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Web Radio Companies Reach Deal With Labels: Pandora Survives

July 8, 2009 9:10 AM ET

Internet radio companies and the major record labels have reached a revised royalty agreement that will make it possible for beleaguered services like Pandora to survive, the New York Times reports. Under the terms of the deal, which the Internet radio companies struck with negotiating organization SoundExchange, minimum per-stream royalties were cut by roughly 40 to 50 percent. As Rock Daily previously reported, popular Web streaming service Pandora was in serious danger of shutting down before yesterday's deal because 2007's royalty structure made it impossible for Internet radio to remain profitable.

"For more than two years now I have been eagerly anticipating the day when I could finally write these words: the royalty crisis is over!," Pandora founder Tim Westergren wrote in a blog post on the Pandora site. "Webcasters, artists, and record labels have reached a resolution to the calamitous Internet radio royalty ruling of 2007. Pandora is finally on safe ground with a long-term agreement for survivable royalty rates. This ensures that Pandora will continue streaming music for many years to come!"

Despite the revised rates, Internet radio royalties are still higher than that of terrestrial (where the artists receive no royalties — a fact Billy Corgan went to the Capitol to fight) or even satellite rates, Westergren said, but they're low enough that the Internet radio will continue to survive in the digital landscape. Pandora said the new royalty rates would slightly change the service for only about 10 percent of their most-frequent listeners. For now, the free service will allow each user 40 hours of music per month. If a user goes past that cap, they'll be given the option to go unlimited for that month for 99 cents. "We hope this is relatively painless and affordable — the same price as a single song download," Westergren writes. As Rock Daily previously reported, Pandora experimented with ads to help offset the higher royalty rates.

Under the terms of the new deal, the more popular Internet radio services have two options: Either pay royalties at a per-stream fee that has an annual incremental rate until 2015 or give up 25 percent of their revenues, the NYT reports. Smaller Internet radio services that gross less than $1.25 million per year have the option of paying 12 to 14 percent of their revenues. As it stands now, Internet radio stations will pay between six to 15 hundredth of a cent per streamed song, down substantially from the 19 hundredth of a cent required in the previous deal.

Related Stories:
Personalized Web Radio Station Pandora Adds Ads To Free Service
Pandora Says High Royalty Rates Are Putting Them Out of Business
Pandora Radio Leads The Best New Music-Related iPhone Apps

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Song Stories

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A country-folk song of epic proportions, "San Francisco Mabel Joy" tells the tale of a poor Georgia farmboy who wound up in prison after a move to the Bay Area found love turning into tragedy. First released by Mickey Newbury in 1969, it might be more familiar through covers by Waylon Jennings, Joan Baez and Kenny Rogers. "It was a five-minute song written in a two-minute world," Newbury said. "I was told it would never be cut by any artist ... I was told you could not use the term 'redneck' in a song and get it recorded."

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