Should radio have to pay royalties? Pandora, labels say yes

For 80 years, radio has not had to pay for the privilege of playing records over the air. In legal terms, it has not had to pay royalties for the "performance right." Stations still have to pay composer royalties to ASCAP.

Web radio, satellite and all other technologies do have to pay performance royalties under the 1995 Digital Performance Right in Sound Recordings Act. But radio was explicitly exempted from that law. Now that webcasters, led by Pandora, have cut a deal with SoundExchange for reasonable performance royalties, Pandora's CEO Tim Westergren wants to level the playing field.

There is a new effort in Congress to fix the broader issue of how musical artists are compensated across all forms of radio. The system as it stands today remains fundamentally unfair both to Internet radio services like Pandora, which pay higher royalties than other forms of radio, and to musical artists, who receive no compensation at all when their music is played on AM/FM radio. We, along with the artists whose music we play, strongly support the establishment of a level playing field, a truly fair system, as articulated in a new bill called the Performance Rights Act (H.R. 848).

The rationale for radio's performance pass is that it provides valuable exposure to the music industry, far in excess of the lost royalty income. So perhaps it is time to end radio's long-standing free ride, now that other technologies exist that have to pay substantial royalties (Pandora is trying to limit its exposure to royalties by requiring heavy users to chip in or cut back) and do a better job of connecting listeners to purchasing opportunities.

But a law that increases revenues to the labels has got to be suspect. Are webcasters actually hurt because radio doesn't pay the royalty? It appears so, since Pandora is now throttling back heavy users' listening. But not all radio is ClearChannel. There are still some locally owned, excellent radio stations around the U.S. (in fact, I'm willing to bet that only locally owned stations are excellent) who would be devastated by having a brand new cost item in their balance books.

The correct policy is one that fosters diversity of broadcasters, artists and listening options. I guess we've already lost that option since the SoundExchange royalties are in place. And I don't have a problem with cutting off ClearChannel's free ride. But I'd like to see those funds go into some sort of pot that would go to support public service and musical diversity. I think there should be some exemption for small stations.

It's just sad the likely solution is further enriching the music labels.