In fall of 2012, major webcaster Pandora — along with satellite radio company Sirius/XM and broadcasting behmoth Clear Channel — pushed for legislation called the Internet Radio Fairness Act (IRFA). The bill was met with major controversy, with opponents (including many artists) arguing that the proposed legislation would dramatically reduce the royalties paid by webcasters to performers and sound recording owners (typically labels, but sometimes artists). For its part, Pandora claimed unfair treatment due to different licensing fees depending on delivery platform. The goal of IRFA was to change the rate-setting standards for webcasters to those used to determine rates for satellite radio. While Pandora may have a point that doesn’t make sense for it to pay around 60 percent of its revenue to performers and labels when satellite radio pays around 8 or 9 percent (and AM/FM pays nothing), artists and labels did not see this move resulting in anything less than a major pay cut. Either way, IRFA was not met with much enthusiasm in Congress, and was history by January.
Although the bill is tabled (for now), Pandora has continued its quest for lower rates, albeit on a different front. The company is currently seeking to reduce its payments to songwriters and publishers. Recall that there are two copyrights in music: the sound copyright (think music captured on tape or hard drive) and the composition copyright (think notes on paper).
As a part of this strategy, Pandora has just purchased a terrestrial (over-the-air) radio station in South Dakota. Huh?
Here’s why. Currently, terrestrial broadcasters who also operate webcasts pay performance rights organizations (PROs) far less than companies who only deliver content online. Pandora has found its own solution: become a terrestrial broadcaster by buying and operating an FM station. They argue that this should allow them qualify for the lower rates negotioned between the Radio License Marketing Committee (RLMC) and PROs like ASCAP.
It’s not surprising that any service provider would want to pay less for the content it delivers to consumers. Going further, Pandora argues that the the current landscape for licensing is uneven and arbitrary, particularly when compared to “similarly situated” services like Clear Channel’s I Heart Radio — possibly Pandora’s biggest competitor in webcasting. ASCAP president and recent Daft Punk collaborator Paul Williams disagrees, telling Billboard that “Internet and traditional AM/FM radio services are very different businesses with different formats, using music in very different ways.” Williams is harshly critical of the purchase, characterizing it as an attempt to “unconscionably underpay and take advantage of the creative labor that produces the core offering of their business.”
The disparity in treatment between webcasters and terrestrial broadcasters may in part reflect the fact that terrestrial radio is simply a huge business, with massive lobbying power in Washington and massive negotiating power in private deals. But as we have said in the past, to whatever extent parity should be a goal, any shift in rates should not come at the expense of performers and songwriters. And it’s impossible to really talk about parity in a meaningful way without addressing the real elephant in the room: that terrestrial radio still doesn’t currently pay performers or sound-recording owners a cent.
We’ll be keeping a close eye on developments.