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On Wednesday December 16, in a highly contested decision, the Board ruled that Pandora Media Inc and other digital streaming services will face an increase in royalty costs come 2016. Pandora had hoped the decision would go the other way, reducing their royalty costs.
Copyright royalties are fees that are paid to owners of a copyright by an individual or company. The copyright holder still retains ownership of its work, and the copyright isn’t being sold; instead, the license is issued to allow the licensee the opportunity to use the work in some way. In this case, the copyrighted material is broadcast to members using Pandora and other similar digital streaming services. In return for the right to broadcast music, Pandora and other streaming services must pay copyright fees—royalties—to the licensing parties.
The royalty rate will be increased to 17 cents for every 100 songs played on non-subscription services, up from the current rate of 14 cents per 100 songs. For subscription services, it was lowered by a penny, from 23 cents per 100 songs down to 22 cents. Rates for future years were not set, but the Board did provide an opportunity for increases or decreases to take place, depending on the consumer price index.
This decision has pros and cons for both sides; digital streaming services are paying more instead of less, and at the opposite end of the spectrum, record labels and artists have seen an increase, but not one as significant as they had been hoping for. SoundExchange, a company that collects royalties for record labels and artists, works as the intermediary between the streaming services and labels and had been pushing for an increase of 80 percent. Depending on the source, SoundExchange seems content with the increase as it stands.
Pandora is the largest of the digital streaming companies to be impacted by this decision, which also include smaller companies like iHeartRadio. These rate changes do not affect on-demand services, such as those offered by Apple Music and Spotify, which have negotiated their own, separate deals.
Wednesday’s decision resulted in an apparent erasure of uncertainty that had been dragging the company downwards: Pandora shares spiked by 20 percent following the decision. While the increase in cost may bother them, it seems to have resulted in an increased trust in the company, which could be beneficial moving forward.
The formal decision will be released in the coming weeks, after parties have had the opportunity to redact any confidential information that was shared during the trial.
For more information about copyright royalties, contact Revision Legal’s Copyright attorneys through the form on this page or call 855-473-8474.
The Copyright Royalty Board (CRB) is a judicial body within the Library of Congress, established by the Copyright Royalties and Distribution Reform Act of 2004, 17 U.S.C. §§ 801-805. Three Copyright Royalty Judges are appointed by the Librarian of Congress and serve staggered six-year terms. The CRB’s primary function is to set statutory royalty rates for the compulsory licenses created by the Copyright Act—licenses that allow certain users to exploit copyrighted works without obtaining individual permission from rights holders, provided they pay the statutorily determined rate.
The statutory licenses relevant to digital streaming include the Section 112 ephemeral recording license and the Section 114 digital performance right in sound recordings. Section 114 requires digital audio services—including non-interactive streaming services like Pandora and iHeartRadio—to pay performance royalties to sound recording copyright owners (typically record labels) and featured artists. The CRB sets these rates in five-year rate determination proceedings called “Webcasting” proceedings, the most recent of which are the Web IV (2016-2020) rates at issue in the decision described in this post.
The Copyright Act draws a sharp distinction between interactive and non-interactive digital streaming services. Non-interactive services—those that play music selected by the service, not the user, without the ability to skip freely or play songs on demand—are entitled to use the Section 114 statutory license. Pandora and iHeartRadio are non-interactive services. Interactive services—those that allow users to select specific songs, create custom playlists, or listen on demand—cannot use the Section 114 license and must negotiate direct licensing agreements with record labels and publishers. Spotify, Apple Music, and similar services negotiate these licenses directly, which is why the CRB’s rate-setting did not directly affect their royalty costs.
This distinction matters for royalty analysis: non-interactive services are legally obligated to pay CRB-set rates, while interactive services’ rates are purely a function of private negotiations. The major labels’ negotiating leverage with interactive services is significantly greater, which is why per-stream royalty rates for interactive services have generally been higher than the CRB-determined rates for non-interactive services.
SoundExchange serves as the designated agent for collecting and distributing Section 114 digital performance royalties. Under the statutory framework, digital streaming services pay royalties directly to SoundExchange, which then distributes 50% to the copyright owner (typically the record label), 45% to the featured artist, and 5% to a fund for non-featured musicians and vocalists. SoundExchange is designated by statute under 17 U.S.C. § 114(g)(2) and is the only entity authorized to collect Section 114 webcasting royalties.
Artists and rights holders who believe they are owed uncollected SoundExchange royalties can search for unclaimed funds on the SoundExchange website. Registration with SoundExchange is required to receive distributions—rights holders who are not registered simply forfeit their share of collected royalties after a three-year holding period.
The statutory licensing framework applies specifically to digital performance of sound recordings. Separate royalty streams flow from different rights:
If you are a musician, songwriter, record label, or digital content creator with questions about copyright royalties, licensing obligations, or rights registration, contact Revision Legal at 855-473-8474 or complete the contact form on this page. Our copyright attorneys can help you understand what you are owed and how to collect it.
The landscape of digital music licensing continues to evolve rapidly. Streaming services negotiate rates in multi-year proceedings before the CRB, and each new rate period brings litigation between rights holders pushing for higher rates and services pushing for lower ones. For musicians, songwriters, and rights holders who want to ensure they are maximizing their royalty income from digital streaming—or for digital services that need counsel on their statutory licensing obligations—the copyright attorneys at Revision Legal can help. Contact us at 855-473-8474 or complete the contact form on this page.
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