Music Sites Fight Higher Royalty Fees
STEVE INSKEEP, host:
On Mondays we talk about technology, and today we'll look at technology in radio. Millions of Americans listen to the radio on the Web. Maybe you're doing it right now. But that may change if the Copyright Royalty Board has its way. That's a three-judge panel that oversees copyright issues. And it just announced that it's going to triple its rates later this summer. That means radio stations broadcasting over the Web would have to pay quite a bit more in royalty fees when they're playing somebody's music on the Web. Those fees would benefit a music industry that's in search of new revenue as sales of CDs decline.
Now, some big companies may be able to pay up but small webcasters contend that this move would shut them down. And those include Tim Westergren, one of the webcasters fighting the move. Two years ago he founded a site called Pandora.
(Soundbite of music)
Mr. TIM WESTERGREN (Pandora.com): That's pretty radical music you got there, some surf music?
INSKEEP: It's the Violent Femmes. So I'm at this site called Pandora.com. You created it, right?
Mr. WESTERGREN: That's right, yeah.
Mr. WESTERGREN: Well, I was a musician. I spent, you know, most of my 20s playing in rock bands, and I was film composer for a while, too, and my sort of job as a film composer was to figure out someone else's musical taste. And in hindsight, that was kind of where the idea for this music genome was hatched.
INSKEEP: Well, let's figure out how this works. You have this button on the screen. It says create a new station. I'll double-click that.
Mr. WESTERGREN: And you've actually got to enter an artist or a song name and then hit create.
INSKEEP: Let's pick John Mellencamp, shall we?
Mr. WESTERGREN: All right.
INSKEEP: I'm hitting create. It says searching the Music Genome Project. We're creating a station by which they mean a playlist - a bunch of songs that might appeal to somebody who likes John Mellencamp. Okay, here it comes. Here we go.
(Soundbite of music)
INSKEEP: And not a big leap with the first choice because they've selected a John Mellencamp song. I gather that as this continues and continues if we select more songs, another song is going to come up the way it would on a radio station and presumably would be something that -somebody who likes John Mellencamp might also like.
Mr. WESTERGREN: That's right. It'll be other songs that share sort of his musical DNA. So it's trying to take the knowledge of a musician and put it into a piece of software. It can take 15 to 30 minutes to do one song.
INSKEEP: How many songs do you have in the collection now?
Mr. WESTERGREN: A little over half a million.
INSKEEP: Something called "Flying Under Cheap Kites" by The Isles.
(Soundbite of song, "Flying Under Cheap Kite")
INSKEEP: Just speaking as a musician, do you hear the similarity there between John Mellencamp and...
Mr. WESTERGREN: There's some similarity. His voice is certainly different. As these songs are playing, you can actually start thumbing songs up and down, and refining the way the station is curated for you.
INSKEEP: So how many Web sites or companies are out there doing something like this or a variation on it?
Mr. WESTERGREN: So of course there's the traditional program station. You know, satellite radio is really about deejays programming stations that are genre-specific.
INSKEEP: I can go and listen to the blues channel or the very specific kind of classical music channel or any number of other things.
Mr. WESTERGREN: Right, exactly. Then there's sort of a category of webcasters and Live 365 would be an example, where it's a company that hosts the stations created by thousands of citizen deejays who are creating their own stations and publishing them up on the Web for anybody to tune into.
INSKEEP: Explain what has happened to the online radio industry in the last few weeks.
Mr. WESTERGREN: Webcasters pay royalties for every song they play. They pay a publishing royalty and a performance royalty.
INSKEEP: Which is the same as a traditional radio station or a band playing at a wedding, I guess, right?
Mr. WESTERGREN: Well, that's true for the publishing royalty, so there are, you know, call it three forms of radio - there's broadcast radio, there's satellite radio and then there's Internet radio. And all three of them pay basically the same publishing royalty. But the performance fee Internet radio pays at a dramatically higher rate than the other two, which is, you know, a strange anomaly. And as of a few weeks ago, the performance fee that we used to pay was, in the case of Pandora, tripled overnight.
INSKEEP: Well, tell you what, let me cost you some money, if I might. Could you bring up the next thing, our engineer?
(Soundbite of song, "Just a Toy")
INSKEEP: There we go. It's a song called "Just a Toy" - Barenaked Ladies. How much did that just cost you guys, that I had my personalized radio station here that I played that? Did that cost you a cent, a fraction of a cent?
Mr. WESTERGREN: It costs us a fraction of a penny and the cost is going up to where in a couple of years it will cost us about .19 cents. And for webcasters like us, in a couple of years just the performance license fee will account for about 70 percent of our revenue.
INSKEEP: So does that mean that this industry becomes less viable or that it actually goes away entirely? What's it mean?
Mr. WESTERGREN: It gets completely wiped out.
INSKEEP: Well, listen, this has been a very interesting conversation but I'm afraid your Pandora thing here has brought up John Hiatt now. So I'm afraid we have to listen to a little bit of John Hiatt, "Buffalo River Home."
(Soundbite of song, "Buffalo River Home")
INSKEEP: Well, thanks very much. I enjoyed it.
Mr. WESTERGREN: Thank you, Steve.
INSKEEP: Sorry to cost you - it probably cost you at least a cent.
Mr. WESTERGREN: We'll send you a bill.
INSKEEP: Tim Westergren founded the Internet radio company Pandora.
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