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The End Of Internet Radio As We Know It

Copyright Protection Board Deals Fatal Blow to Ad-Free Internet Radio

By Martin H. Bosworth
ConsumerAffairs.com

March 5, 2007

• Sirius XM Near Bankruptcy • Poor Reception for XM-Sirius Shuffle • House Passes New Internet Radio Legislation • No Surprise: FCC Chair Decides to OK Sirius-XM Merger • Consumer Groups Urge FCC to Reject XM-Sirius Merger • States Raise Questions about XM-Sirius Merger • XM-Sirius Merger Gets Antitrust OK • Senate, FCC Chairman Spar Over Media Consolidation • Wisconsin Seeks To Block Satellite Radio Merger • XM/Sirius Merger Gets a Boost • Webcasters, Music Industry Reach Accord On Royalties • Karmazin "Clarifies" XM-Sirius Merger Plans • Last Minute Stay Of Execution For Web Radio • Dead Air Ahead: Court Denies Webcasters' Appeal • Notes From The Future Of Radio • Senators Throw Support Behind Internet Radio • Internet Radio Gets a Reprieve • Web Broadcasters Lose Music License Appeal • Feds Agree To Rethink Internet Radio Royalties • Reception Poor at Senate Sirius-XM Hearing • XM-Sirius Merger May Encounter Technical Difficulties • The End Of Internet Radio As We Know It • XM-Sirius Merger Encounters Serious Opposition • XM, Sirius Agree to Merge • Record Companies, Congress Take On Satellite Radio • Satellite Radio Looks Wobbly --- Consumer Comments • Sirius • XM Radio

It may be time to dust off the old FM radio that's been collecting dust the past few years.

The U.S. Copyright Royalty Board (CRB) has endorsed a plan by SoundExchange, the royalty-collections division of the Recording Industry Association of America (RIAA), to retroactively raise the fees Internet radio broadcasters must pay to broadcast their music.

The royalty increases are so high that many Web-based radio stations will have to go out of business or dramatically increase advertising to cover the royalty fees.

"It's the end of Internet radio as we know it," one broadcaster fumed. "The RIAA wants to put us all out of business."

The CRB's new royalty structure begins at $.0008 per performance, retroactive to January of 2006. While that may not seem like a lot at first, the CRB decision defines "per performance" for Web radio as streaming one song to one listener.

Kurt Hanson, writing for his Radio And Internet Newsletter (RAIN), calculated that an average Web radio station that plays 16 songs per hour would owe 1.28 cents per listener per hour. And the more listeners per hour, the more royalty fees the station would have to pay, "in the ballpark of 100% or more of total revenues," according to Hanson.

The rates would continue to increase each year. In 2007, Web broacasters would owe $.0011, $.0014 in 2008, $.0018 in 2009, and $.0019 in 2010. Those royalty fees only cover the actual broadcast of the songs to listeners -- the station owners would also have to pay royalties to the performers as well.

The owners of SaveNetRadio.org claimed that a royalty fee of $.0011 would tally up to "about 1.76c per hour, per listener. A station with [an average of 500 listeners] would be hit with fees of $211 per day, $6,336 a month or $76,000 a year."

"This amount of money is beyond the resources of all but the very wealthiest of corporations," they said in a post on their site. "Many of the internet radio stations are run by enthusiasts and hobbyists. These small stations are the ones bringing new music, and old favorites to you every day. Music you can't hear on corporate-owned terrestrial stations."

The CRB announced its decision late Friday, ensuring that it would receive little attention from major media.

But it didn't escape the notice of blogs and bulletin boards, many of which were fuming over what they saw as the end of their ability to hear new music over the Web. Chris Gerard, who operated the Washington, D.C.-based BlueSpaceRadio.com, announced that he was shutting down his site not long after the decision was made public.

"Due to the dramatically increased costs involved, we will no longer be able to continue with Bluespace Radio," Gerard said. "We've put many hours of time and work, and quite a bit of money, into the music as well as the website, and its sad that it has to come to an end like this. However, it's been an enjoyable experience, we've learned a lot, and have had the chance to interact with some great music fans."

Gerard previously spoke to ConsumerAffairs.com regarding the efforts of the RIAA to challenge satellite radio stations Sirius and XM Radio over issues such as copying of digital music and copy-protection technology for satellite music players. The two satellite radio companies have announced plans to merge into a single entity, a move the RIAA opposes.

Bill Goldsmith, co-owner and operator of Radio Paradise.com, urged his listeners in blog postings to spread the story and get attention from media outlets.

"Crippling an exciting, groundbreaking industry like Internet radio is certainly not in the best interests of the public, nor that of musical artists, and not even -- if history is any judge -- of the music industry itself," Goldsmith said in a posting on www.saveourinternetradio.com.

Simply to break even, many of the larger Internet radio stations would have to incorporate advertising much more heavily into their formats -- the very thing that has caused traditional-radio listeners to flee in droves. Writing for Advertising Age, marketing consultant Al Ries lamented the commercial-filled state of broadcast radio, calling it "radiADo."

"For every ad that radio stations used to run, it now seems like they run two. Radio, in my opinion, has become Radiado, an extra "ad" inserted at every possible point in the programming," Ries said. "Radio is a powerful medium with great selectivity at relatively low costs, but Radiado threatens the very existence of the medium. Too much is too much."

And yet, thanks to decisions like those made by the Copyright Review Board, radio crammed with advertising may be all that listeners have to look forward to.

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