Blog Post

Does the Record Industry Want To Kill Internet Radio?

Pretty much every radio platform is going through an uncertain time. Terrestrial radio seems to have new competition every day, the two satellite radio vendors are hoping an unlikely-to-be-approved-by-regulators merger will keep them afloat, and now Internet radio is in big trouble. Due to new fees that have been tentatively approved by regulators, Internet radio may be impossible to manage financially for all but the biggest players. As the Wall Street Journal reports, Kurt Hanson, owner of the online radio company Accuradio “calculated that under the old rules Accuradio’s sound-recording royalty payments last year would be about $50,000. But under the new schedule, Mr. Hanson figures that his bill now amounts to about $600,000 — more than all of last year’s revenue.” NPR, which has been moving heavily into online music, said through a spokesperson that it intends to fight the change.
For those who want a detailed retelling of the story, Doc Searls is your man. He starts with what might appear to be an overdramatic lead sentence — “Internet Radio has been sentenced to death.” — and then justifies it. Another good job of placing the decision into historical context is today’s Jason Fry column in the WSJ, in which he lays out how two mid-’90s votes by Congress made the current mess in the U.S. Copyright Royalty Board inevitable.
At first, the coverage of this story was mostly from people who had a horse in the race. Typical was a posting on Pandora’s blog by founder Tim Westergren that stated, “Left unchanged, these rates will end Internet radio.” Others took ad hominem shots at SoundExchange, the RIAA-related group that worked for these new rates. Now, as the stakes are clearer, the coverage is moving from the specialists to the generalists. And it’s a fascinating story: At a time when the record industry, which lobbied for the recent decision, should be grasping at any opportunity for innovation, it has instead, apparently, decided to once again litigate or regulate innovation out of existence. Why would terrestrial stations stream over the Net if doing so exposes them to more types of royalty payments than typical radio broadcasts?
The new rule appears to be impossible for all but the largest webcasters to even consider. (AOL, going heavily into streaming, is one of the players with advertising that could potentially offset the rising costs; still, it would take a lot: Hanson estimates AOL’s annualized cost at $20 million.) Various estimates (again, developed by partisans on one side, but SoundExchange hasn’t countered with its own numbers) suggest that under the new rule, the performance royalties paid out by Internet streaming services could top $2 billion a year. That’s nearly four times what terrestrial radio stations — of which there are more 14,000 — will pay out. Why haven’t any major players in the record industry spoken out against this? How could this possibly be good for the record industry?
Copyright Ruling Would Make Webcasting More Expensive