How the RIAA/SoundExchange and Congress are using trust exemption to kill internet radio…

Anti-Trust exemptions are a big deal. They grant certain groups and industries the government backed ability to stifle competition. They also work when our elected representatives treat these exemptions with a certain degree of mis-trust. When, however, our lawmakers begin to see these exemptions for certain industries as important to protecting the rights of the few against the rights of the many things like this happen:

From the Boy Genius Report

As traffic to Pandora continues to climb at an impressive rate, far more steep than that of competitor as seen in the chart above, the popular custom internet radio provider may be a breath away from closing its doors. Why, you might ask? The answer is not very far from being obvious these days. Wherever there is an emerging revolution in the realm of music consumption, loved by many yet still on the brink of defeat; the RIAA is never far from the scene. Pandora’s current woes fit the mold precisely. Pandora usage is at all all-time high and usage increased by almost two million visits per month from June to July alone, yet elevated royalty rates are making it nearly impossible for the company to stay afloat. After last year’s decision that internet radio provider per-song royalty rates would double there has been an ongoing battle between providers and SoundExchange, an unincorporated division of the RIAA tasked with collecting royalties from digital providers such as satellite and internet radio. The decision determined that the rate would increase incrementally from .08¢ per song per listener in 2006 to .19¢ per song per listener by 2010. While tiny fractions of a penny seem insignificant, they add up quickly. Pandora projects that it will pay out about $17 million this year, or a staggering 70% of its revenue, in royalties. Long story short, it is losing money. The problem is even worse for smaller internet radio providers, where increased royalty rates are expected to amount to between 100% and 300% of annual revenues. Translation: By way of SoundExchange and lawmaker support, the RIAA would rather wipe internet radio off the map with outrageous royalty rates than find a fair way to make some money for its clients (musicians). Why is that? There is no way for us to say but as per-song performance royalties are positioned to wipe internet radio off the map, it should be noted that terrestrial radio pays no such fees.

Tim Westergren, Founder of Pandora, had this to say to the Washington Post:

We’re funded by venture capital. They’re not going to chase a company whose business model has been broken. So if it doesn’t feel like its headed towards a solution, we’re done.


There is nothing fundamentally wrong with artists being paid for the use of their work. There is something very wrong when they use that power to effectively shutter an entire method of distribution because the do not like it. That is simply abuse of their anti-trust exemption.

The proof is fairly simple – terrestrial radio stations pay NOTHING. Why then must satellite and internet providers pay – and pay so much as to destroy their business model? Why would the RIAA and SoundExchange push for rates so high that they would effectively shutter an entire revenue source for the very people they are supposed to collect revenue for?

Simple – they do not want any digital distribution of music.

Internet radio is being punished for their method of broadcasting – because their method is relatively similar to the method of distribution (MP3 files exchanged over peer-to-peer networks) that has been the target of such ire from the RIAA. They are being taxed by the government and the RIAA to make amends for the damage caused by file sharing. Of course this is simply my opinion – but show me a better argument for the behavior of the RIAA and congress.

Congress believes they are protecting the rights of the artists – that is the bill of goods they’ve been sold. If the artists needed protection why not charge terrestrial radio? The reality is they are protecting the business model of the large corporate labels – this has nothing to do with the artists. If it did there would be a single fair rate applied to every method of broadcast.

So here we are… watching a government granted trust destroy an entire industry. What are YOU going to do about it?

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