Pandora gives up on law to reform music royalty rates

Streaming site Pandora(s p) has quietly given up its campaign to get Congress to pass the Internet Radio Fairness Act, a law that would have put online radio services on a more equal footing with AM/FM and satellite stations when it comes to licensing song rights.

“We are pragmatic and recognize the low probability that Congress will address this issue in the near term,” Pandora co-founder Tim Westergren said in a statement.

The decision is being hailed as a victory by the music industry, which has waged a high profile campaign against the law, and where some have blamed streaming services like Pandora for a decline in their income.

This view may not be fair, however, given that Pandora reportedly pays 70 percent of its revenue to obtain licenses from both songwriters and performers. By contrast, companies that deliver radio via satellite or cable services pay a lower rate under two separate licensing regimes, while traditional AM/FM radio stations must only pay the songwriters — they don’t pay the performers at all. (Billboard has a more detailed breakdown).

The confusing patchwork of royalty rates is partly the result of political pressure from the traditional music industry, which is anxious to make up the revenue it is losing from a decline in CD and record sales.

For Pandora, the failure of the Internet Radio Fairness Act could place it in a tough spot when its locked-in licensing rates from the major record labels expire in 2015. It must either obtain rates from the Copyright Board, which has set high rates in the past, or negotiate directly with the labels, who aren’t necessarily fond of Pandora.

The situation is different for other online radio services, including Spotify, which is paying individual bands based on its subscription service, and Apple, for whom licensing fees for its new iTunes Radio are a pittance relative to its overall business.

For music lovers, however, the failure of the Internet Radio Fairness Act could result in more expensive music or less selection.

(Correction: this was story was updated on Tuesday morning to note that Tim Westergren is Pandora’s co-founder, not CEO)