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Summary:

Pandora pushed for a law to equal the playing field when it comes to the rates that different types of radio service must pay to license content, but it came up short. The outcome could hurt the service when its current contracts expire in 2015.

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Streaming site Pandora has quietly given up its campaign to get Congress to pass the Internet Radio Fairness Act, a law that would have put online radio services on a more equal footing with AM/FM and satellite stations when it comes to licensing song rights.

“We are pragmatic and recognize the low probability that Congress will address this issue in the near term,” Pandora co-founder Tim Westergren said in a statement.

The decision is being hailed as a victory by the music industry, which has waged a high profile campaign against the law, and where some have blamed streaming services like Pandora for a decline in their income.

This view may not be fair, however, given that Pandora reportedly pays 70 percent of its revenue to obtain licenses from both songwriters and performers. By contrast, companies that deliver radio via satellite or cable services pay a lower rate under two separate licensing regimes, while traditional AM/FM radio stations must only pay the songwriters — they don’t pay the performers at all. (Billboard has a more detailed breakdown).

The confusing patchwork of royalty rates is partly the result of political pressure from the traditional music industry, which is anxious to make up the revenue it is losing from a decline in CD and record sales.

For Pandora, the failure of the Internet Radio Fairness Act could place it in a tough spot when its locked-in licensing rates from the major record labels expire in 2015. It must either obtain rates from the Copyright Board, which has set high rates in the past, or negotiate directly with the labels, who aren’t necessarily fond of Pandora.

The situation is different for other online radio services, including Spotify, which is paying individual bands based on its subscription service, and Apple, for whom licensing fees for its new iTunes Radio are a pittance relative to its overall business.

For music lovers, however, the failure of the Internet Radio Fairness Act could result in more expensive music or less selection.

(Correction: this was story was updated on Tuesday morning to note that Tim Westergren is Pandora’s co-founder, not CEO)

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  1. I think by the time 2015 rolls around the general landscape will have changed. The pressure from record companies has become more highlighted, and people are catching on to the idea that royalty rates are not fair between radio mediums, and that record companies have a huge stake in royalty negotiations that they don’t really have as much right to now. By the time 2015 is here I think Pandora will be able to negotiate something better, I mean look how far streaming has come in just one year. In another one the world will be a different place in this regard. Which is good. I don’t think any streaming service from spotify to Rdio to torch music to songza can exist in the long term without changes made that allow them to be profitable. But as more information is understood about how it works, and as people let go of the old ‘CD’ ways, things will change.

  2. Tim Westergren is not CEO of Pandora.

    1. thanks for flagging that Mark.. I’ve corrected to note he’s co-founder not CEO

  3. This is such a shame. It is because of tragedies like these that music anti-christs such as ClearChannel can get away with ruining the music industry with their “same 10 songs on the hour every hour” approach to radio programming. It is a shame that Congress allows companies like that to be viable from an economic perspective while undermining companies like Pandora that are really doing their best to level the playing field in the music industry.

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