Lower Royalty Rates for Internet Radio Possibly on the Horizon
Internet radio services, like Pandora, are fantastic resources for music lovers. They provide vast catalogues of music for free, and all you need to be able to listen is Internet access. However, while Internet radio provides a free listening experience, the music is not actually free. Such services must pay royalty rates, which are determined by a federal judicial standard called the “willing buyer, willing seller” standard.
Recently, a new Congressional bill, the Internet Radio Fairness Act, was introduced in the House to move Internet radio services from the “willing buyer, willing seller” standard to the standard used to determine royalty rates for Sirius XM radio. Internet radio services have long complained about the “willing buyer, willing seller” standard being unfair because it creates burdensome royalty rates. Internet radio services believe that they will be able to pay lower rates to provide the music on their services by moving to the standard that governs Sirius XM Radio’s rates.
Representatives from the music industry are adamantly opposed to the bill and believe that Pandora is trying to deprive artists and copyright holders of the income they deserve for the use of their work. However, under the current “willing buyer, willing seller” standard, Pandora pays nearly half of its revenue to labels and artists, while Sirius pays only 8 percent. While Pandora believes that this new legislation will help it become more financially stable, the music industry representatives believe that Pandora could simply sell more advertisements to do so. The music industry believes that the legislation will have a crippling effect on the ability of artists to create music.
However, recent research reveals that the music industry may not know as much about the effect of cheap music access as they think they do. A massive public policy study, known as the Copy Culture Survey, was recently completed that counters the assumptions of the music industry.
The study reveals that average Internet file-sharers purchase 30 percent more music than those who do not engage in Internet file sharing. While file sharing is quite different from listening to music on an Internet radio service, the implications of the study lend support for Pandora’s position against the music industry. The study suggests that those who share music for free and can access more music are significantly more likely to also pay for music. Therefore, if Pandora had more support from the music industry and could provide more music to people at cheaper rates, the music industry could benefit from people purchasing music products after sampling music for free.