After years of paying high royalty fees, it looks like Internet radio stations, like PANDORA, will get a big break in the way of the Internet Radio Fairness Act. If passed, online music streaming services will pay less fees.

Rates For Internet Radio Compared To Satellite

Passed into law 14 years ago, and updated in 2007, the current law requires Internet radio service providers to pay about 2 cents per listener per hour or 25% gross – whichever is higher.

To give you an idea, PANDORA, in the second quarter alone, paid $60.5 million in royalties — about 50% of their revenues.

What Does Everybody Else Currently Pay?

Royalty rates for distribution mediums are all over the map. At the time of this writing, radio royalty rates are as follows:

• Satellite radio outlets pay 8% of gross;
• Cable music services pay 15% of gross; and
• Terrestrial radio stations don’t pay any royalty performance fees.

Startling, right? PANDORA calls it “discrimination against Internet radio.” Yet, some people believe that catering to companies like Pandora is unnecessary and indulgent.

A Musicians’ Association Isn’t Buying What Pandora is Selling

There are two sides to the Internet radio royalty debate. Take, for example, the statement put out by Ted Kalo, executive director of the Music First Coalition:

“There’s nothing fair about pampering Pandora, with its $1.8-billion market cap, at the expense of music creators.”

Now, not all artists agree with the Music First stance, but it’s hard to deny their point. After all, paying the musicians, whose work your radio station relies, $250 million out of the $1.8 billion doesn’t seem outrageous. But again, it’s not a black and white issue. Market realities, including advanced communication and distribution models, need to be considered.

In case you were wondering, yes, the music labels fired up their lobbying armies to defeat this bill.

What Changes If The Internet Radio Fairness Act Passes?

Passing the Internet Radio Fairness Act means more royalty uniformity.

We’ll have to wait to see how this turns out, but if John Villasenor, a senior fellow at the Brookings Institution and UCLA professor, is right, passing the Internet Radio Fairness Act may “mean more music choices for consumers, a thriving Internet radio industry and more royalties for musicians.”