Washington, D.C. (October 31, 2007)--During the recent Senate Committee on Commerce, Science and Transportation hearing on "The Future of Radio," Tim Westergren, chief strategy officer and founder of Pandora Media, testifying on behalf of DiMA (Digital Media Association), stated his case against the Copyright Royalty Board's increased internet radio royalty rates.
Westergren's testimony noted the threat to the continued existence of Pandora, and the internet radio industry as a whole, by the 30 percent increase in sound recording royalties. According to Westergren, the rate effectively requires internet radio services to pay royalties equaling 50 to 300 percent of revenue.
Westergren testified that Pandora paid more than $2 million in royalties to artists and recording companies in 2006. At the old royalty rate, the company was on track to pay out over $4 million this year; instead, he stated, "Our royalty in 2007 is now likely to reach over $6 million, almost 50 percent of our total revenue. And per listener per track royalty rates for internet radio are scheduled to climb an additional 27 percent in 2008, and 29 percent more in 2009."
In contrast, broadcast radio pays zero sound recording royalties, satellite radio less than 3 percent of revenue and cable radio 7.25 percent of revenue.
The increased royalty rates are seen within the internet radio industry as a way for the record labels to claw back some of the income they are losing to illegal digital downloading and piracy, but could instead stifle commerce and innovation. As Westergren pointed out, "An August 2007 Nielsen/NetRatings research study concluded that Pandora listeners are three to five times more likely to have purchased music in the last 90 days than the average American. Similarly, Pandora is one of the top referral sites for music purchasing from both Amazon.com and the iTunes Music Store."
Senate Committee on Commerce, Science, and Transportation