The largest internet radio service, Pandora will have to pay millions more as a panel of federal judges on Wednesday, Dec. 16 increase royalty fee.
According to The New York Times, Pandora and other webcasters alike will pay record companies 17 cents for every song played 100 times when they stream music to listeners who do not pay for subscriptions. 14 cents is the current rate.
The decision of the panel will take effect next year, making Pandora pay millions more in royalties to performing artists and record labels to use their songs. Pandora paid more than $400 million or 44 percent of its revenue in royalties for their recordings last year.
A much lower rate was set by the judges on Wednesday, Dec. 16, than what the music industry expected. A nonprofit licensing agency that represented the record companies, SoundExchange had asked a rate of 25 cents per 100 plays to the judges.
Pandora Media's chief executive, Brian P. McAndrews called the decision "a balanced rate that we can work with and grow from." McAndrews said in a statement, "the new rate structure will enable continued investment by Pandora to drive forward a thriving and vibrant future for music." McAndrews is also a director of The New York Times Company.
Pandora's stock increased more than 20 percent, investor reacted positively to the news which was announced after the close of the market. Internet and media analyst for Needham & Company, Laura Martin said "certainty is positive for any share price, we now know what the costs of content are going to be for the next five years. That allows Pandora to run their business."
Meanwhile, SoundExchange expressed their disappointment. "It's only fair that artists and record labels receive a market price when their music is used. We believe the rates set by the C.R.B. do not reflect a market price for music and will erode the value of music in our economy. We will review the decision closely and consider all of our options," the group said.
The decision is only applicable to those offering Internet radio services, this does not include services like Spotify that lets users choose songs they like to listen to. There are two different rate systems, one for pureplays like Pandora that operates in the Internet and the traditional broadcasters like iHeartMedia which have web streams. In 2009, pureplay companies have lower royalty rates than broadcasters.
