Radio sites cut royalty deal with record labels

Pandora has declared the royalty crisis over

The internet radio business received welcome news this week after a new royalty deal was struck between webcasters and record labels.

Royalty collection service SoundExchange said that the Webcaster Settlement Act of 2009 will offer music services the option of paying royalties as an annual percentage of revenue, rather than a per-song fee.

The new agreement will distinguish between small and large webcasters, as well as services which provide bundled or subscription deals. The agreement will limit royalty rates to 25 per cent of annual revenues.

"This is an agreement we are proud of because it shows that both sides can address the business concerns of the webcasters, while giving artists and copyright holders the potential to share in the revenue growth of webcasters," said SoundExchange executive director John Simson.

"It is a creative, groundbreaking approach that we wanted to try, and we hope it will work well for everyone involved: the artists, labels and eligible webcasters."

The new deal replaces a controversial 2007 royalty structure to which many online music providers had fervently objected. Sites such as Pandora and Rhapsody argued that the rates would eventually choke the life out of internet radio.

Pandora founder Tim Westergren triumphantly declared in a blog post that "the royalty crisis is over".

Westergren conceded that the new rates would force Pandora to adopt some new practices, such as charging $1 (62p) to users who listen to more than 40 hours of music per month, but said that the long-term future of the service is now secure.

"Pandora is finally on safe ground with a long-term agreement for survivable royalty rates," he said. "This ensures that Pandora will continue streaming music for many years to come."