Raw Deal

July 10, 2009

Over the last two years there’s been a push to raise royalty rates on internet radio stations to the point where none would exist. In the last day, news outlets have been reporting the royalty war is over.

If its over, its because internet radio has lost. The devil, as he usually is, is in the details, and boy are they ugly. Let’s begin with the little guy. It starts with this:

The agreement also calls for all pureplays to pay an annual minimum fee of $25,000, which can later be applied to royalties.

If you want to play, you have to pay at least $25,000. Goodbye small internet radio stations.

This article brings up the other issue lurking:

Note that these rates, while cheaper than before, remain fairly expensive. Pandora’s Westergren, for example, noted in that blog post that the site would have to charge listeners 99 cents if they tune in for more than 40 hours in a month.

These rates also far exceed those that satellite-radio broadcasters pay–6.5 percent of gross revenue this year, rising to 8 percent in 2012–and infinitely exceed the rates–zero percent–that American FM and AM stations cough up to musicians and labels. (In most other countries, terrestrial radio stations already pay performance royalties.) That has been the fundamental problem with the Web-radio-royalties debacle, going back not just to 2007 but to 2002: One group of businesses is getting charged more than others that provide the same basic service, apparently for the sin of taking too long to hire good lobbyists.

And that’s the larger issue. For the last two years this has looked less like making sure artists are fairly compensated and more like it was about putting internet radio out of business. If this were about nothing more than the cold hard cash, we would expect that copyright holders would do their best to make sure they stand to make as much money as possible, and instead of putting out of business people who could be paying them some money, they’d be doing their best to get some sort of revenue stream out of them.

Four SoundExchange, this isn’t about maximizing revenue for copyright holders, this is about suppressing as much as possible the new paradigm that digital distribution represents.

I’ll leave you with an excerpt from Bill Goldsmith, founder of Radio Paradise:

I understand that Mr. Westergren has advertisers and potential advertisers who need reassurance that Pandora will still be around. But this is hardly a victory for webcasters. It perpetuates a situation where the ability for the Internet radio industry to grow and prosper is hampered–to a nearly fatal degree–by the record industry’s blatant attempt to recoup some of the money lost by their mismanagement of all things digital.

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