Webcasters reached an agreement last week with Sound Exchange, the nonprofit organization designated by the U.S. Copyright Office to negotiate on behalf of performing artists, which says that large webcasters like Pandora earning more than $125 million a year will pay a quarter of gross revenues in royalties, or about 0.09 cents per song, whichever is higher.

Read the rest of this post of the original site

Both messages are a result of long and tortured negotiations with record labels that have finally come to a close with a deal Pandora says it can live with, though it’s different than the one founder Tim Westergren said the site had nailed down in November. The flip side is that the service will now require users who listen to the service for 40 hours a month to pay 99 cents if they want to hear any more tunes that month.

And the big picture is that Pandora, which has been warning of its doom if it was required to pay steeper royalty rates, can switch gears and brag about its growth. Westergren tells me the service is motoring at a great clip–he says it is on track to generate $40 million in revenue this year, almost all of it from advertising, up from $19 million in 2008–and it can now accelerate.

“I think that this is going to have a really huge impact,” he says. “We’ve been talking about going out of business for the last two years, and that’s not good for growth.”

The new arrangement might also convince investors to cut the service a big check. Earlier this year, multiple sources told me Pandora was looking to raise a very big round, perhaps in the $40 million range, and was talking to private equity shops about a deal. Westergren wouldn’t talk to me about fund raising, but it’s fair to assume that his company looks more attractive now than it did in January.

As for the deal itself, I’ll spare you the details, but in essence it’s a straightforward rate cut. The deal requires a lower per-song fee than Pandora and other Webcasters were supposed to pay under the terms the Copyright Royalty Board signed off on in 2007. It’s retroactive to 2006 and calls for an increase every year up through 2015.

The new deal means Pandora will be spending more than 25% of its revenue on royalties, but it will still be paying less than it would have under the old rules. Under the original terms, for instance, Pandora was supposed to shell out 14 hundredths of a penny ($.0014) per song streamed, per listener. Now it won’t pay that rate until 2015. Meanwhile tiny sites with less than $1.25 million in annual revenue will have a different structure.

The downside is that the deal will require Pandora to tax its heaviest users since it is still paying a per-song fee. “There’s a very small percent of listeners who are using it a ton, and that’s great, except when you’re paying per song,” Westergren says. He estimates the 99-cent fee will apply to a a “single digit” percentage of its 11.5 million monthly users.

US Music Royalty Fee Overview
As an ongoing part of our business, SIRIUS XM must pay copyright music royalties to music companies and music publishers. These royalties have risen dramatically over the past few years, as a result of decisions of the Copyright Royalty Board (CRB). SIRIUS XM has tried to keep these fees as low as possible but in the end, the company has very limited influence over these payments. The FCC decision approving the merger between SIRIUS and XM allows the company to pass through to Subscribers any federally mandated increases in music royalties that we must pay, since March 20, 2007. The FCC decision allows us to pass through this fee increase to our Subscribers and the company has chosen to do this with the U.S. Music Royalty Fee.

The US Music Royalty Fee will be applied to all music subscriptions that SIRIUS XM offers. The fee will be implemented on July 29th, 2009. The existing Subscriber base will receive this fee on their first billing after this date. The fee will be applied to all satellite plans with music content on a Monthly, Quarterly, Semi-Annual and all Annual Savings Plans. Lifetime Subscribers, who have purchased prior to July 29th, will never receive the US Music Royalty Fee. Since the online products are not satellite based they will not incur the U.S. Music Royalty Fee. Once the fee is introduced on July 29th, any new activation or conversion will include the fee. As we go through this training, you will gain a better understanding of how this fee is applied and how to explain it to the Subscribers. We will be going through different scenarios so you can understand why we are passing this fee onto our Subscribers, how to diffuse irate Subscribers, and how the Subscriber can truly benefit by adding longer term plans.

FAQ

Below are examples questions you may receive from Subscribers regarding the US Music Royalty Fee. Use Answers below (as verbatim) when answering questions about why there is a US Music Royalty Fee or costs associated with the US Music Royalty Fee.

What is this US Music Royalty Fee?
Unlike land based radio, both SIRIUS and XM are required to pay copyright music royalties to recording artists, musicians and recording companies who hold copyrights to lyrics and music.

Why are you increasing your price?
We are not increasing our base price which will remain at $12.95/month for most Subscribers.

