The bill would change the standard by which Internet radio royalty rates are set. Currently Internet radio companies like Pandora come under a standard called "willing buyer, willing seller," which theoretically should mimic the amount companies would pay if they negotiated with artists individually; Pandora executives want to switch to the standard applied to SiriusXM, Muzak and cable radio stations, which allows the federal panel that sets rates consider whether the rates would be "disruptive" to a company's bottom line. Kalo asserts that the switch would cut rates more than 80 percent; Westergren acknowledges that he wants rates to go down but says there's no way of knowing how deep the federal panel would cut them.
Internet radio royalties are tiny. In 2012, Pandora's royalty payment was about a tenth of a cent each time a song was played, so when you leave it on for an hour, you're costing the company about 1.65 cents. Yet Westergren projects that big stars such as Drake and Lil Wayne make $3 million a year from Pandora alone, and even a lesser-known artist, such as gospel star Donnie McClurkin, pulls in $100,000. Executives at SoundExchange, the nonprofit group that collects royalties, accuse Westergren of spreading a distortion because 90 percent of artists receive less than $5,000 a year in annual digital royalties.
After the introduction of the Pandora-backed bill, Westergren and Pandora are both the instigators, and the target, of a public campaign, complete with a deluge of competing calls and e-mails to Congress. MusicFirst attacked the proposal in a two-page Politico ad citing the opposition of 133 artists, such as Vince Gill, Bonnie Raitt, Maroon 5 and Britney Spears.
"A charitable explanation is that they were ill-advised about the strength of having a large e-mail list of subscribers," Kalo said in an interview. "A less charitable explanation is that they're trying to build the value of their company in a substantial way before they cash out."