Internet Radio Is Doomed

The Washington Post looks at webcaster Pandora‘s imminent demise in spite of its popularity (“about 1 million listeners daily” and “40,000 new customers a day”): Giant of Internet Radio Nears Its ‘Last Stand’.

Thanks to the music inudstry’s lobbyists, web radio has to pay twice as much per song as terrestial radio, which only pays a publishing royalty to the songwriters and publishers. In addition to that, web radio also has to pay the record label a “performance royalty” for the master recording:

Traditional radio pays nothing in performance royalties, though SoundExchange is pressing to change that. Satellite radio pays 6 or 7 percent of revenue. And then there are webcasters, which pay per song, per listener.

Using listener figures from Arbitron for XM Satellite Radio, it is possible to estimate that the company will pay about 1.6 cents per hour per listener when the new rates are fully adapted in 2010. By contrast, Web radio outlets will pay 2.91 cents per hour per listener.

Gee, that hardly seems fair. These industry lobbyists are the same people kicking themselves for “allowing” MTV to promote their products (i.e., albums) without paying them a royalty for airing promotional videos.

More insanity after the jump…

Other interesting tidbits:

• “The Copyright Royalty Board last year decided that the fee to play a music recording on Web radio should step up from 8/100 of a cent per song per listener in 2006 to 19/100 of a cent per song per listener in 2010.”

• “SoundExchange, the organization that represents performers and record companies, said it supports the higher royalties for Internet radio because musicians deserve a bigger cut of Internet radio profits.”

• “SoundExchange officials argue that because different media have different profit margins, it is appropriate to set different royalty rates.”

• Pandora founder Tim Westergren says: “The moment we think this problem in Washington is not going to get solved, we have to pull the plug because all we’re doing is wasting money.” […] “We’re funded by venture capital,” he said. “They’re not going to chase a company whose business model has been broken. So if it doesn’t feel like its headed towards a solution, we’re done.”

• Responding to claims that “Internet radio stations have done too little to make money from playing their songs,” Westergren says, “When we have our board meetings, the central topic is the revenue trajectory, not how happy our users are.”

Good luck with that. You and your board might want to keep in mind that unhappy users will quickly find somewhere else to spend their time and attention…

18 thoughts on “Internet Radio Is Doomed”

  1. It’s not a threat; it’s just reality on the web.

    Remember Friendster?

    It’s just a lousy situation when it’s financially impossible for a useful service like Pandora to stay afloat due to unfair (compared to terrestial and satellite radio) regulation.

  2. Not just unfair, but plain DUMB legislation. Like Jake said, these are all channels of promotion and the industyr is killing it. I guess they’d rather pay to play on traditional radio than make a few bucks with a reasonable royalty on Internet radio. What’ll happen is megas like Microsoft will be the only avenues for Internet radio because thy’ll have the heft and the capital to negotiate properly with these bozos. Then, once they’re the only channel in town, they control the medium and we all know what happens when Microsoft has a corner on a market.

    More good times ahead for the recording industry…


  3. The really silly thing is that killing Pandora will destroy what’s been my #1 source of new music for the last three years. Pretty much directly due to the existence of Pandora, I’ve bought probably 30 or more albums by bands that I never, ever would have found out about otherwise. So by killing Pandora, the record industry is pretty much telling me to keep my money. Okay, then!

  4. Making your own playlists really isn’t “internet radio”.

    It’s just listening to just a bunch of songs. To me “radio” includes info between the songs. And in time it will play out that the more local

    info you include the more chance you have of survival in a very competitive atmosphere. I know a guy involved with a a real internet radio talk show.

    It’s with a guy fired from one of the big companies for a fairly high profile

    on-air incident. Still all this he talks about is “getting picked up in syndication.” The interesting aspect of internet radio will be the talk shows not music.

    There are so many other outlets if you just want music. But with talk you can do something really original. Wouldn’t want to try to sell advertising for one of those shows though. Most of them will be guys who got fired from regular radio and are trying to get back in.

    Karmazin sold his soul to the devil to swing the XM/Sirius merger. Satelite may not dig it’s way out of the hole. Still..people have a helluva a lot more choices now than 10 years ago.

