From payola to pandora


Interview with Westergren (MP3).

The founder of one popular Internet radio station says that May 3, the day his station began to temporarily block listeners from outside the United States in order to comply with copyright regulations, was one of the saddest in company history. Now he’s fighting legislation that could permanently dam the streaming of Internet radio stations like Pandora. 

“It was the worst day of our lives the day we had to turn off international listening,” said Tim Westergren, the founder of Pandora. “It’s just so anathema to a company like ours. I would say that’s our biggest hope, that a year from now we can be streaming happily around the world.”
The proliferation of new media, particularly Internet radio, has challenged legal communities around the world. And the legal community seems to be continually lagging behind.

On 2 March, the Copyright Royalty Board in the US set new rates for webcasting for the License Period 2006-2010. The new regulations introduced a “per-song-per-listener fee,” combined with a $500 per station minimum charge. SoundExchange, an organization created by the Recording Industry Association of America to collect digital performance royalties, supports this legislation.

Webcast radio stations like Pandora cannot afford to pay such steep royalties – and so stopped their service to computers whose ISP addresses are outside the United States. Should the legislation pass, even Pandora’s existence inside the United States would be challenged.

The Copyright Royalty Board’s decision prompted the introduction of the Internet Radio Equality Act, a piece of legislation which seeks to nullify the webcast rates introduced on 2 March.

Both the National Association of Broadcasters and National Public Radio support the Internet Radio Equality Act, which was introduced in Congress on 26 April by U.S. Reps. Jay Inslee, D-Wash., and Don Manzullo, R-Ill. It would require providers of digital audio transmissions to pay either:

  • 0.33 cents per hour of sound recordings transmitted to a single listener
  • 7.5 percent of the revenues received by the provider during that year that are directly related to the provider’s digital transmissions of sound recordings.

“The biggest thing we’re most concerned about is getting this rate settled,” Westergren said. “Ideally for us this gets settled and it’s a fair performance fee – we don’t want it to be zero, we want it to be a reasonable one, with some degree of parity with other forms of radio – satellite pays like a tenth of this proposed rate and the broadcasters don’t pay it at all. And that’s just not fair. That needs to be more equal.”

Artists, listeners, and webcasters have formed the SavetheRadio coalition to organize protests against Copyright Royalty Board’s regulations. Thousands of listeners on 26 June observed a “Day of Silence,” during which thousands of internet radio stations stopped broadcasting as a form of protest.

It worked. The sound of the silence was loud enough, it seems, to spark a postponement of the implementation of the 2 March regulations.

SoundExchange has also proposed alternative solutions, such as imposing the “per song per listener” fee only to established webcasters, while less competitive online stations might escape the fees altogether. The delay of the enforcement, announced 15 July, and SoundExchange’s retreat from its original position has been seen by Savetheradio as a victory. The lasting effect remains to be seen.

This attack against Internet radio stations raises many questions. Webcast radio is new and so usually not owned by big companies which could afford the new royalties. Therefore, it is an easy target for the label companies who want to shrink the market. 

At times, it seems there is a coalition of large American record companies seeking to close down Internet radio stations. SoundExchange argues that royalty fees are necessary for the survival and creativity of the artists.

Westergren dismissed the argument that the availability of free music prompts listeners to buy less music as “really spurious.”

“We certainly stimulate an awful lot of purchasing,” he said. “Forty percent are buying more music since they started the service. There’s no doubt that it increases sales.”

Pandora’s listeners can easily purchase songs from Amazon and iTunes, with which Pandora has partnered.

Furthermore, much of the music available to Pandora listners is unavailable at the average record shop – because the music is either too new, unknown or, even, too old.

“An interesting stat is that 70 percent of our collection are CDs that are not on a major label,” Westergren said. “On a daily basis we have half a million songs in our collection and we play 94 percent of those songs each day. The average Amazon sales rank of a CD on Pandora is 141,000 – so it’s the stuff that is basically in a museum.”

More answers are to be found in the way a song is promoted. A single is released. That song is to be played before any other song of the album. The terrestrial radio stations obey this custom. Webcast radio, as it is easier to be founded and is cheaper to launch, has no such custom.

Further, many terrestrial radio stations are today often characterized by station uniformity and so disregard many songs, music genres. Internet radio – Pandora in particular – does not adhere to a playlists dictated by a record company, and so offers a greater diversity of content.

It can seem that this is why Internet radio is bearing the brunt of the Establishment’s ire.  The radio industry – terrestrial and satellite – is presently a gatekeeper to an artist’s success. The 2 March new legislation supported by SoundExchange, then, seems an instrument of attack not only on Internet radio but also the small, independent record labels and artists who stand to gain in the new market of Internet radio.

The paradoxical argument of the record companies is that their sales decrease because songs can be listened for free on the internet radio.
We should wonder, then, what changed the mind of the record industries and the artists from the days of payola, the practice of illegally promoting the songs in terrestrial radio stations? Label industries have many times been accused of payola, of paying radio stations in order to play certain songs.

We have to wonder whether there is any difference between Internet and terrestrial radio. They only use different technology, different platforms of delivery. Webcast radio, of course, offers the benefit of global exposure.

None of the fees which could be levied against Internet radio would be charged to terrestrial radio outlets. Proponents of terrestrial radio argue that the promotional function of the radio supersedes copyright benefits.

The ramifications of the 2 March regulations were made obvious to many by Pandora’s denial of access to Europe – which is being fought from the ground up. But we need to realize that the broader legal issue of copyright is being addressed here.

“Hopefully that gets figured out [in the US] and it becomes the catalyst for a similar arrangement in other countries,” Westergren said.

At this moment, solutions to distribution rights issues are sought in each country separately – not necessarily the best method of confrontation, as the Internet is global by nature. Therefore it seems wiser if a unified European legislative proposal were made.

And it would probably be too ambitious to say that Europe should participate in the American discussion of the issue in order for a common copyright policy to be established.

Further reading:

  • Another interview with Westergren.
  • More on the issues facing Internet radio.

Jelina Makrantonaki is a Greek lawyer who holds also a Master’s degree in media studies.