It is no secret that royalty payments make up the biggest expense of a streaming radio service. Internet radio blockbuster Pandora (NYSE:P) knows this first hand. Royalty payments have made what is a massive success in terms of consumers into a mediocre success as a business. In fact, Pandora rarely reports a profitable quarter despite having well over 55 million active users! The royalty issue has become such a weight that there are active pieces of legislation to try to address the matter.
In response to the need for a change Pandora and Clear Channel are two of the founding members of a new lobby group called the Internet Radio Fairness Coalition. Yes, Clear channel is a terrestrial radio firm, but it is also the force behind iHeartRadio, another popular audio entertainment service. The goal of the coalition is to lower rates for streaming music over the web, and, if nothing else to seek parity with other services.
The IRFC wants to essentially change the manner in which the Copyright Royalty Board (CRB) sets royalty rates. The stated goal is to replace the "willing buyer and willing seller" standard with the 801(b) guidelines used by satellite radio (including SiriusXM) and cable. Using the 801(b) guidelines would allow the rates to be set using criteria that take into account the public interest, the return earned by copyright owners, the minimization of risk in the industry, and the interplay between creative contribution and capital investment.
While it may seem odd that competitors are grouping together, there is a common goal. All of these companies face the same danger, and perhaps as a group we can finally see royalty issues become fair for everyone, including the artists themselves.