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April 17, 2007

Internet Radio Takes a Substantial Financial Hit

Is Internet radio dead, killed by the finances of royalties.  If it's not dead, it is certainly on life support after yesterday's decision by the Copyright Royalty Board.  It effectively denied appeals from the broadcast industry over the rates set in March, which many broadcasters feel are prohibitively expensive.  They now require a per song/per listener amount.  Unless one is a big broadcaster such as Clear Channel, who can afford that?  Certainly not the little guys.  And who listens to Clear Channel anyway if looking for new and innovative artists?  Even Clear Channel type broadcasters might have a little trouble with this as the rates they pay for over the air broadcasts are significantly less. 

According to the folks at Savenetradio.org, about 7 million people listen to Internet radio per day and between 50 and 70 million listen per month.  20 million of those in the coveted 18-34 demographic range listen on a weekly basis.  The higher rates are likely to shutter sites almost immediately as the rates are retroactive to 2006.  Radio has been the traditional place listeners discover new artists.  Internet radio is one of those places that is more adventurous in programming decisions.  But more variety in listener tastes actually fractures the labels' ability to make money off of artists they don't control.  Maybe that's the real enemy here.

Record labels applaud the new rates as fair compensation.  But the effect may be to close off a market where the label product is no longer exposed to new listeners.  A royalty can't be charged for a song that isn't played.  Funny how that works out.  And lack of Internet radio may just drive the audience to other means of discovering or acquiring music where no royalties are paid to labels or artists.  Again, funny how that works out.  Sirius and XM may also be a bit put off by the decision and the after affects.  They argue that the audience has a variety of sources in which a combined company will compete against. The demise of Internet radio as a significant competitor just pokes a hole in that view.

There is one more possible appeal left to the federal courts.  The Board was pretty definitive that there was no new evidence that would change their earlier decision.  It may be difficult to persuade a court the third time around.  Most expect congressional relief, especially from a democratic majority.  We'll see.

The order is here.

April 17, 2007 | Permalink

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