    And if vehicle internet becomes an option you will be able to listen to any station in the country that streams. There are a lot of cool college and non-commercial stations you can discover that way. Internet radio in cars may put the final nail in the XM coffin in a few years.

  5. Making your own playlists really isn’t “internet radio”.

    Pandora is a lot more random than making your own playlist. You start out with a song or artists you like, and then Pandora plays songs with similar “qualities” according to the Music Genome Project… It’s cool, and you can hear a lot of music you otherwise might never have discovered.

  6. I sympathize with you guys that this service that you like may go out of business. I think it’s unfair that they have to pay more royalties than commercial stations.

    But to entirely blame commercial radio for this is a bit misdirected. It’s the choice of record companies and artists to enforce these additional royalties.

    Can you blame them when the most connected personalities in the world like Ryan Seacrest work for traditional radio stations?

    And Pandora isn’t “radio” in the classic sense of the word.

  7. Well, any station that transmits over the Internet may not necessarily be considered “radio” but that’s symantics and we all know what we’re talking about here.

    Internet programming of music is a promotional channel that the labels–and even more rediculously, the artists’ royalty collection agencies–are killing because they’re short sighted.

  8. Who’s blaming commercial radio? I’m blaming the Copyright Review Board, and the major label lobbyists that control it.

    The labels want a piece of commercial radio too. Don’t be surprised if they’re next…

  9. Nate Dog said “This is why I don’t listen to commercial radio.”

    Commercial stations already pay artist fees to ASCAP.

    And I believe a royalty fee had been negotiated for stations that stream…although I think it amounts to less than a penny per spin. Admittedly neither of these is going to put a station out of business like Pandora. What will Beyonce do? Now all the people who listen to J-Lo on Pandora will not be treated to samples of her music. She will never get discovered.

    But seriously–a career in music still beats acting.

    With all the idiots agreeing to appear on reality and game shows for free, imagine what it’s like now trying to earn a living in Hollywood.

  10. One thing to keep in mind is that ASCAP and BMI collect for publishers/songwriters. So if you didn’t write the song or own the publishing of that song, you currently don’t get paid anything when your recording of that song gets played on terrestial radio.

    That’s the issue that is “corrected” by the additional fees for satellite and internet radio.

    When a song gets played on satellite or internet radio, not only do they pay a publishing royalty, but also a “mechanical” royalty. Who receives the mechanical royalty? The owner of the master recording, of course. Who turns out to be, far more often than not, the label. And the artist doesn’t get a piece of the mechanical royalties until all of their debts to the label have been recouped. Which, far more often than not, is never…

  11. Mixmaster Shecky got me drunk on fortified wine and swindled me out of my rights to the Hurricane Dick catalog.

    He even got an injunction to stop me from calling myself Sven of Hurricane Dick when I played the county fair.

    You don’t hear me whining.

  12. pray let me continue..

    there are many reasons I don’t listen to ‘commercial’ radio, chiefly among them the fact that I don’t have the time to devote to it, what with a full time job(at which I don’t have a radio, because I actually have to pay attention to what I’m doing), a kid in college(see: poorhouse) and a red hot lover who demands my attention. There simply isn’t enough time in the day for me to sort through the air waves looking for something I might like. I’d rather go down to the local saloon for the open mic and watch ordinary folks wander out on the edge of life. Now and then you meet someone who changes your life in ways you may not know for years(thenks, derek) I don’t have cable, or eve a tv. I don’t have an I-pod either. I have a Gibson, thank you very much. We have a lot of fun together, and we’re headed for Wheatland in two weeks.

  13. Someone on GloNo saying that they don’t listen to commercial radio is like someone on a Pro PETA site saying they are against the clubbing of seals.

    Commercial radio is for the most part geared towards the lowest common denominator because it is a business like any other. The issue that came up was “how much is commercial radio to blame for what’s happening to Pandora?”

    By the way I checked out Pandora. I was pleased to learn that you could even use it without registering.

    I wasn’t super impressed with the songs Pandora opened up for me. And now today it seems like you need to register to use it at all.

    But I may register if they don’t go out of business this week.

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