Market pricing and Internet Radio
"The Board is charged with determining the royalty rates that would be determined by a willing buyer and a willing seller in a marketplace transaction."
This quote comes from a posting by David Oxenford on the Broadcast Law Blog with the title "More on the Copyright Royalty Board Decision on Internet Radio Music Royalties". The quote refers to the role of the Copyright Royalty Board (CRB) which late last week released their decision on the royalties due to copyright holders of music streamed by Internet Radio or Webcasting sites.
Unless you've been off the 'grid or living on Mars for the last few days you will have seen the huge debate erupt on this topic as everyone predicts the death of Internet Radio services such as Pandora or Last.FM due to increased royalty payments. For sure the CRB delivered a surprising and unwelcome decision for those companies streaming music on the web as it doubles the royalties payable retroactively to the beginning of 2006 and adds steep per-year increases going forward.
Yesterday I received an email from Tim Westergren (CEO of Pandora) which was sent to all registered users of Pandora. The email asked Pandora users to call their elected representatives to register support for Internet Radio and to ask for intervention to stop the increase in royalty payments as "left unchanged, the fees passed by the Copyright Royalty Board will kill internet radio."
Reading the Broadcast Law Blog I was struck by the comment that pricing was to be set by what a willing buyer and seller would agree to in completing a transaction. The sellers were represented by a SoundExchange – a group representing the artists and record labels. They presented a proposal for the royalty rates they would accept in return for agreeing to their content being distributed over Internet Radio.
The crux of the dispute is that the Internet Radio providers stated that they could not profitably sustain their business and pay the required royalty.
But hang on a minute… there's no statute that says Internet radio providers get cheap access to the music content owned by others. If a seller isn't prepared to sell at a price acceptable to a buyer no transaction occurs. There's a lot more to this issue as it impinges on the rates paid by other music broadcasters that operate on a very uneven playing field – a topic covered in some detail in the Broadcast Law Blog.
If indeed the new royalty rate renders the Internet Radio business model impractical, the music owners are going to lose direct and indirect revenue – they get to live with the consequences but that's the result of a free market.
I suspect that consumer demand and market pricing will find another solution – Internet Radio by subscription much as satellite radio has established that consumers will pay for high quality, commercial free content.