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Wednesday, July 8, 2009

New Online Royalty Rates Keeps Internet Radio In Business

A new agreement between Internet broadcasters and the online royalty collection agency SoundExchange has finally been struck, with no one totally happy about it but everyone willing to accept it. SoundExchange represents the artists and record labels in much the same way that ASCAP and BMI represents publishers and songwriters.

Online radio stations had cried that they'd go out of business if they didn't get an alternative to the higher royalty rates imposed in 2007 by the Copyright Royalty Board. While they no longer claim that today, they are wincing a bit at the deal.

The previous rate structure started at 0.08 cent per song per listener retroactively to 2006, and rose to 0.19 cent by 2010 which stations claimed would cause them to go under.

Under the new rate scheme larger online services earning more than $1.25 million in revenue must pay whichever is higher; either 25% of gross revenue or 0.093 cent per listener per song. The rates rise each year until they hit 0.14 cent per listener per song by 2015. Webcasters taking in less than $1.25 million per year pay a lower rate; either 7% of expenses or a percentage of revenue starting this year at 12% for the first $250,000.

Subscription services (where people pay a monthly fee to hear music online) must pay rates starting at 0.15 cent per song per subscriber this year, rising to 0.25 cent by 2015.

Online services have an alternative to the new deal by sticking with the Copyright Royalty Board rates, or negotiating rates separately with individual artists and labels, something that I'm sure no one wants to do. Some services like Pandora (who claims they will stream over a billion hours of music this year) will now impose limits on their free users as a result of the ruling to keep their royalty payments in check.

This agreement is a compromise that's good for everyone. The artists and labels get paid and the online broadcast services aren't crippled so much by the rate increase that they can't stay in business. It'll be interesting to see who ultimately gets the bulk of the money - the artist or the label.

Getting more popular all the time, about 42 million Americans tune into online radio each week, which is up from 19 million in 2004, according to the media research companies Arbitron Inc. and Edison Research Inc.

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