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Pandora’s Tim Westergren

Pandora listeners may have recently heard a call to support a bill called “The Internet Radio Fairness Act” in place of regularly scheduled advertising. Tim Westergren, the Pandora founder, also sent a message to Pandora members on Friday asking them to urge their Congressional representatives to support the bill.

So what’s going on here?  The bill—one of two pieces of competing legislation introduced by lawmakers last Friday—seeks to level the playing field by reducing the royalty fees paid by Internet music-streaming services like Pandora to those paid by other digital and satellite radio stations.

Under the current system, internet radio is subject to much higher rates, with Pandora paying up to nearly 50 percent of its revenues in sound recording royalties, whereas preexisting subscription services like Sirius XM reportedly pay around 6-8 percent under the what’s called the “801(b)” standard.

The competing bill, introduced by representative Jerrold Nadler of New York, called the Interim First Act, would adopt what’s called the “willing buyer/willing seller” standard, thereby bringing services like Sirius up to the rate system currently imposed on internet radio. At odds are the percentage of revenues paid to artists and their labels. Unsurprisingly then, musicFIRST, a group backed by the Recording Industry Association of America, is throwing its weigh behind Nadler’s bill, which would be a something of a windfall for the increasingly irrelevant RIAA.

While the Act spurned criticism from musicFIRST and even market analysts about Pandora’s business model, it seems that services like Spotify and Rhapsody could stand to gain from the so-called Fairness Act, as it applies to “internet radio services offering digital performances of sound recordings.” Basically, any entity involved in the rather vaguely defined act of “webcasting.” It all depends, however, on the specific agreements inked between the labels and services, and how those services are defined under the law.

Sheesh, whatever happened to payola? Everything’s gone backwards from the ’50s. As for traditional radio stations, John Villasenor at Slate writes “AM and FM stations pay zero sound recording performance royalties for their terrestrial over-the-air broadcasts under a decades-old exemption (though they do pay royalties for their Internet streams).” My how things change.

Much of the existing law at issue here was introduced in and after the Digital Millenium Copyright Act of 1998, which instituted legal guidelines for a rapidly evolving set of industries that continue to outpace the laws that govern them.

Tangentially related side note: Dear public establishments: If you are running your ambient music on a service like Pandora, Spotify, or Mog, please do upgrade to the version without commercials. There’s nothing more jarring than really falling into a good book with a good beer and a good playlist, only be jerked out of your bliss by an ad for a car you can’t afford.

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