Why are you charging me this fee?
US Music Royalty rights were established by Congress and are a product of the copyright ACT, the copyright royalty board which sets the rates SIRIUS XM must pay the music industry has increased the rates dramatically. Unfortunately we can no longer absorb these increased costs.

Who makes up the Copyright Royalty Board (CRB)?
The Copyright Royalty Board consists of three Copyright Royalty Judges who determine rates and terms for copyright statutory licenses and make determinations on distribution of statutory license royalties collected by the United States Copyright Office of the Library of Congress. The Board, made up of three permanent copyright royalty judges, was created under the Copyright Royalty and Distribution Reform Act of 2004, These administrative judges are appointed by the Librarian of Congress

Why does it cost so much?
The Copyright Royalty Board which sets the rates SIRIUS XM must pay the music industry have increased the rates dramatically. Unfortunately the Company can no longer absorb these increased costs and must pass them on to subscribers as a US Music Royalty Fee. Is there any way to avoid this charge? Absolutely, for our Subscribers who previously purchased a long term plan, we will continue to absorb these costs until the next renewal date. If you renew and extend your current subscription before July 29, 2009 we will continue to absorb these increased royalty costs until your next renewal date. I can tell you about some our great savings plans.

FCC Ruling stated you can’t raise your price, why are you doing it?
This fee is consistent with our commitment not to raise the base price of specific service plans for three years after the merger. The FCC did however permit us to add this fee to our price beginning July 29, 2009.

How does this relate to the March Increase?
It is unrelated; the US Music Royalty Fee is to recover royalty cost increases that are outside of the control of SIRIUS XM.

I just locked in for MRD, why are you increasing it again?
If you purchased a multi-month plan to lock in a lower price or to retain free streaming, the US Music Royalty Fee will not affect you until the next renewal date for the Plan you purchased.

Who gets the money?
The US Music Royalty Fee will be used to offset payments from SIRIUS XM to the music industry.

Do you foresee any changes in the fee?
The Copyright Royalty Board sets the fees that SIRIUS XM is required to pay. The fee is expected to increase by one half percent per year through 2012.

Why did you decide to charge a US Music Royalty Fee rather than adding the increase to the subscription fee?
The FCC order requires that we detail the royalty increase for our Subscribers.

Why is the US MRF taxed?
Under applicable tax regulations, it has been determined that the US MRF is a taxable charge.

I only listen to news and talk radio, so why should I be charged the US MRF?
I understand, however, it would be impossible to calculate the US Music Royalty Fee based on individual listening patterns of our Subscribers.

You recently increased the price of my second radio by $2.00. Now you are adding a US MRF of $.97. Isn’t this too much?
The discounted second radio price of $8.99 is still a 30% savings over our standard fee. The addition of a US Music Royalty Fee is necessary due to the dramatic increase in royalties that we have been forced to pay the music industry.

Was I paying this fee previously as part of my subscription price and now am I paying for it separately?
Until July 29, 2009 the FCC required SIRIUS XM to pay the royalty increases, however the order provided the ability for us to pass along these royalty cost increases beginning July 29, 2009.

If I have an A La Carte subscription am I only paying the fee on the music channels?
That’s a great question, SIRIUS -XM is obligated to pay the US Music Royalty Fee based on the content available in packages, unfortunately we are not able to customize the fee for individual Subscribers.

Is there a way to reduce this cost–can I switch my subscription package to mostly music
You may switch to a mostly music package, which will save you $.45 a month in US Music Royalty Fees, but if you do that, you will be giving up over xx channels (different for SIRIUS and XM) of great programming. However, let me tell you about some of our great savings plan which will allow you to delay the US Music Royalty Fee for the term of that plan.

I have an online radio subscription; do I pay a royalty fee on that?
No, the music royalties associated with satellite delivery and internet delivery of music content are different. The royalties associated with internet listening is absorbed in the subscription price.

I have 2 subscriptions a Best of and a SIRIUS Everything why is the fee the same on both subscriptions?

The US Music Royalty Fee is based on music; the channels included in the Best of portion of your package do not include large amounts of music, so no US Music Royalty fee is due on that portion of your subscription.

UPDATE: Looks like someone leaked this doc to XMFan as well. Lot’s of interesting discussion there, if you’re interested in reading further.

A final deal between the Digital Media Association, which is representing the Web sites, and SoundExchange, which collects royalties on behalf of the music labels and other copyright owners, isn’t expected until later this year. But “the hard stuff has been done,” says Pandora founder Tim Westergren, who has become the public face of Webcasters during negotiations.

