In the last 10 years, advances in broadband technologies have dramatically altered the way Americans consume music. This change is no more evident than in radio, where the fast rising popularity of new alternatives such as cable, satellite and Internet radio have changed the very notion of what radio is.
Unfortunately, the laws that govern radio royalty payments have not evolved at the same pace.
It may surprise Americans to learn that the form of radio they listen to has profound implications for how much the artists who perform the music get paid. Yes, that's right, you can listen to a digital radio service on your home stereo, but depending on whether the stream is coming from the cable provider, a satellite signal or through a web connection, the payment to the artist is very different. The difference borders on the absurd.
Consider this: last year Pandora generated $274MM of gross revenue, and paid $136MM of performance royalties -- approximately 50 percent of the total revenue. In the same year, SiriusXM, on revenues of $2.7B paid $205M in royalties, or 7.5 percent. Radio delivered over cable television pays 15 percent of revenue. Radio delivered over the FM/AM spectrum pays nothing to performers.
How did we get here? Many years ago, Congress decided that terrestrial radio (AM/FM) should be exempt from paying royalties to performing artists and labels. That clear policy choice, made for a number of reasons, has endured for decades and is not likely to be changed anytime soon. When satellite and cable radio were developed in the '90s, Congress determined that these new forms of radio should compensate performing artists and labels and sensibly decided to apply the same model for determining fair compensation that had been in use since the 1970s for determining the rates that record labels should pay to songwriters and publishers for the use of their compositions. However, when Internet radio was developed several years later, the RIAA used the explicit threat of multiple lawsuits and the substantial power of its D.C. lobbying machine to force the small group of fledgling webcasters (all now defunct) to accept a completely different, highly discriminatory method for determining royalty rates that has wreaked havoc with the industry ever since. Royalty rates almost sank Pandora, and have even scared off large broadcasters looking to expand on to the web. Tellingly, Yahoo, AOL and MSN, the three largest Internet radio services when we first launched in 2005, have all essentially exited the business.
There's a win-win to be had here. Consumers are clearly embracing what Internet radio has to offer, and Internet radio is fully supportive of fair compensation to performers. However, to date lawmakers have been unwilling to correct the mistakes of the past, and have continued to allow flawed legislation to pick winners in the radio industry.
Ultimately, it's the artist who is most harmed by the current situation. Radio, and its $15B economy is all set to transition from a medium that doesn't pay performers to one that treats them as stakeholders, yet the law as it stands today is doing its very best to slow that transition. It is especially harmful to independent musicians who rely on Internet radio for exposure. Pandora alone plays the music of more than 100,000 artists, 70 percent of whom are independent. Of the approximately one million songs in our catalogue 95 percent play every month. For most artists, Pandora is the only radio play they will ever receive.
Congress has the ability to level the playing field, and end the current discrimination against Internet radio. It's time for a technology-neutral solution that assures fair compensation to artists while encouraging new voices and new technologies. Legislation that establishes a fair royalty rate setting standard for Internet radio will drive investment in webcasting, which ultimately means greater revenue and greater opportunity for working artists.