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Pandora's box

Internet Radio Fairness Act fight pits Pandora & friends against traditional broadcasters

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Traditional over-the-air broadcasters and Internet radio companies are duking it over the Internet Radio Fairness Act.
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Pandora is urging its listeners to lobby Congress in support of the Internet Radio Fairness Act.

The battle for your ears has taken an interesting twist. Traditional over-the-air broadcasters and Internet radio companies are duking it out over something called the “Internet Radio Fairness Act.”

This bill, introduced in both the House and the Senate, tries to level the playing field and put the fees Internet radio pays for music at the same rate as other digital music providers. Last year, according to Pandora, it paid roughly 50 percent of its total revenue in royalties, more than six times the percentage paid by satellite radio provider Sirius-XM.

recent radio study by Alan Burns and Associates and Triton Digital showed that radio is less strongly bonded to listeners under 35 because younger listeners want music control and fewer commercials.

 "On the surface, the rates paid by Pandora and other online radio services appear onerous and in need of congressional relief,” wrote Richard Greenfield, a media analyst for BTIG.  “However, the reason why companies such as Pandora pay such high royalty rates as a percentage of revenues is because they severely limit audio advertising to protect the user experience and keep people on the platform.”

So their answer is to have Pandora run more advertisements to make up for the revenue (God forbid anyone should “protect the user experience”).

A recent radio study by Alan Burns and Associates and Triton Digital showed that radio is less strongly bonded to listeners under 35 because younger listeners want music control and fewer commercials.  The response by BTIG brings to mind the infamous quip; “Let them eat cake!”

Radio will point to studies showing how many people listen to them during the week, and that number is very impressive, but Internet radio also has a compelling story to tell. Pandora reported that, in September of 2012, it showed an increase of 67 percent from 687 million to 1.15 billion of listening hours during the same period last year.

Another point Greenfield raised in his report was “Why should the U.S. government allow musicians to be harmed simply to help Pandora and its investors generate enhanced returns?"   It’s an interesting argument because it is the same one used by the radio industry. Many radio executives feel they should pay smaller royalties to musicians because they help promote artists and sell records. Both points of view have merit, but you can’t play both sides.

 If radio were smart (and there are many smart people working in radio), they would develop new ways to advertise that continue to produce a healthy profit while enhancing, not hurting, its user experience instead of trying to thwart companies like Pandora. Product placement type ads, shorter commercial breaks and smoother insertion of advertisements could all lead to increased listening among younger demos which would result in higher revenues.

The questions is: Will anyone in radio be willing to take the chance, or will radio end up listening to Wall Street instead of Main Street?

Bill Van Rysdam is a former longtime broadcast executive in the Houston radio market.

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