Royalty Rates Could Mean End of Pandora

Is Pandora shutting its doors? If the Copyright Royalty Board (CRB) refuses to lower rates it decided upon in March, Pandora and other Internet radio stations are most certainly doomed, according to Tim Westergren, Pandora's founder.

"If we conclude that the CRB royalty rates are not going to be rectified, Pandora would shut down immediately," Westergren told the Senate Commerce Committee Wednesday.

Internet radio and the CRB have been battling for months over a March decision from the CRB that increases the current price per stream to one user from $0.0008 to $0.0019 per stream by 2010. The board also imposed a minimum fee of $500 per station, which could be financial ruinous for certain webcasters since most Internet radio stations have thousands of stations.

Those fees were supposed to go into effect on May 15, but the CRB extended that deadline to July 15. The U.S. Court of Appeals for the D.C. Circuit later rejected a request to further delay implementation of the rates. After a public battle of the press releases and some congressional wrangling, however, both sides agreed to work on a compromise. But that was July and as Wednesday's hearing might suggest, progress is slow going.

"The [higher] rates are actually currently in effect, and we are paying them," said Michele Husak, director of communications for Pandora. "But we're only doing so because we believe that rationality will prevail and that they will be lowered. Negotiations are slowly on-going."





Pandora started paying the new rates in July, but cannot sustain such payments indefinitely. If no agreement is reached, the financial strain will force Pandora to eventually shut down, Husak confirmed.

Westergren appeared more optimistic earlier this year. "We're not going to shut down Sunday, that's the first thing," he said in an interview prior to the July 15 deadline. "We're going to negotiate and it's kind of we're in this phase now that under the chaperoning of Congress, the parties are going to figure it out."

Russell Withers, president of the Withers Broadcasting Group and a board member for the National Association of Broadcasters (NAB), told the committee on Wednesday that proposed CRB rates "would put Pandora out of business because of the size and the impact" of the proposal.

"In my opinion, CRB got about 15 times more than they thought they would get," Withers said at the hearing. He accused SoundExchange, the organization that collects royalties for copyright owners in the music business, of refusing to engage in timely negotiations on the matter, calling their actions "unconscionable."

SaveNetRadio, a coalition of Internet radio users, issued a statement on Oct. 15 calling on SoundExchange to reach a "reasonable and lasting solution" to the problem. SoundExchange did not respond, a spokesman for SaveNetRadio said Thursday.

"As far as I know there has been no progress that I'm familiar with," he said.

Last month, SoundExchange said 24 small webcasters (defined as those earning $1.25 million or less in total revenues) had agreed to a deal that would charge them 10 to 12 percent of revenue until 2010.

Pandora's Westergren on Wednesday pushed for the passage of S. 1353, which would strike down the CRB ruling and set the royalty rate at 7.5 percent of revenue through 2010. A companion bill, H.R. 2060, was also introduced in the House. The bills were referred to the Senate Judiciary and House Commerce committees, but not yet seen any movement.