11/26/13: Pandora abandons Internet Radio Fairness Act

Brad Hill
November 26, 2013 - 12:25pm

According to a report in Billboard, Pandora will no longer lobby for passage of the Internet Radio Fairness Act (IRFA). Instead, according to Billboard’s source, the Internet radio company will concentrate on the upcoming statutory royalty period, the rates for which are set by the Copyright Royalty Board. This shift of focus would re-allocate Pandora’s resources from one part of government to another, abandoning congressional solutions for arbitration and possibly market negotiation.

At stake is the cost of content for Pandora (and all digital music services), and the business conditions in which Internet radio will thrive or not. Royalty rates -- the payments to music owners for the right to broadcast or stream music recordings -- represent the wholesale cost of music. Unlike suppliers in most other industries, labels/artists (owners of recorded masters) and composers/publishers (owners of intellectual property), do not always use market negotiation to determine their prices. In the U.S., laws and arbitration processes form the basis of statutes which determine prices. Private negotiation can occur alongside that basis. 

The Internet Radio Fairness Act was introduced to address unevenness is statutory rates. Kurt Hanson, CEO of AccuRadio and Founding Editor of this site, wrote when the IRFA was introduced, “The current confusing mix of royalty-rate setting standards for digital radio is the result of piecemeal legislation enacted as each new technology was invented. The result is a system significantly out-of-sync with the realities of the 21st century marketplace.”

In the current system, cost of content differs in percentage terms across different distribution mediums. The biggest rate disparity is between broadcast radio and Internet streaming: Broadcast is not required by law to pay labels and recording artists for the use of recordings, but Internet radio is required to. This irregularity has been addressed to a limited extent by private deals between label groups, radio groups, and Internet music services.

By swiveling its spotlight from congress to the Copyright Royalty Board (CRB), Pandora is placing a new bet. Current statutory royalty rates run through 2015. Next year begins a rate-setting process for the following five-year period. For each cycle, the CRB is mandated to determine cost-of-content prices that reflect open-market realities. The difference in the upcoming cycle is that there is a more substantial open market than in previous cycles, and therefore more reference points with which to frame arguments. For example, Apple hammered out the content costs of its iTunes Radio streaming business via negotiated deal-making with music owners. Likewise, Clear Channel’s proprietary agreements with Warner Music and many smaller label groups provide open-market examples. Same with the alliance of the Cumulus radio group with Internet pureplay Rdio.

Pandora might also explore the direct-negotiation path, though it has not made private deals in the past. The company is fairly cash-rich, with about a half-billion dollars in the bank, thanks in part to a secondary stock offering completed this year. When asked about direct music licensing in last week’s earnings call, CEO Brian McAndrews replied, “[The public offering] puts us in a better position to have the right conversations."

Whatever Pandora’s future cost-management strategy, David Oxenford, author of the Broadcast Law Blog, observes that Pandora’s prioritizing is sensible: “It does make sense for all webcasters to start to focus on the CRB proceeding, as the notices of intent to participate in the next webcasting case will probably be due in January.” Oxenford also notes that we are still two years away from a decision regarding new rates, which will be announced in December, 2015, for the 2016-2020 royalty period. 

Brad Hill
November 26, 2013 - 12:25pm

Emmis-owned TagStation, which produces and distributes the NextRadio broadcast listening app for smartphones, released usage statistics for the program’s first 100 days of live operation. Headline brags are:

  • 75,000-plus app downloads
  • 5,100-plus FM stations tuned from the app
  • 33,000-plus listening hours total

In addition to the usage metrics, distribution is widening. NextRadio was first installed on Sprint phones equipped with FM receiver chips that are necessary for the app to work. That footprint was widened to HTC’s One Max phone a couple of weeks ago. TagStation today pre-announced an upcoming partnership with Boost Mobile in January.

The chip requirement means that NextRadio can only work with participating phone models, and, in fact, is not available at all from the Google Play app store when accessed by unequipped phones. A “stub” version of the app is built into partner phone models, and that stup must be activated before use. The activation accounts for the “download” metric above.

NextRadio is an interesting mobile broadcast play that seeks to leverage radio’s traditional mobility in an increasingly smartphone-dominated world. It also seeks to correct a blank spot that was arguably created by Apple. When Apple introduced the first iPod, it launched into an existing MP3-player market whose devices usually contained AM/FM receivers. Their manufacturers assumed some demand for radio listening along with MP3 mobility.

Apple’s iPods have never included broadcast reception, and as that mobile-player brand took over the market, walk-around FM listening fell off the default spec sheet for handheld music devices. NextRadio puts it back in, but requires special device builds to accomplish it. For that reason, roll-out of the NextRadio app is dramatically slowed.

In addition to competing with non-compatible phones, NextRadio competes with Internet delivery of radio webcasts, especially via aggregating platforms TuneIn and iHeartRadio. That might seem like a crippling disadvantage to user adoption, and OEM adoption. NextRadio's big advantage is that the Internet (and a costly data plan for receiving it) is not necessary. You just have to be in range of local stations.

We like NextRadio in concept, even as we recognize the app’s steep uphill climb. Here in the RAIN editorial office’s gadget museum, we have treasured MP3 players built years ago, with FM receivers still in use. They key to NextRadio success is to demonstrate demand for smartphone-received FM, sufficient to motivate OEMs to put that chip into their handhelds -- like the old days.

Brad Hill
November 26, 2013 - 12:25pm

Triton Digital, a digital audio multi-dimensional platform that provides streaming, measurement, and advertising services, has won the prestigious Red Herring Top 100 Award. Derived from a pool of 1,000-plus nominations solicited over the course of the year, the award recognizes accomplishment in private tech ventures around the world.

The annual award was started in 1996. Early winners included pre-IPO or pre-acquisition Google, Twitter, Facebook, Skype, and eBay, demonstrating Red Herring’s acuity in bestowing recognition.

Triton Digital’s monthly Webcast Metrics is an industry-scrutinized product reported and analyzed in RAIN. (See the September metrics here.) Triton’s digital audio ad exchange, called ax2, is marketed as the only programmatic audience buying platform for audio. 

Brad Hill
November 26, 2013 - 12:25pm

Group-listening app Soundrop announced an extension of its platform to Deezer, as a built-in app in the Paris-based music service. Soundrop has been associated with Spotify since 2011, operating within Spotify’s app ecosystem. It also works independently as a mobile app.

Soundrop’s distribution maneuver is timely in two ways. First, Turntable.fm announced last week that it is closing its music listening virtual rooms, which provide a similar experience to Soundrop’s shared listening function. Second, Deezer will expand to the potentially huge U.S. market sometime in 2014. Soundrop is now positioned as the reigning group-listening app in the two leading European music services, and will enjoy the same positioning in the U.S.