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March 4, 2007

New royalty rates threaten Internet radio, fledgling U.S. businesses

The creation of a public culture staggers again. The latest blow came down Friday.

Kurt Hanson's Radio and Internet Newsletter (RAIN) has tracked this for years, and now leads with Daniel McSwain writing,

The Copyright Royalty Board (CRB) has announced its decision on Internet radio royalty rates, rejecting all of the arguments made by Webcasters and instead adopting the "per play" rate proposal put forth by SoundExchange (a digital music fee collection body created by the RIAA).

RAIN has learned the rates that the Board has decided on, effective retroactively through the beginning of 2006.

2006 - $.0008 per performance
2007 - $.0011 per performance
2008 - $.0014 per performance
2009 - $.0018 per performance
2010 - $.0019 per performance

The minimum fee is $500 per channel per year....

Because a typical Internet radio station plays about 16 songs an hour, that's a royalty obligation in 2006 of about 1.28 cents per listener-hour. ... total revenues per listener-hour would only be in the 1.0 to 1.2 cents per listener-hour range.

In 2002 the panel set the royalty rate at seven-hundredths of a cent per song, per listener, so we're escalating here.

Listener-supported Radio Paradise reacts:

For some time, we've suffered with a system where we pay a large chunk (10%-12%) of our income to the Big 5 record companies - while FM stations and radio conglomerates like Clear Channel pay nothing. Now they want even more. In our case, an amount equal to 125% of our income...

The RIAA can, at any time, agree to strike a deal with independent webcasters to allow us to pay a more realistic royalty, one based on a percentage of our income. We're hoping that if all of you make enough noise they'll be more inclined to do so. We'd also like to hope that at least one member of Congress will take a look at this situation and become willing to propose ammendments to the deeply flawed 1990s pieces of legislation that are responsible for the unfair treatment of Internet radio.

Scroll down at RAIN for Hanson's take on all this. Worth noting:

Here at RAIN, we're guessing that Pandora has an audience approaching that size. (Pandora founder Tim Westergren claims that Pandora now accounts for 1.5% of all Internet traffic.) Such a royalty obligation might exceed the total proceeds of all their recent rounds of venture capital plus all their sales revenues to date.

Since Last.fm is based in the U.K., another possible outcome is that Pandora dies and Last.fm becomes the "social music networking" player.

On the Internet, it hardly matters to the listener if the stream originates in the U.K. or the U.S. But is putting U.S. companies out of business the intent of our government?

David Oxenford at Broadcast Law Blog notes that the law of unintended consequences applies here:

In the recently proposed XM/Sirius merger, about which we wrote here, the satellite radio services were arguing that competition from Internet Radio lessened any anticompetitive threat from the anticipated combination of the companies. Similarly, broadcasters have argued that webcasters provided competition that justified a relaxation of the multiple ownership rules. If many Internet radio stations disappear after this decision, these two proceedings may well be affected.

Earlier, he wrote,

...the rates are going up significantly over the next few years. More importantly, especially for smaller entities, there are no royalty rates based on a percentage of revenue as were in effect for small webcasters under the Small Webcasters Settlement Act.

Who in Congress will speak for the little guy?

Bonus links: Doc Searls: The Promise of Radio Paradise: An Open-Source Challenge to Commercial Radio, Linux Journal, January 2002.

Internet radio starters

Radio-Locator, radio station search engine

How to create an internet radio station

Update: Doc Searls picks this up (RIAA moves to kill Internet Radio) and adds, in reference to the fects of the 2002 fee-per-song-per-listener structure,

As it developed, Internet radio didn't die. Instead, what happened was the growth of talk radio on the Net, mostly in the form of podcasting. No doubt an unintended consequence of the CARP ruling (creating high bureaucratic and financial costs for broadcasting RIAA-sanctioned music on the Net) was the growth of podcasting.

Alas, I'm seldom available for talk radio of any sort. If I'm coding or making pages or writing, I can't pay attention to others' thoughts and words. I need music then. My commute is short, and I'm seldom alone, uninterrupted, long enough to catch an entire podcast, no matter its length.

I would so much rather hear little niche streams from the "record collections" of friends and kindred souls than the loops of music "stations" on cable TV. These must still be passed around privately.

Podcasting isn't a substitute.

Posted by Sheila Lennon  at 9:51 AM | Permalink

Comments

Posted by: Randy on March 11, 2007 3:22 AM