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High royalty fees could cause Pandora to close its music box

Music discovery service and online radio station Pandora may have to shut down, thanks to high royalty fees imposed last year by the US Copyright Royalty Board. Pandora founder Tim Westergren says his company is currently paying 70% of its revenue to SoundExchange, the organization that collects royalties for artists.

While nobody is arguing that artists shouldn’t be paid for their work, this Copyright Royalty Board decision has always seemed a bit shortsighted. First of all, artists don’t make a penny for music broadcast on traditional radio, even though radio station owners bring in plenty of dollars through advertising. Second, since Pandora doesn’t just stream audio, but determines a listener’s musical tastes and streams music from artists they might like, the service is an amazing promotional tool for musicians who might otherwise not be heard. Why would an organization that says it’s concerned with paying artists try to shoot that service in the foot?

Webcasters have to pay a fee every time they stream a song — and that fee is rising from 8/100 of a cent per song last year to 19/100 of a cent per song by 2010. The new royalty rates are hitting Pandora especially hard because the company streams hundreds of thousands of songs to hundreds of thousands of listeners simultaneously. I assume similar services like Last.fm are also feeling the pinch, but Last.fm was recently purchased by media giant CBS, while Pandora is an independent company with shallower pockets.