Royal Pain Relief

A royalty agreement has been reached between the creators of music and the internet radio industry that seems to have remedied the standoff between the two camps.  The recording industry, represented by RIAA and other groups, and the streaming content sites, represented by the Digital Media Association, have agreed in principle to a royalty of 10.5% of revenue for interactive streaming services.  The agreement has been sent to the Copyright Royalty Board for final approval.

This is a huge step forward for internet radio.  New royalty requirements (a 38% increase) for intenet streaming threatened to essentially cripple the fledgling industry.  The proposed royalty rate was higher than satellite radio pays.  Broadcast radio pays nothing at all.  Internet giants such as AOL and Yahoo considered abandoning their Web radio operations.

Tim Westergren, CEO of Pandora, the largest privately held internet broadcaster, was explicit that the new royalty rates would mean going out of business.  "At the new rates we're losing tons of money. If we don't think there's a real answer that's going to happen, it's our fiduciary responsibility to stop.''

And that would be a real shame.  Tim presented his business (then called Savage Beast Technologies) at the GCN 2003 East Bay Venture Capital Conference, and won "best of show".  Since then he's built his broadcasting platform to a $25 million business, although it's still not profitable.  Millions of listeners have become regular listeners of Pandora, which allows users to custom configure their own radion stations based on their musical preferences.

We're glad for Tim, and for Pandora, that cooler heads have prevailed and that the royalty structure will accommodate the infant industry while still making sure the creators of music are compensated.