

SoundExchange, the organization designated by the U.S. Copyright Office to collect royalties for music distributed online, announced that it had negotiated a new "experimental" rate agreement that is designed to keep Internet radio stations alive while also ensuring that rightsholders get paid for music that is streamed online.

The agreement, which was authorized by the Webcaster Settlement Act of 2009 that was passed last week, will offer Webcasters an alternative to rates set by the Copyright Royalty Board in 2007.

"In 2007, the CRB established a rate that was three times higher than the rate in the 2001 to 2005 period," says Pandora Media Inc. CTO Tom Conrad. "In fact, it was so high that no one on the Webcaster side could figure out how to create a sustainable and profitable business for Internet radio."

Rather than attempting to kill Internet radio stations with egregious per-song licensing fees, today's deal will allow labels and artists to share in the revenues -- however small they are -- that Webcasters are able to obtain through advertising and subscription services.

The agreement breaks Webcasters down into three groups: large pure-play Webcasters, with revenues of $1.25 million or more per year; small pure-play Webcasters, which have less than $1.25 million in revenues; and bundled, syndicated, or subscription services.

Under the terms of the deal, all Webcasters will pay an annual minimum fee of $25,000, which can be applied to royalties owed. Large pure-play services will pay the greater of either 25 percent of total revenue or a reduced per-song fee. Large Webcasters will also need to agree to more comprehensive reporting requirements.

Meanwhile, small pure-play Webcasters will pay either the greater of a percentage of revenue or a percentage of expenses. Small Webcasters could also have less stringent reporting requirements in return for payment of an additional "proxy fee."

Bundled, syndicated, or subscription services will pay per-performance fees that are the same as the rates that SoundExchange struck with the National Association of Broadcasters earlier this year.

While there is an opportunity for a revenue share with SoundExchange, most Webcasters may still end up paying licensing fees, as they will probably amount to more than 25 percent of Webcaster revenues, according to The New York Times. However, licensing fees are now much more manageable, having been reduced by about 40 percent to 50 percent per song, according to Conrad.

"To walk away with a survivable rate is a huge victory, not only for Pandora, but for the industry as a whole," Conrad says.