Internet radio was sentenced to death on Sunday July 15th, but SoundExchange, the music industry royalty collection agency, has granted a temporary reprieve. It reminds me of Napster. The music industry won the lawsuit, and then lobbied congress to set outrageously high royalty rates. The Internet radio stations would all be forced out of business. SoundExchange will now figure out how to set the royalties so that Internet radio stations are squeezed to within an inch of death, but still kept on life support so they can pay royalties. All potential profits will go to SoundExchange and the record labels.
Traditional radio stations pay no royalties to the record labels. In fact, for years it has been the other way around...the labels paid the radio stations. Payola has been used for years by the record labels to promote new songs. The record labels know that people buy music after they hear it on the radio. They seem to have forgotten this when it comes to Internet radio.
The Internet introduced a new way to broadcast radio but this time the record labels would make sure they got a big cut of the revenue. As usual, they got too greedy. The new laws are complicated, involving a per station minimum fee and a royalty per song per user. Thats right...per listener. The Chicago Tribune did an interview with the founder of Pandora. Here is an excerpt;
The liability for Pandora in the new rate's first year, he calculated, could pass $3.5 billion because the ruling includes a $500 minimum per channel, and Pandora functions by having its 6 million users set up as many as 100 of their own music channels.
"It's an utterly ridiculous ruling that renders any form of Internet radio non-economic," Pandora founder Tim Westergren wrote in a blog post on his site.
At KCRW-FM, a Los Angeles-area public radio station popular on the Web, the royalties paid could climb this year to $190,000, even taking into account the discount the rules give non-commercial stations.
"It essentially doubles our streaming costs online," said Anil Dewan, the station's director of new media.
Under the royalty agreement in place since 2002, the rates paid to a song's performers, separate from those paid to its composers, were between 6 and 12 percent of a station's revenue. The new rates, a structure advocated by SoundExchange before the copyright board, charge 8/100ths of a cent per song per listener for 2006, for which the ruling would apply retroactively, 11/100ths for 2007, and slightly more in the last three years of the agreement.
It sounds like small change, but it adds up to much greater numbers than the percentage-of-revenue method--in the case of Hanson's operation, to the more than $600,000 for 2006. A co-owner of California Web station Radio Paradise said its fees would go up about tenfold, as well.
Congress is considering a new approach, the Internet Radio Equality Act, which would set webcaster royalties at 7.5 percent of revenue with no minimums per station. This would allow smaller stations to survive and grow.
This story is far from over. The record labels clearly have the upper hand. The question is will their greed cause them to kill the goose that lays the golden eggs.
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Pandora need pay 3.5 bn?! The industry is simply too greedy. Enjoy the internet radio while you still can
suggest this internet radio listen live website: http://www.radio-time.com, channels are organized by genres and city, country
Posted by: Thomas Vankorssen | September 09, 2007 at 08:24 PM