The downing of Internet radio

Clicked iTunes’ Radio entry lately? If you haven’t spent any quality time exploring its nearly 1,400 streams you might want to do so now, as a fair number of them could disappear in the next few weeks.

Why? Ask the Copyright Royalty Board, a three-judge panel appointed by the Librarian of Congress. This triad of justice has denied a request to reconsider a ruling that increases the fees Internet broadcasters must pay to stream their content. The basis of these fees are royalties for music played on the Internet and satellite radio, collected by Sound Exchange, a non-profit group created by the Recording Industry Association of America (RIAA).

Under the previous arrangement, webcasters paid 12-percent of their annual revenue. The new fees demand that royalties be paid on a per-song, per-user basis. It works this way: Take the number of users you have listening per hour, multiply that number by the number of songs played in that hour, and then multiply the result by the royalty rate (a rate that begins at .08 cents per song per listener and increasing 30-percent each year to .19 cents per year in 2010). Additionally, webcasters will be required to pay an annual fee of $500 for every channel they own. Some networks—including NPR and AccuRadio—own hundreds of channels.

The new royalty arrangement kicks in on May 15th and—worse and worse—it’s retroactive to January 2006.

As you might imagine, Sound Exchange is thrilled. In a statement, Sound Exchange’s Executive Director, John Simson, wrote:

Our artists and labels look forward to working with the Internet radio industry—large and small, commercial and noncommercial—so that together we can ensure it succeeds as a place where great music is available to music lovers of all genres.

Kurt Hanson, CEO of AccuRadio is less happy. In the Save Internet Radio blog he writes:

The implications of this are possibly fatal for Internet radio as an industry —which would hurt listeners, musicians, and independent record labels as well.

Independent, commercial operators like my own were eligible during 2005 to pay a royalty based on a percentage of revenue. We paid about five percent of our revenues as a royalty for rights to the composition (i.e., to the songwriters) and about twelve percent of our revenues to Sound Exchange as a royalty for the sound recordings (i.e., to the record label and the performer). So on $400,000 in revenues, we paid Sound Exchange about $48,000.

Under the judges’ decision, we owe $600,000 for 2006—which is about 150% of our total revenues! That would absolutely bankrupt us and will force us to shut down.

And that’s true for almost everyone who’s a stand-alone webcaster. (And I suspect it may also be true for most terrestrial radio stations’ streams too.)

So it appears that while Mr. Simson is enthusiastic about working with the Internet radio industry, that industry may no longer exist once the new royalty scheme is initiated. How exactly does that benefit artists, labels, and the music lovers Sound Exchange was allegedly created to serve?

And where is this likely to lead? Say goodbye to the little guys who tend to feature out-of-the-mainstream content. They simply can’t pull in the kind of advertising revenue necessary to support these royalty rates. And who can? The majors. The same kind of outfits responsible for today’s homogenous terrestrial radio.

It’s also likely to lead off-shore. The Copyright Royalty Board’s rates are effective only in the U.S. Were I in the Internet radio business I’d take a cue from pirate radio and spammers and take my business beyond the influence of the CRB and RIAA.

While there’s little time left to put the brakes on this asinine plan, Congress can weigh in. offers ways to contact your representatives. If you care about the future of Internet radio, stop by and make your voice heard.

This story, "The downing of Internet radio" was originally published by PCWorld.

Shop Tech Products at Amazon