By jamielendino on July 30, 2008 10:57 AM

Pandora: Web Royalties Will Kill Us

Pandora’s on a tear lately, with its recent AT&T, Sprint, Apple, and Logitech deals, and its apparent ability to avoid the grim reaper. But the company said that the jig may soon be up. ExtremeTech reports that Pandora said Tuesday that current royalty rates could potentially put it out of business, while in response, SoundExchange (the organization in charge of collecting royalties) suggested that Pandora was “quite capable of paying its way given projected Internet radio advertising revenues,” as well as the success of its iPhone app.

At issue: “Should Internet radio stations, cable providers, and satellite radio stations pay the same amount to license the content they provide,” the article proposed. “What model should be used to determine royalty rates? Why is traditional radio getting a free ride when it comes to royalties?”

SoundExchange, naturally, doesn’t frame it in these terms. “Webcasters are currently advancing an argument they call parity but that we more accurately call a subsidy,” John Simson, executive director of SoundExchange, told the Senate Judiciary Committee. Yet right now it’s completely unfair. If Pandora brings in $25 million in revenue this year, they’ll owe $18 million in royalties. If SIRIUS satellite radio makes the same amount (for argument purposes) it will only owe $1.6 million in royalties, due to confounding rules established in 1998.

And terrestrial stations? They owe nothing, and of course, they’re certainly not willing to change that up. SoundExchange’s Simson said he tried to talk to the head of the National Association of Broadcasters (NAB) about establishing a fair rate for terrestrial radio, the report said. “We made that offer to the NAB, and, what did their leader say? That he’d rather cut his throat than negotiate. His words,” Simson said.