Lauren Rabaino

Editor’s note: As of July 13, the outcry from Webcasters to Congress and SoundExchange has put a temporary hold on the new royalty rates for Internet radio stations. Click here to learn more.

On July 15, 2007, a mere three days away, 30 million Internet radio listeners will be forced to sit in silence as stations across the U.S. stop broadcasting.

Yes, the ingenious beauty of Web sites like Pandora and Live365, Internet radio stations that create ridiculously tailored playlists for you, will simply cease to exist. Unless, of course, they come up with a business plan to support paying millions of dollars every year.

A new bill passed in March requires Internet radio stations to pay 19/100 of a penny per song streamed as opposed to the previous 7/100 of a penny rate. While cutting up pennies may seem like a small amount to pay, the difference for Webcasters is the difference between thousands and millions of dollars.

In addition, SoundExchange, the group that collects the royalty fees and soon-to-be happiest people on the planet in three days, were kind enough to add an extra $500 fee for every radio channel that a station owns. This extra little tidbit is enough to put any station with multiple channels out of business immediately.

And finally, the coup de gr…ce, and the part that keeps the Recording Industry Association of America, the Copyright Royalty Board, every major record label and a whole slew of other rich people laughing for hours, all of the increased rates and fees are retroactive to January 1, 2006.

So, who benefits from increased royalty rates? SoundExchange says the whole point of the increase is to make sure the artists are paid their fair share.

I couldn’t agree more with this idea, but the real artists we’re talking about here are the independent artists who depend on Internet radio to actually be heard. So if Internet radio stations are now turning into businesses that make around $50,000 a year, let’s make sure that they pay independent artists their fair share.

But wait, if these increased royalty rates will destroy almost all Internet radio stations (aside from the big boys like Yahoo!, AOL and RealNetworks), who will be left to pay these royalty rates to the independent artists? Do you really think the big radio stations that can afford to pay millions of dollars a year are going to care to play independent artists’ music?

Of course not. The big Internet radio stations are going to have all of the major labels knocking on their doors with licenses to play all of their music. Whatever stations do survive in the Internet radio world will sound exactly like a station from the terrestrial world (i.e. that which you hear in your car).

Now that we know the independent artists won’t be benefiting, can we at least argue that accomplished artists will start getting paid more? Thankfully, yes. What many people don’t understand about the music industry is how artists actually get paid.

Artists get the smallest slice of profit from CD sales, online or offline, and therefore must depend on performance royalties, which are royalties paid whenever they perform live or are heard on the radio (satellite and Internet included). In a sense, the increased rates are like a raise for accomplished artists who make their money primarily from these royalties. That is, of course, if there are any Internet radio stations left to pay them.

The music industry loves targeting the Internet and blaming them for poor record sales when really the Internet has helped increase artists’ exposure and the nation’s interest in music more than ever.

The increased rates are simply their quick solution to removing the competition. When the music industry realized that floating about in the “series of tubes” known as the Internet is a form of radio that makes the terrestrial radio look like a broken record player devoid of any diversity, it was game on.

Just as we saw with the advent of the MP3 and file-sharing programs that let people download music for free, anything that allows people to find non-mainstream music or allows them to access music more conveniently has to be defeated.

The music industry loves battling its fans rather than coming up with ways to take what they love and make it better. Rather than capitalizing on Internet radio by working with them to give their fans an even better experience, the music industry always thinks it has a better solution.

After all, any group of people that thinks making Hanson famous is a good idea must know what they’re doing, right?

For more information on the death of Internet radio and a bill proposed to save it, go to

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