Death Knell Chimes For Internet Radio

    April 17, 2007

In March, the U.S. Copyright Royalty Board approved a proposal by SoundExchange, working on behalf of the RIAA, which would implement a significant increase in royalty rates for streaming audio providers. Realizing that these rates would put them under, online radio stations banded together in one last desperate appeal to the CRB to reconsider the decision.

Unfortunately for Internet radio providers, and for music lovers around the world, the judges at the CRB denied the appeal headed up by NPR and joined by several online radio stations.

Now, the only music that’s coming from streaming online providers is that of the funeral march.

Olga Kharif at Business Week discusses the implications of the CRB’s ruling:

The stations will have to cough up these royalty payments – 300% to 1,200% higher than the fees they are used to paying — retroactively. Unless Congress gets involved, that will mean the death of many Web radio stations, whose revenues will fall short of these royalty payments.

Previously, streaming audio providers were only responsible for a paying percentage of their gross revenues in royalties to artists and record labels. Now, any station that serves up online music content will have to pay an initial $500 inclusion fee, along with royalties that are calculated on a ‘per song’ basis and are retroactive for all of 2006 as well.

Eric Bangeman
of Ars Technica talks more about the drastic change in royalty payment structure:

The ruling is a huge blow to online broadcasters, and the new royalty structure could knock a large number of them off the ‘Net entirely. Under the previous setup, radio stations would have to pay an annual fee plus 12 percent of their profits to the music industry’s royalty collection organization, SoundExchange. It was a good setup for the webcasters, most of whom are either nonprofits or very small organizations.

In a statement, SoundExchange Executive Director John Simson anticipates “working with the Internet Radio Industry” to ensure mutual success. As Bangeman continues in his article, however, he points out that the organization’s comments seem less than sincere given the consequences of their royalty hikes:

[A]fter today’s ruling—which will take effect on May 15 unless the US Court of Appeals for the District of Columbia Circuit agrees to hear an appeal—there probably won’t be much of an Internet radio industry left for SoundExchange to work with.

An online coalition, SaveNetRadio, has launched a last ditch campaign in an attempt to save Internet radio.