May 9, 2007

Music, interrupted

International fans of Pandora’s streaming online music service will have to deal with a rude awakening this week when the company is forced to disable accounts based outside of the U.S. due to licensing issues. While a section of the Digital Millennium Copyright Act allows Pandora to operate under a blanket license in the U.S., there are currently no similar provisions in other countries. Until now, international users have been able to bypass Pandora’s policy by entering fake zip codes (such as “90210”) when they create accounts, but a new IP filtering process has placed a burden on Pandora to identify and restrict those listeners.

On the heels of this development is another looming threat to anyone who enjoys Pandora and other streaming radio stations. A recent ruling from the Copyright Royalty Board scheduled to go into effect July 15, 2007 would dramatically increase the royalty rates streaming services are required to pay, which would ultimately put many of them out of business. SoundExchange, the nonprofit organization that handles the administration of performance royalties earned from digital transmissions, supports the hike, arguing that the increases are necessary in order to fairly compensate artists. Those who oppose the increases (see: SaveNetRadio.org) say that streaming services are one of the only places where independent musicians get exposure and such a drastic increase in costs would homogenize online radio and leave only the biggest players in business.

As data gathered for our recent Typology report shows, the potential audience for streaming music providers is substantial, so there’s a lot at stake. Close to one in four adults who own desktop or laptop computers say they listen to music or the radio on their computers (24% and 21%, respectively). Not all of those listeners are necessarily relying on streaming services, but as broadband adoption rates continue to increase at home and in the workplace, the sound of streaming music providers (or those that still exist) will undoubtedly reach many more ears.