Pandora Stops Internet Radio Fairness Act Legislation Efforts, To Focus on CRB (From the Magazine)

Pandora has given up its efforts to seek legislation that would help reduce the royalties paid to rights holders, a source knowledgeable with the decision tells Billboard.

Instead of pursuing legislation, Pandora will focus its efforts on lobby­ing the Copyright Royalty Board (CRB), the three-judge panel that sets statutory rates for webcasters like Pandora. The current rates run through 2015. 

Pandora didn’t comment on the company’s specific strategy for addressing royalties. “Pandora will focus on other paths to resolution,” a representative says. One path could be direct deals with labels, which Apple has secured for iTunes Radio. “Direct deals are not something that we’re allergic to,” Pandora founder/chief strategy officer Tim Westergren told investors in September.

Legislation to change webcasting royalties is dead without ­Pandora’s support. Other companies and trade groups also backed the legislation, but Pandora was the primary force behind the Internet Radio Fairness Act. It hired a Washington, D.C., lobbying firm, and Westergren visited Capitol Hill to plead his case. At conferences, in the press and on its blog, Pandora was on the front lines of the public opinion battle. No one else is going to pick up where Pandora left off.

IRFA opponents hail Pandora’s decision. RIAA chairman/CEO Cary Sherman calls the demise of IRFA “a historic moment” for the music industry. A coalition of labels, managers, artists, unions and trade groups like SoundExchange and the RIAA fought vociferously against the legislation. The op-ed articles, public statements, advertisements, email blasts and social media efforts “clearly moved the needle,” Sherman says.

Rights owners and artists were battling Pandora-supported legislation that would have ultimately lowered the statutory royalty rate for webcasters. The IRFA sought to change the standard by which the CRB sets statutory royalties for webcasters. Royalties for satellite and cable radio companies are established using what’s called the 801(b) standard. Webcasters’ rates are set using a “willing buyer, willing seller” standard that attempts to approximate an open-market negotiation between digital service and rights holder.

Giving the 801(b) standard to webcasters was likely to have lowered Internet radio’s statutory royalties. Royalties for satellite radio companies are currently 9% of royalties, and will rise by a half percentage point every year through 2017. Cable radio services’ rate is 8% of gross revenue, and will increase to 8.5% from 2014 through 2017. Webcasters pay fixed, per-stream royalties. The current rate set by the CRB is 0.23 cents. The Webcaster Settlement Act of 2009 allows independent, pure-play webcasters like Pandora to pay 0.12 cents. (Pandora pays 0.22 cents for streams originating from subscribers to its subscription service, Pandora One.)

There were signs earlier this year that Pandora had abandoned IRFA. In August, the musicFIRST coalition noticed the website for the pro-IRFA Internet Radio Fairness Coalition, an advocacy group launched in October 2012 by several Internet and broadcast companies, had been taken down. In addition, a source says Rep. Jason Chaffetz (R-Utah), an IRFA co-sponsor, had clearly lost enthusiasm about the issue. And Pandora had been silent on the issue. When talking with investors about its royalties, the company referred only to the upcoming CRB rate proceedings.

IRFA expired in January at the end of the 112th Congress, and some people believed Pandora would reintroduce the legislation with different language and a different title. The particular legislation introduced last year effectively died in November after a congressional hearing on Internet radio royalties turned into an assault on radio broadcasters over the lack of a performance royalty. “It went so badly for them last time there was no smart way to reignite the war they lost,” one insider says. “[Pandora] went from having a halo to having horns.”

The effort against IRFA may pay even more dividends. The broadcast radio performance right is still an important issue -- Rep. Mel Watt (D-N.C.) introduced legislation in September that would establish that right -- and could help Pandora regain favor within the artistic community.

Additional reporting by Alex Pham.