Last.fm, Pandora KO-ed by new royalties?

UPDATED: If you are an Internet broadcaster (webcaster is the politically correct phrase), then the recent changes in the music royalty regime could seriously impact your business – causing you to pay more, and make fewer profits.

It is not just the small webcasters who are going to be impacted by this attack on one of Broadband’s killer apps. Some music start-ups like Last.fm and Pandora – could find themselves facing higher tabs and tough times ahead.

“Left unchanged, it’s over for us and every other internet radio service, period. Makes it un-viable,” Pandora co-founder Tim Westergren wrote in an email. “We’re staying online because we’re hopeful that sanity will eventually win out. This is a ludicrous ruling.”

Till recently, the royalty rate was about 7/100th of a penny per performance, allowing many small webcasters to thrive and build sizeable audiences. At 14-15 songs per hour, it worked out to about penny an hour – one of the main reasons why Yahoo could offer music-streaming services at affordable prices.

However, now the equation has changed – the royalty rates will increase every year through 2010 when it is going to cost about $0.0019 per performance. While not much when taken as a single performance, the amount does add up if you are a company that streams millions of performances per day. (The details of the new arrangement are very well explained on this website.)

What’s good the goose is good for the gander, right! (#)

That means start-ups like Last.fm and Pandora that match your musical preferences with artists/albums on their giant social nets music tastes and then stream music to your desktop, might be at risk as well. P2P Radio start-ups like Mercora might be facing some static in coming months as well.

Raghav Gupta, who in his past life had worked at Yahoo Live 365, has some interesting thoughts on his blog. He points out that the royalty changes could impact any MA activity, such as the rumored Last.fm/Viacom deal.

Some services that allow a greater form of interactivity, like Last.fm or Pandora, may well be subject to higher rates keyed off the statutory ones based on any deals they’ve negotiated directly with the labels.

I have emailed folks at some music 2.0 start-ups including Last.fm and Pandora, but have not heard back from them just yet. I will update the post to reflect their thoughts and reactions. Meanwhile, Mike Masnick sums it up nicely when he writes:

…this is utterly backwards and damaging to the industry itself. A webcaster (especially the smaller, independent ones) is a great means of promotion for artists. It tends to attract more loyal and well-targeted audiences….

Originally published at 7 pm on Monday, updated at 11.10 pm

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