Royalty Rates Threaten Internet Radio

We're approaching a pull-the-plug kind of decision. This is like a last stand for webcasting.

-Tim Westergren, founder of Pandora

In Peter Whorisky, "Giant of Internet Radio Nears its 'Last Stand'" Washington Post, August 16, 2008

Pandora is an internet radio services that allows customers to create "stations" matched to their own music tastes. Though it is used by about one million people every day, its founder says it is on the verge of going out of business. The same may be true about other internet radio services. The reason has to do with the federal Copyright Royalty Board which responded to demands by music publishers and artists (represented by an organization called SoundExchange) that they wanted to make money from their songs that were being streamed over the web by the internet radio firms. The Board set fees that are higher than satellite radio must pay; terrestrial radio at this point pays no fees. In view of the fact that Pandora, like other nascent internet radio outfits, makes little money from advertising, the costs per song have become untenable. Unimpressed by these complaints--or by the complaints of fans of the new technology--SoundExchange officials simply state that internet radio should find ways to make money, by advertising or subscription. Internet radio executives are angry that they must pay more than other forms of radio. The next several months will tell whether, how, and how well Pandora and other web radio firms can stay alive.