In September, Congress agreed to let the two groups hash out new terms that would replace the ones that the government-appointed Copyright Royalty Board signed off on last year. Since then, Web radio sites, led by Pandora, have bitterly complained that rates would force them out of business.

The existing deal calls for Webcasters to pay an escalating fee to copyright owners every time they play a song for a listener. This year, for instance, Web radio stations are supposed to pay 14 hundredths of a penny ($.0014) per song streamed, per listener; site operators figure that will cost them about 2.1 cents per user, per hour.

That doesn’t seem like much, but in order to cover those fees alone (before bandwidth and other costs), operators would need pull down many more advertising dollars then they’re getting now.

Site advocates figure they’d need to be able to generate a so-called CPM rate of about $21 for every thousand visitors (over the course of an hour) under the current fee structure. That’s a hard rate for big professional Web sites to achieve. And since users generally turn on a Web radio station, then look at other sites while it runs in the background, the format is a tough sell for ad buyers.

So what’s the new rate going to be? Westergren wouldn’t comment, except to argue that the compromise still calls for “tremendously unfair” payments when compared to the fees paid by satellite radio operator Sirius XM (SIRI). That company is supposed to pay between six percent and eight percent of revenue between now and 2012.

What about conventional radio? Those stations don’t pay a penny for so-called “performance” royalties, though the cash-starved music labels have asked Congress to change that. Good luck!

The big question: Will the new rates allow Pandora, and the many smaller Webcasters, to surive? Westergren says Pandora is on track to generate $20 million in revenue this year, but he wouldn’t say whether that would allow him to break even with the new proposed rates.

But Web advertising in general is under pressure, and ad buyers say that their clients are increasingly skeptical about trying out “experimental” mediums like Web video. So unless the rates get very, very low, or Westergren’s company has hired some very, very persuasive sales people, it’s going to remain a struggle.

• First and foremost, this week’s big slide on Wall Street hit tech stocks with a vengeance, too, disproving Google CEO Eric Schmidt’s assertion a little more than a week ago: “My guess is that the drama is New York and not here.” Ouch. But don’t say BoomTown didn’t warn you.
• Ted Ullyot, Facebook’s new general counsel, has “strong ties to the Republican Party.” Including a stint in former U.S. Attorney General Alberto Gonzales’s office, where, as chief of staff, he handled the government’s response to the the leak of CIA operative Valerie Plame’s indentity. “Ted’s arrival demonstrates we’re a little more grown up.” No word on whether or not you need to change your status immediately.
• Unsurprisingly, the ad partnership between Yahoo and Google is on hold so the Justice Department can spend more time reading the small print. The much debated deal is now also much delayed.
  Google will spend the interim rolling out Clean Energy 2030, a $4.4 trillion dollar plan to transition the country from coal and oil dependence to clean energy. And to lower the gas and electric bills on all those Google data centers.
• People have some strong ideas about the term “cloud computing”–if not about the concept itself. In September, Oracle CEO Larry Ellison said, “Maybe I’m an idiot, but I have no idea what anybody is talking about … It’s complete gibberish.” Well, Steve Ballmer doesn’t think so–though what he coyly announced this week at Microsoft’s Professional Developer Conference will go by another name. Or maybe not. Says Ballmer: “Let’s just call it for the purposes of today ‘Windows Cloud.’” Let’s.
• Walt Mossberg lays out the different ways to make a Mac emulate a PC, including one option that’s just gotten better. He also answers readers’ questions, which this week include issues about following features from one version of Microsoft Office to another, dealing with malware, and embarrassing CD misidentifications.
• And in a showdown at the iTunes Corral, Apple walked off into the sunset with its profit margin intact. It was threatening to shut down the iTunes Store if the Copyright Royalty Board were to raise royalty rates 66 percent–as had been proposed by the National Music Publishers’ Association.
]]> http://allthingsd.com/20081004/weekend-update-100308/feed/ 0 http://allthingsd.com/20081003/delay-of-lame/ http://allthingsd.com/20081003/delay-of-lame/#comments Fri, 03 Oct 2008 18:00:33 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=6205

[ See post to watch video ]
]]> http://allthingsd.com/20081003/delay-of-lame/feed/ 0 http://allthingsd.com/20081003/itunes-will-live-to-sell-another-5-billion-songs/ http://allthingsd.com/20081003/itunes-will-live-to-sell-another-5-billion-songs/#comments Fri, 03 Oct 2008 14:24:17 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=6168

If the [iTunes music store] was forced to absorb any increase in the … royalty rate, the result would be to significantly increase the likelihood of the store operating at a financial loss–which is no alternative at all. Apple has repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate [the iTunes music store] if it were no longer possible to do so profitably.”

