Pop Music and the Wonky World of Webcasting

In February, two of pop music’s biggest stars, Rihanna and Kanye West, exclusively released their new music through the Jay Z-owned music service, Tidal, initially opting out of other popular services like Spotify and Apple Music. Last year, Adele and Taylor Swift similarly did not permit Apple Music or Spotify to stream their new music. However, their music was still widely available on the Internet through services like Pandora and iHeartRadio, even though the artists did not approve streaming through these services either. Increasingly, the decision of mega pop stars to withhold their music from certain popular music services is revealing a previously little noticed legal distinction ― the law treats so-called interactive music services like Spotify and Apple Music very differently from non-interactive music services like Pandora.

Coinciding with this pop music trend, and highlighting the legal distinction between online music services, the federal Copyright Royalty Board (a three member federal judge panel, the “CRB”) released the full text of its webcasting determination in February 2016, which establishes new rates that non-interactive webcasters like Pandora must pay to stream songs over the Internet.

The decision only sets new rates for non-interactive services. Non-interactive services are allowed to simply pay a statutory fee set by the CRB to stream music. Interactive services like Spotify, Apple Music, and Rhapsody, which are considered to directly compete with traditional music industry sales outlets than non-interactive services, must directly negotiate with the rights holders to gain permission and establish a price to stream music. This is the reason why artists like Kanye and Rihanna have been able to withhold their music from Spotify but not from Pandora.

The CRB’s new commercial rate is $0.0017 per performance (i.e., the rate paid per song, per listener) for non-subscription streaming and $0.0022 per performance for subscription services.  This equates to approximately 1/5th of one cent per performance. So if there are five people listening to a song, the fee is about 1 cent per play.  That does not sound like much, but it can add up, especially when there are thousands of listeners to each song.

The rates were generally well-received within the webcasting industry by all but small webcasters. Large commercial webcasters saw their rate significantly decrease for their free, ad-supported services; Pandora and other “pureplay” services had their non-subscription rate increase and subscription service rate decrease (representing an overall 15% “blended” increase for Pandora); non-commercial stations’ rates were largely unaffected; and small commercial webcasters experienced a significant increase. SoundExchange, and the rights holders it serves, argued for much higher rates. The decision is appealable to the U.S. Court of Appeals.

While the CRB’s decision may not register as big news anywhere but inside the wonky world of webcasting, it highlights a critical distinction between interactive and non-interactive webcasting services, which is of ever-greater importance within the pop music world.

This article was published in the March 2016 issue of the Oakland Business Review.