Radio killed the Internet star. Inequitable royalty calculations are hurting artists.


Reading an article in the NY Times recently about a brewing royalties dispute left me stymied.

Apparently, there is a bill circulating that would reduce the amount of money streaming radio stations pay for the right to broadcast music.

The proposal would bring streaming royalty rates in line with those paid by satellite and terrestrial stations, which are about five times less.

The issue has come to a head as Pandora, arguably the most successful model for streaming radio, struggles to stay afloat in light of royalty rates which amount to half of its profits.

Pandora argues that the rates for streaming radio services should be calculated on the same basis as satellite and terrestrial services.

The current calculations render widely disparate results, such that many streaming services are grappling under the oppressive weight of these fees.

Fundamental to the argument being made by streaming services, like Pandora, is the fact that the exorbitant rate charged streaming services is a barrier to entry.

By stifling new entrants, it reduces the overall number of streams and thus, the royalties artists could potentially earn.

Fewer streaming services, fewer streams, fewer royalties.

It’s not rocket science.

But the music industry doesn’t see it that way.

They argue that streaming services are profiting handsomely, and the efforts to reduce the rate is driven by greed and the desire to increase profits at the expense of musicians.

They point to the ad-supported nature of most streaming services, in support of this position.

This argument would have merit if streaming services were paying the same royalties as satellite services and then sought a reduction.

But the issue is that streaming services pay a disproportionately higher share of their revenues for the right to stream than similarly situated non-Internet services.

And there is no rational basis for the disparity.

Currently, streaming services pay a fraction of a cent each time a song is streamed whereas satellite services, like Sirius, pay a fixed percentage of their revenue to artists and labels.

The two different standards exist because at the dawn of the Internet age, no one knew how big streaming over the Internet would get.

A fraction of a cent per stream seemed reasonable when they were few, if any, true streaming models to base a formula upon.

But services like Last.fm, Pandora, Spotify, iHeartRadio and their progeny, have demonstrated that streaming radio is growing and viable.

And where streaming revenues were thought to once be a thing of folly, they are now very much a reality.

An entirely new market has developed around it.

However, this fraction-of-a-cent revenue model has proven to be inequitable in its application.

And it should be abandoned in favor of one that continues to provide revenue for streaming services and consistent royalties to artists and labels.

This issue is far from over, and I’ll definitely keep you posted with any updates.

If you like your streaming services, I’d suggest you contact your elected officials and make a stink.

Because if the music industry has it’s way, streaming radio will go the way of the record labels and be extinct before you know it.

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Filed under digital advocacy, music, technology

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