Written by Emmanuel Legrand — US leading non-interactive digital music platforms such as Pandora and Sirius/XM will pay higher royalties to labels and performers for the next four years, following a decision made by the Copyright Royalty Board on December 16.
While the 2015 rate per stream for free non-subscription streams was $0.0014 or 14 cents per 100 streams, the CRB set the rate for commercial subscription services in 2016 at $0.0022 per stream. The rate for commercial nonsubscription services in 2016 is set at $0.0017 per stream.
The rates for the period 2017 through 2020 for both subscription and nonsubscription services shall be adjusted to the inflation rate, which introduces a level of uncertainty for both services and rights holders about the level of royalties to be paid or collected.
Non interactive services include internet radio service Pandora, satellite radio group Sirius/XM and webcasters such as iHeart Radio that broadcast their radio signals online. Such services account for about 10% of the US music industry's revenues.
The proceeds from the rates are collected from about 2,500 different media outlets by neighboring rights society SoundExchange on behalf of performers and record labels. The CRB decision falls short of what rights holders were asking for but comes as a relief for Pandora. For SoundExchange, the rates set by the CRB “do not reflect a market price for music and will erode the value of music in our economy.”
SoundExchange asked for the rate to increase to $.0025 and go up by $.0001 every year until 2020. The services offered different proposals to reduce the rate: SiriusXM proposed $.0016, Pandora proposed $.0013, iHeartRadio proposed $.0005 (an 80% reduction from its current rate).
So far, Pandora was paying either 25% of its revenue or 14 cents per 100 streams on its free service and 25 cents per 100 streams on its premium service. In recent years, Pandora was paying the latter. Overall, Pandora paid rights holders close to $450m in 2014, of which $410m were paid to SoundExchange.
Pandora's Chief Executive Brian McAndrews welcomed the CRB decision. “This is a balanced rate that we can work with and grow from," he said. "The new rate structure will enable continued investment by Pandora to drive forward a thriving and vibrant future for music."
Pandora's shares dropped on Wednesday afternoon after the company announced it was postponing a conference call, but regained strength and rose by close to 20% to $16 after the CRB issued its decision.
For Jay Rosenthal, a partner at Washington, DC-based law firm Mitchell Silberberg & Knupp, the CRB ruling "is a thoughtful exercise in price fixing micro-management. The rate for ad-supported free streams rose by 21.4 percent for 2016 – but the rate for paid streams declined. By doing this, the CRB seems to be incentivizing services to move their business model from free streaming models to subscription models."
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