Internet Radio, R.I.P.

shotinfoot1.jpgThe music industry held the gun while the Copyright Royalty Board pulled the trigger today, as a decision to effectively triple the rate paid by Internet radio stations for retransmission of recorded works sounded the death knell for a budding business model. Via RAIN:

The Copyright Royalty Board (CRB) has announced its decision on Internet radio royalty rates, rejecting all of the arguments made by Webcasters and instead adopting the “per play” rate proposal put forth by SoundExchange.

RAIN has learned the rates that the Board has decided on, effective retroactively through the beginning of 2006. They are as follows:

2006 – $.0008 per play
2007 – $.0011 per play
2008 – $.0014 per play
2009 – $.0018 per play
2010 – $.0019 per play

RAIN ANALYSIS: In 2006, a well-run Internet radio station might have been able to sell two radio spots an hour at a $3 net CPM (cost-per-thousand), which would add up to .6 cents per listener-hour. Even adding in ancillary revenues from occasional video gateway ads, banner ads on the website, and so forth, total revenues per listener-hour would only be in the 1.0 to 1.2 cents per listener-hour range.

That math suggests that the royalty rate decision — for the performance alone, not even including composers’ royalties! — is in the in the ballpark of 100% or more of total revenues. (KH)

The industry’s rationale, which was adopted completely by the CRB, was as follows (via broadcastlawblog):

Essentially, SoundExchange argued that Internet Radio confers little promotional benefit to most performers, and that there was a large risk of “stream ripping” which would result in lessened sales of CDs and legal downloads. Moreover, the Recording Industry argued that the economics of webcasting are improving and that this higher royalty should be able to be paid by an “efficient” webcaster. In their proposal, no distinction is made between large or small webcasters, or between commercial and noncommercial entities.

It’s times like these that reveal the industry to be a passel of Luddites who can’t accept a future they don’t write word for word. If the record biz really believes that the risk of recording outweighs the promotional value of of Internet broadcasts (which can find listeners rather than the other way around), they deserve to die. Good riddance.

2 thoughts on “Internet Radio, R.I.P.

  1. Inhibiting the growth of webcasting was the goal from the outset, with passage of the anti-webcasting provisions of the DMCA. The impossibly burdensome music use reporting requirements and now these grossly unreasonable compulsory license fees are part and parcel of the over all effort to put an end to webcasting.

    The problems lies with the music industry’s addiction to its traditional sales-based revenue model and the negative policy implications of that has for consumers, technology firms, consumer electronics makers, and digital audio service providers of all types (not just webcasters). There can be no doubt but that public policy should support the opportunity of music industry rights holders to derive substantial revenue from their contributions to culture and to commerce. By the same token, however, the industry has no right to demand that public policy support its desire to do business in a particular way.

    What’s really needed is an alternative to the music industry’s sales based revenue model.

    I recently published a White Paper (availabel at in which I propose such an alternative. Mine is a comprehensive approach to rights licensing and rights management that does not depend on the efficacy of digital rights management (DRM) technology for its success. Specifically, I suggest that the rights of songwriters, music publishers, recording artists and record labels in their respective musical works and sound recordings should be aggregated so as to create a single right for digital transmissions of recorded music. The digital transmission right would be a new right, not an additional right. It would replace the parties’ existing reproduction, public performance and distribution rights (and, in those territories where it applies, the communication right).

    Ownership of the digital transmission right in individual recordings would be held jointly by the songwriters, music publishers, recording artists and record labels who contribute to the recording. Each rights holder would have authority to grant non-exclusive licenses for digital transmissions of those recordings on any terms they and their licensees find to be mutually acceptable. The only limitation on this authority would be the obligation to account to co-owners pursuant to whatever arrangements they make among themselves for the division of royalties earned from this newly-established right.

    The digital transmission right would be enforceable only against those directly involved in providing digital transmissions of recorded music. Accordingly, consumers would not incur any liability merely for surfing the web, accessing streaming media, or downloading music files. Neither would copying for personal use require authorization. Similarly, software developers, technology firms, consumer electronics makers, and telecommunications and Internet access providers, as such, would have no liability under the digital transmission right. On the other hand, service providers would need licenses if they operate web sites, social networking services, P2P file-sharing networks or the like that provide digital transmissions of recorded music.

    Consumers would only need licenses if they act as service providers in their own right; that is, whenever they are responsible for the digital transmissions at issue. By way of example, consumers would need authorization if they operate music-enabled personal or hobby web sites; or if they upload music files to a web site or service that does not have its own licence under the digital transmission right authorizing this activity by users of its service (known as a “through-to-the-user licence”); or, if they offer recordings to others through participation in a P2P file-sharing network, or similar service, that does not have such a through-to-the-user licence.

    The right would be implemented through a combination of free market transactions between individual right holders and service providers and voluntary collective rights administration. The best results for all would flow from a marketplace in which collective licensing is the norm and direct licensing the exception. The division of ownership of rights that I suggest will tend to encourage rights owners to work together through collective licensing organizations. I also suggest solutions to the complementary issues of how to license transborder transmissions and on what basis to distribute royalties each from those transmissions. In my view, overall success for the music industry will depend on the presence in each territory of at least one collective organization whose catalogue encompasses all or nearly all recordings and which is authorized to grant worldwide rights at its local rates for all digital transmissions of recorded music that originate from its territory.

    Through the digital transmission right implemented as I suggest in the White Paper, digital transmissions of recorded music could be made available from the largest number and widest array of licensed sources, anytime, anywhere, to anyone with network access. Consumers would be free to enjoy music when, where and how they themselves decide. Technology firms and consumer electronics makers would be free to offer greater interoperability between the many recording, playback and communications devices that are available, and to meet consumer demand for new products with next generation capabilities. And, in the aggregate, music industry rights holders would do at least as well financially under my proposal as they do now under the system that my proposal would replace.

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