Pandora has become one of the nation’s most popular internet radio stations. It has about one million listeners daily and 40,000 new customers a day. Pandora has made it to the top ten most popular applications for Apple’s iphone. Listeners can create their own stations according to their musical tastes. All of Pandora’s success, however, may soon reach an end with the increasing royalty rates.
    Royalty fees are paid to a single agent SoundExchange, Inc. The organization represents performers and record companies, and it supports the higher rates on the basis that musicians deserve a larger fraction of internet radio profits. “Our artists and copyright owners deserve to be fairly compensated for the blood and sweat that forms the core product of these businesses,” said Mike Huppe, general counsel for SoundExchange. The organization also believes that internet radio has not done enough to profit from streaming music.
    Some musicians defend Pandora and other internet radio stations on the other hand. Webcasters argue that internet radio offers a larger range of music than traditional radio and also promotes independent musicians. While traditional radio does not pay royalties and satellite radio pay 6-7% of their revenue, webcasters must pay per song and per listener. With the new royalty decision doubling the per performance rates, Pandora and other webcasters may go out of business. Tim Westergren, founder of Pandora, predicts that royalty fees will amount to $17 million this year, which is 70% of the projected revenue. “We’re funded by venture capital,” [Westergren] said, “They’re not going to chase a company whose business model has been broken. So if it doesn’t feel like it’s headed toward a solution, we’re done.”
    This newspaper article is important for my paper because it portrays the trememdous effect the new royalties will have on Pandora. Westergren repeatedly states that the company will go out of business, and this is important for my paper. Performers will not be paid more for their work if there is no internet radio station that will be in business to pay them. In order to ensure a fair royalty rate, the company must not be threatened to close down. My paper defends another model for determining the royalties and argues against the latest copyright ruling on the royalty rates. This article is important because it not only demonstrates the copyright ruling from Pandora's point of view but also from SoundExchange's perspective.

    The Webcaster Settlement Act of 2008 was passed in September by the House and Senate. The act became law when it was signed by the President in November 2008. The bill provides time for agreements and negotiations to be made concerning the royalty rates for webcasters. The act amends section 114(f)(5) of title 17 of the United States Code. It allows for settlements to be entered into an 11 year period starting on January 1, 2005. This would nullify the Copyright Royalty Board decision of 2007. The bill also modifies the settlement deadline between webcasters and the receiving agent of the royalties. The new deadline is February 15, 2009. Although this act has no immediate impact on the royalty ruling, it is a step closer to reaching a final decision. The act also allows settlements to go into effect more easily. If any group reaches a settlement with SoundExchange before the February deadline, they can submit it to the Copyright Royalty Board and it will become effective.
    The Webcaster Settlement Act is an important part of the research for my paper. It shows the progress being made regarding the royalty decision. The fact that this bill was signed by the President is evidence that the royalty ruling is a significant issue for the public. It demonstrates that there is some debate and doubt regarding the fairness of the royalties to the webcasters. This supports my argument that the Copyright Royalty Board’s decision is questionable and that there is a possibility for better models for determining royalty rates.

     John Simson defended the new royalty rulings made by the Copyright Royalty Board in his testimony on "Music and Radio in the 21st Century: Assuring Fair Rates and Rules Across Platforms.” Simson is a former performer, artist manager, music attorney, and presently an executive director of SoundExchange. SoundExchange is the single receiving agent of royalties paid by webcasters. He supports the increasing rates on the basic principle that "the people who create music must be paid." He defends SoundExchange's concern over the business of webcasters but argues that revenues are predicted to increase over the future. SoundExchange currently represents about 31,000 artists and 3,500 labels. Simson emphasizes the hard work put into music creation, and he scorns at those who believe music should be free or those who devalue it. Simson argues that webcasters are contradicting the decisions by the Copyright Royalty Board solely based on their prospective financial gains. He strongly believes that the new rates are fair and that no further negotiations are required.
     Simson’s testimony is important to my paper because it explains the royalty decision from the opposing point of view. Simson directly works for the company receiving the royalties, and so he represents SoundExchange’s opinions. Although Simson argues that fair rates must be ensured for the sake of the musicians, SoundExchange is also benefitting from the increasing rates. This testimony is important to my paper in order to prove that SoundExchange is biased in its strong royalty support.

    On March 2, 2007, the Copyright Royalty Board (CRB) released its decision for 2006-2010 royalties for the use of sound recordings by internet radio stations and webcasters that stream music online. Musical works and sound recordings are the two categories of work eligible for copyright protection. The “Services,” as the CRB refers to them, are the internet webcasters or broadcast radio simulcasters that stream music. They are divided into commercial webcasters and noncommercial webcasters. In order to qualify as noncommercial, the webcaster must be a tax exempt organization under Section 501 of the Internal Revenue Code or a governmental unit.
    The CRB determined the new royalty rates based on the willing buyer and willing seller standard. This standard requires that the willing buyers, which are the Services, agree upon a rate with the willing sellers in the marketplace, which is marketplace in which no statutory licenses exist. The two parties, however, disagree on the degree of competition in the marketplace. The CRB believes this standard is efficient since it encompasses the economic and competitive evidence presented by the parties and also takes into consideration the promotional or substitional effects of the use.
     Another decision made by the CRB was to determine a single receiving agent for the royalty fees. SoundExchange, Inc. is a non-profit performing rights organization that represents record labels and artists who have specifically authorized SoundExchange to collect royalties on their behalf. It is controlled by an 18-member Board of Directors compromised of equal numbers of representatives of copyright owners and performers. The CRB eventually chose SoundExchange, Inc. over Royalty Logic as the receiving agent.
    The CRB judges agreed on different royalty systems for commercial and noncommercial webcasters. However, both types of webcasters are subject to a $500 minimum fee rate per channel or station. The purpose of this minimum fee, according to SoundExchange, is to “protect against a situation in which a licensee’s performances are such that it costs the license administrator more to administer the license than it would receive in royalties.” Besides the minimum fee, commercial webcasters must pay a per performance usage rate. Webcasters will have to pay $.0008 per performance in 2006, $.0011 per performance in 2007, $.0014 per performance in 2008, $.0018 per performance in 2009, and $.0019 per performance in 2010. Noncommercial webcasters have a specified cap of 159,140 Aggregate Tuning Hours (ATH), where they are exempt from the performance rate. ATH means the total hours of music streaming; for example, an hour of streaming to ten listeners would equal 10.
    This source is extremely important to my paper. This is the ruling that sparked all the conflict and debate between the Copyright Royalty Judges and the internet radio companies. This source demonstrates the point of view of the copyright judges, which is crucial to explaining why the new royalty rates were chosen. It also explains the new standard for determining the royalties, which is the main source of conflict for the new rates. My thesis opposes the new royalty rates and standard, and so this source is the copyright ruling I will prove is unfair and unjustified in my paper.