Radio Silence

Many of the leading Internet radio stations are silent today in protest over the new Sound Exchange royalty rates that are supposed to go in effect on July 15th. Yahoo Music has a good blog post explaining what is going on.

I have mixed views on this subject. First and foremost, I don't like congress setting any rates. I believe the markets should be allowed to work. However, there is a compulsory license meaning that rights holders are forced to license their music to radio stations. That's the reason congress is involved in the first place.

I also believe that the current audience size for Internet radio is sufficient that an advertising model could cover a lot of royalties to rights holders. The claim that higher rates are going to put Internet radio out of business seem a tad overblown to me.

But I am with the Save Internet Radio coalition in the end because I think the rate increases are too steep and there's not enough of a reliance on a revenue share model. This is ultimately a market that can make both the Internet radio services and the music rights holders a lot of money.

But growing new markets takes time and patience. It sure feels like the steep rate increases are more about squashing this new medium instead of letting it develop along a normal timeline.

So I am for a compromise. Sure, take the minimum royalties up from where they are. Nudge all the Internet radio providers into a commercial model. But do it slowly and carefully so we don't kill the golden goose before it even lays the egg.

Comments

[Harry DeMott]

Couldn't agree more. What's more, I think that the internet radio guys agree as well. What is completely screwed up in this CRB ruling is that it is based upon what they deem as a willing buyer willing seller relationship, which clearly does not exist at the rates the board wants to charge. I've yet to meet someone on the internet radio side that believes that they should not compensate artists - but as well all know, if you can't cover your costs, you can't compensate the artists and everybody loses. What the Internet radio guys have not figured out completely, is that they need to get the record companies on their side by making it easier to purchase music on the site. Your favorite last.fm made damn sure that the labels knew that they were on the same side and they got sold for $280M (plus an earnout) My favorite Pandora hasn't figured this out yet - and guys like Yahoo and AOL are just looked at as monster companies milking the labels for traffic. I understand the Day of Silence - but I hate turning off the music. There has to be a better way and a better solution. I always though that a hybrid solution whereby you would pay a percentage of advertising revenue offset by music sales would work nicely. The more you sell the less your royalty payments. Works for the artist, the label and the site - and the consumer would get a better experience as well.

[Derek]

One wonders what Fred thinks about the "fairness" doctrine given his fondness for working markets...

[Richard Coombs]

The Last.fm team have an interesting blog post on their reasons for not joining in the US's "National Day of Silence". (http://blog.last.fm/2007/06/25/make-some-noise)

I can understand the net radio broadcasters putting up a fight over these royalties, but Last.fm provides us with an insight into their view of the users:

"We do not want to punish our listeners for our problems, period.
...If a commercial challenge comes up, we have to deal with it."

[OffBeatMammal]

As a fan of Pandora (who have introduced me to a ton of music I've actually gone out and found the CDs for - no DRM for me thanks) I hope the Day of Silence does raise awareness of the heavy handed way this is being handled.

I've currently got a Sirius subscription because I love the fact it's advert free. I hate the fact that just like commercial radio it still seems to have a dozen tracks on rotation ... which is why Pandora is so good for me.

If they survive to the end of July I'll happily take out a subscription, but if they're driven to follow mind numbing FM Radio down the path of irrelevant and ill-fitting sponsorship messages and product spruiking then it's back to CDs for me

[Andy Swan]

"I don't like congress setting any rates. I believe the markets should be allowed to work."

I assume this also goes for minimum wage, rent control and gas prices....right?

[David Porter]

The biggest issue is the basis for calculation of the rate. Any reasonable %-of-revenue rate, subject to an annual/monthly minimum (which itself could be tiered in some way), would solve the entire issue.

This was what saved the small webcasters last time 'round and should in some form be applied to all webcasters so there's no odd "ceiling" that limits small guys' growth.

The per-stream minimum needs to go away. Let labels effectively invest in this nascent sector on an "equity" (rather then fixed-payment "debt") basis. There will be more revenues in the long run (and quite possibly short run too), both from streaming royalties and other sources that are supported by exposure (music sales, concerts, etc).

If not, then the market will take over. Webcasters will just have to do direct deals with indies, take the outsized rate for content from the Majors for the time being (most likely), and lower their blended average to something that can be supported at today's CPMs.

The business potential for the digital music sector (whether radio-style or on-demand streaming) all comes down to the minimums, really.

[adam still]

Kill the golden goose before it hatches??? This is what the music industry does best!! Their greed is soo short sighted and fixed on the approaching quarter..
I remember a time when alomost ALL of the internet music downloaders were congregated in one place; napster.. instead of having the foresite and business model to capture this concentrated group, the music industry kicked in the door and started a witch hunt through dorms all over America! led by Lars, and others, they spread the 40 million users all over the interent to never be gathered in one place again, thus making it impossible to pin down piracy and gave way to 7 years of declining record sales.. If they would have worked with napster for a price they would now LOVE to have, Capitol Records might be able to pay their electric bill today..

So the fact that they are pushing for a ridiculous increase in royalties does not really surprise me.. Just another of example of short-sightedness that we've come to expect from this industry..

Their un-ability to work with the changing face of the industry and their attempts to squeeze their goose dry at every turn will continue to bring them down until they have no financial leverage to combat the looming 'free music model' that is being thrown around..

a little vision and a lot of compromise would have saved the industry back when Napster hit, and once again could salvage a lot of $$ in the future rather than a modest amount now..

[josh]

I think Last.fm's response is appropriate. As for Pandora, all I can say is that it's by far the best not-for-profit shelter for aging musicologists out there!

[Ryan Spahn]

My drive to work on June 26th was definitely a silent day as I stream net radio through my Treo 700w.

Let's all hope we don't experience more days like this!

Internet radio has a big future ahead of itself! Mobile phones with built in web browsers(Mobile IE, Safari & mobile Firefox with tabs someday) will become the norm and allow us to easily tune in and enjoy Internet radio.

[Raf Fiol]

Is there a silver lining? Perhaps. Faced with steep rates and impending dissolution, net radio stations will either be forced to change their business models, or they will seek alternative, royalty-free content. Here's a thought: there are thousands of independent musicians pumping out fresh new music under the creative commons licensing models (http://creativecommons.org). Smart net stations will find it, embrace it, and broadcast it. Open source music is real. And it's every bit as good as the commercial stuff. Kompoz.com (disclosure: I am materially involved in Kompoz) is a social networking platform for musicians collaborating from all over the world to create "open source" music. The future of music is collaborative, open, and shareable. Net radio has a very bright future indeed.

[jim]

hi fred,

i was going to just post a comment, but then decided it'd be more productive if i try to become part of the conversation by posting thoughts on my own blog. that yahoo music post is high on emotion, but short on law or putting this thing in a bigger context. so i'd be thrilled if you check out what i have to say, it's mostly just copyright primer stuff and explores the statutory basis for how the numbers got to where they are. i'm sure you're familiar w/ some of the stuff i say, but maybe there's some new stuff in there that helps balance this discussion. thanks.