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Last Updated: Thursday, 8 March 2007, 13:12 GMT
Royalties threaten internet radio
By Rory Cellan-Jones
Technology correspondent, BBC News

Pandora internet radio station
Websites like Pandora offer listeners a personalised service
Internet radio stations are warning they could be forced off the air by a big increase in the royalties they pay to play music.

The warning comes after a decision by a US copyright body to increase royalty payments for music via the net.

Commercial webcasters in the US now face the prospect of paying more than twice as much for every track they play.

Interactive services like Pandora and Last.fm say they could be badly hit.

These kinds of websites have attracted a growing audience by offering users their own personalised radio station.

Users enter their favourite artists or track, and the internet radio stations stream music to them to suit their tastes.

'Grassroots movement'

The founder of Pandora, which is based in Oakland California, has e-mailed all the station's users warning them that the service may not survive.

Tim Westergren called the rise in royalties a "terribly ill-conceived attempt to crush a powerful and positive grassroots movement that is sweeping across the music world".

It is a decision by the Copyright Royalty Board, a US body, which has caused the panic.

We are competing with unlicensed services and this makes it almost commercially unworkable
Martin Stiksel Last.fm

In a decision which the internet radio stations say was influenced by the record labels, it has ruled that royalties should rise from .08 cents per track to .19 cents by 2010.

The figures are tiny but for small start-up businesses they could prove crippling.

"Left unchanged," says Mr Westergren, "these rates will end internet radio, period."

Pandora is not licensed outside the US, and warns on its site that it is only for US citizens.

But the site has plenty of users around the world who ignore that message.

UK concern

Last.fm, an interactive music service based in London that has 15 million users worldwide, is also worried by the American ruling.

The founders of the service say that internet radio is only one part of what it offers but they are concerned by what is happening in the US.

"The US is one of our strongest markets," says Martin Stiksel of Last.fm.

"We are competing with unlicensed services and this makes it almost commercially unworkable. Users are being driven away from licenced services that are trying to do the right thing."

Anyone who streams music over the internet has to pay a licence fee, whether they are standard broadcast radio stations putting their content online, or new internet start-ups.

In the UK, the fees are administered by a music industry organisation called Phonographic Performance Ltd (PPL).

A spokesman for PPL said the fees paid by internet radio stations in the UK were currently under negotiation but the likely result was that they would end up paying more.

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