– iTunes vice president Eddy Cue

Not that it would ever have happened anyway, but Apple (AAPL) will not be shutting down the iTunes Store in protest over increased royalty rates paid to songwriters and publishers for CDs and digital music downloads. The Copyright Royalty Board Thursday left the rate for royalties unchanged at nine cents a track, paying no mind to a proposal by the National Music Publishers’ Association that would have raised it to 15 cents–a 66 percent hike.

Seems Apple’s posturing paid off. Said Apple spokesman Tom Neumayr, “We’re pleased with the CRB’s decision to keep royalty rates stable.”

]]> http://allthingsd.com/20081003/itunes-will-live-to-sell-another-5-billion-songs/feed/ 0 http://allthingsd.com/20081001/boost-microsofts-lousy-search-market-share-and-win-prizes/ http://allthingsd.com/20081001/boost-microsofts-lousy-search-market-share-and-win-prizes/#comments Wed, 01 Oct 2008 18:00:32 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=6065

[ See post to watch video ]
]]> http://allthingsd.com/20081001/boost-microsofts-lousy-search-market-share-and-win-prizes/feed/ 0 http://allthingsd.com/20081001/boost-microsofts-lousy-search-market-share-and-win-prizes-2/ http://allthingsd.com/20081001/boost-microsofts-lousy-search-market-share-and-win-prizes-2/#comments Wed, 01 Oct 2008 18:00:32 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=6065

[ See post to watch video ]
]]> http://allthingsd.com/20081001/boost-microsofts-lousy-search-market-share-and-win-prizes-2/feed/ 0 http://allthingsd.com/20080206/mechanical-royalties/ http://allthingsd.com/20080206/mechanical-royalties/#comments Wed, 06 Feb 2008 08:14:20 +0000 John Paczkowski http://digitaldaily.allthingsd.com/20080206/mechanical-royalties/ The Recording Industry Association of America demands damages of $150,000 per song for file-sharing infringements, yet it pays the artists who create those songs pennies for their work. And now it wants to pay them even less.

The RIAA and its online counterpart, the Digital Media Association, have petitioned the Copyright Royalty Board to slash the so-called mechanical royalties paid to musicians and music publishers for digital downloads, subscription music services and ringtones. Seems the RIAA and DiMA feel they’ve suffered unfairly during the transition to digital distribution and they’d like artists to share in their misery.

The National Music Publishers’ Association, noting the favorable economies of digital distribution, asks for a royalty of 15 cents per track for permanent digital downloads. The RIAA argues that a royalty of approximately 5 cents to 5.5 cents per track is more reasonable. The DiMA–which represents Apple, Amazon and RealNetworks, among others–suggests cutting that royalty further still.

Find that astonishing? Just wait; it gets worse. For streaming music services, the NMPA proposes a rate of the greater of 12.5% of revenue, 27.5% of content costs, or a micro-penny calculation based on usage. The RIAA finds 0.58% of revenue more reasonable. And the DiMA says there really shouldn’t be any royalty at all. “Fundamentally, this fragile marketplace is showing signs of promise, but it cannot be saddled with additional, excessive costs,” the DiMA argues. “The board should be careful not to impose a royalty that kills the proverbial goose and deprives songwriters and publishers of their golden egg.”

An interesting choice of metaphor and one in which the DiMA and RIAA might easily figure as the giant at the top of the beanstalk:

Fee! Fie! Foe! Fum!??
I smell the blood of a musician.
Be he ‘live, or be he dead,
I’ll grind his bones to make my bread.”

Grind his bones to make my bread, indeed.

Said Rick Carnes, president of the Songwriters Guild of America: “Our opponents have to recognize that this rate-setting is not a matter of gamesmanship for songwriters, but rather one of survival. As I stated in my testimony, in response to a question from those seeking to cut the mechanical royalty rate in half and to denigrate the importance and contribution of professional songwriters to the music industry, ‘Yes, songs are plentiful, just as rocks are plentiful. But if you want diamonds, you are going to have to pay the miners a living wage.’ “

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