HispanicBusiness

After two years of negotiations Pandora, along with other online radio stations, have reached an agreement with the Recording Industry Association of America and music record labels to decrease royalty costs for the Web sites.

In a previous agreement reached in 2007, Pandora was paying a per song flat rate that cost it nearly 2 cents an hour per user, and that rate was scheduled to step up to 3 cents by 2010. The new contract made on July 7 cuts the per song cost by approximately 50 percent. However, the agreement requires that stations pay either per song or 25 percent of its total revenue, whichever amount is greater. As online radio sites like Pandora make more money, the per-song rates will increase in order to stay equivalent to 25 percent of the stations' revenue. Each station will a pay different per-song amount and that rate will also grow at different paces based on the radio stations' success.

"This saves our hide," Pandora CEO Tim Westergren told HispanicBusiness.com.

Though the previous rate and the newly agreed upon per-song cost only ring in at a fraction of a penny, Pandora averages more than a million users per day and that number is growing. "When you are streaming billions of songs it adds up," said Westergren. At one point Pandora's per song fees equaled more than 70 percent of its revenue, though before the agreement took place Pandora had that number down to around 50 percent.

The agreement took place through Sound Exchange, a non-profit group that protects the rights of recording artists. Westergren said that both the Web casters and the rights holders generally felt very good about the final decision. "This is the agreement we've been looking for," he said.

The new contract is voluntarily signed by Web casters who can instead choose to pay the previously determined per song rate. The new agreement will remain valid through 2015.