Pandora founder rejects criticism of Internet royalty bill

Pandora founder Tim Westergren on Tuesday pushed back against claims that an Internet royalty bill pending in Congress would take money away from musicians and recording artists.

Westergren is a vocal proponent of the Internet Radio Fairness Act, which proposes to put Internet radio services on the same royalty-setting standard as satellite and cable radio stations. The Pandora founder has argued that Internet radio stations unfairly pay higher royalty fees than other digital radio services because they're placed under a different standard. 

Critics of the bill, such as musicFIRST, have said that Pandora is more interested in its bottom line than fairly compensating artists. Speaking at the Future of Music Summit on Tuesday, Westergren said those charges are false and emphasized that the bill does not set royalty rates for Internet radio services.

"That's a huge misnomer. It's really important for artists to try to parse the rhetoric around this. That is not true," Westergren said.

"What this legislation proposes to do is to provide us with the same rate-setting standards so when the Copyright Royalty Board considers our situation, they get to consider that evidence under the same sort of rubric," he said. "It doesn't set a rate. It's been unpredictable in the past. It wouldn't even bet on what the outcome would be. It allows us to operate on a level playing field."

However, Westergren said the hope is that the bill would lead to lower royalty fees for Internet radio services like Pandora.

"We're asking for a standard parity, which we think will lead to a lower rate. Hopefully it will," he said.

Westergren said that the market for Internet radio has been hampered by high royalty fees and that Pandora hasn't faced much competition over the years. He noted that earlier competitors in the field — AOL, Yahoo and MSN — have all left the Internet radio business because it wasn't profitable.

"Most businesses are reluctant to enter it," he said. "I think that should set off alarm bells."

Westergren said although Pandora's revenue has been "doubling for some time" and its listener base has continued to rise, the now publicly traded company has struggled to stay profitable.

"It's kind of a Jekyll-and-Hyde business. On the growth side, it's been a wonderful story," Westergren said. "Profitability is a different story for us. … We're really struggling to make that happen."

Record labels and Internet radio services struck a deal in 2009 that set royalty rates for streaming music online, but the terms of that settlement are set to expire in 2015.

Following the panel, Westergren faced a tough questions from the audience about how the bill would affect artist compensation.

"I totally empathize with artists and groups, even the most vocal ones, that are upset about it, but I think we can get past that and talk about the ... facts of this," Westergren told reporters."They'll understand what we're saying."