There are plenty of streaming music services like Pandora out there, with Apple becoming the latest to enter the marketplace with their recently announced and forthcoming iTunes Radio. But how do these Internet radios pay for the music they play?
In the United States, royalty rates are determined by a government entity called the Copyright Royalty Board. It consists of three appointed copyright royalty judges who each serve staggered six-year terms and meet with petitioning entities who have vested interests in their decisions.
Currently, under a deal worked out in 2009, Pandora pays record labels about $1,200 for every million songs played, which amounts to $0.0012 per song. The labels then split these royalties with the artists, meaning the singers you love receive an even smaller cut. Pandora also pays out $0.0002 per song to musicians, songwriters, and publishers (that’s $200 for every million songs played). The deal dictates that rates go up $100 per million songs each year through 2015.
Still, even with these seemingly small numbers, Pandora paid out more than $214 million in royalty fees last year, almost 50 percent of their total revenue. In order to keep royalty fees from cutting into their profits, Pandora is hoping to renegotiate lower rates during hearings with the Copyright Royalty Board, which will begin this coming January. Others aren’t too thrilled with this idea. National Music Publishers Association President/CEO David M. Israelite recently penned an open letter to new Pandora President Brian McAndrews, calling for respect and fair compensation for the creative contributions of songwriters and stating that “for one million plays of our songs on Pandora, songwriters and publishers earn less than $60.”
So, the lesson for now? Unless you’re Rihanna or Beyoncé, don’t bet on Pandora helping you make it to that first million.