Internet radio sites ink royalty deal

NEW YORK (CNN) -- After years of tweaking and rewording agreements, commercial Webcasters have agreed to royalty rates for music they stream online, according to a statement from SoundExchange, a not-for-profit organization that collects and distributes digital music royalties.

The terms of the agreement are complex. The formula, which includes revenue sharing and song monitoring, is considered experimental, however "pureplay" Webcasters say the new terms are viable.

"Pureplay" Webcasters include Internet radio Web sites and others who stream music online.

"For this we are truly thankful and want to express our deepest gratitude to everyone involved," Pandora Internet radio founder Tim Westergren wrote on the Pandora blog.

Pandora is one of the largest Internet radio sites with about 30 million registered listeners, according to Westergren.

Under the new terms, "pureplay" Webcasters agree to pay artists and rights owners (through SoundExchange) a minimum percentage of all their U.S. revenues up to 25% and to pay a more significant annual minimum royalty.

The agreement provides for three rate classes, under which Webcasters can choose alternative rate structures.

"Pureplay" Webcasters breathed a collective sigh of relief once the agreement was announced because many feel the new deal will replace an outdated and unfair rates set by a 2007 issued by the Copyright Royalty Board.

"This is an agreement we're proud of because it shows that both sides can address the business concerns of the Webcasters while giving artists and copyright holders the potential to share in the revenue growth of webcasters," said John Simson, executive director of SoundExchange.

Rate classes and fees. Under the new agreement, there will be rate classes: Larger "pureplay" services will pay the top rate, 25% of total revenue.

They must also agree to provide more comprehensive reporting about the sound recordings used than regulations currently require, according to the statement.

Through 2014, small pureplay Webcasters will have the option of paying the greater of a percentage of revenue or a percentage of expenses and in certain circumstances have less stringent play list reporting requirements in return for payment of an additional "proxy fee."

Bundled, syndicated or subscription services will pay per-performance fees that are the same as those contained in an agreement concluded earlier in the year by SoundExchange with the National Association of Broadcasters.

All pureplay Webcasters would pay an annual minimum fee of $25,000 that can then be applied to their royalties owed.

Today's announcement follows agreements concluded earlier in the year by SoundExchange with the National Association of Broadcasters for over-the-air radio stations that stream on the Internet, with the Corporation for Public Broadcasting and with other small commercial Webcasters.

"This is good for music," said Dennis Wharton, the executive vice president of the National Association of Broadcasters. "It sets a rate where artists will receive royalities for the music they produce."

Wharton said although these "pureplay" Webcasts are popular, he doesn't see this decision affecting local radio stations. He said the 235,000,000 people who listen to the radio every day will probably stick with it. "It's hard to beat a free and local option," he said.