Music Business

“Bloody Sunday” Wreaks Havoc On Internet Radio [Kurt Hanson]

1The Copyright Royalty Board's recent rate hike continues to decimate the world of independent webcasters, with the result that the past couple of weeks have seen numerous well established internet radio services go dark for the foreseeable future.


Guest Post by Kurt Hanson on Rain News

5_band-merch-shirt-400Internet radio’s landscape looks much different today than it did a week ago, due to numerous webcasters pulling the plug rather than paying the high rates of the Copyright Royalty Board’s (CRB) recent decision for 2016-20 royalties for sound recordings.

On January 31, which I’m here calling Bloody Sunday, was a particularly bloody day for webcasting:

  • Pioneering webcaster Live365, which gave a voice to over 5,000 independent webcasters from around the world and which has been around longer than I’ve been in the field of Internet radio (i.e., since 1999), shut down its streaming servers for good on Sunday night.
  • Innovative webcaster Songza, created by a team of young entrepreneurs who sold out to Google last year (possibly as a successful exit, but also probably because their monthly royalty obligation to SoundExchange was significantly exceeding their monthly revenues), disappeared Sunday night as its features were absorbed into Google Play.
  • Leading webcaster Apple’s iTunes Radio, having debuted a couple of years ago amidst much fanfare as a potential “Pandora killer,” shut down its free access and moved behind a paywall (i.e., for Apple Music subscribers only) a couple of days ago. (For free listening, only its live Beats One channel survives.)
  • Pioneering entrepreneurial webcaster Val Starr, formerly of ChoiceRadio and now of GotRadio, quietly turned off U.S. access from the website to all of her 48 channels sometime in the past week or two.

In addition, dozens of locally- and/or niche-focused webcasters, like Joel Salkowitz’s New York-based EDM webcaster Pulse 87 and Rick O’Dell’s Chicago-based webcaster have, also, already gone dark. Other independent webcasters that have been around for more than a decade, like Digitally Imported and SomaFM, are considering similar blocks. And I suspect there are many more shutdowns coming soon.

While these Bloody Sunday shutdowns are to some extent adding to the audiences of the surviving webcasters — here at AccuRadio, for example, our audience up 15% today compared to last Monday — the net result of these decisions is that Internet radio is in the process of losing much of its depth and diversity.

The cause of this decimation of Internet radio is the mid-December ruling of the Copyright Royalty Board (CRB) regarding royalty rates for sound recordings for the 2016-20 period. After over a year and a half’s worth of briefs, depositions, discovery orders, analyses by dueling economists, litigation, and millions of dollars of legal bills on both sides, the three CRB judges issued a determination in December that set a royalty rate of $.0017 per song per listener (which, as most of you know, is paid to an organization called SoundExchange for distribution to record labels and musicians). (Note that webcasters pay an additional royalty to the composers of songs, via the organizations ASCAP, BMI, and SESAC, which adds up to about 5% of their revenues and is not at issue here.)

Since the average small webcaster plays about 15 songs per hour, a webcaster with an AQH of only 5,000 listeners (Mon.-Sun. 6a-12m), which is tiny by AM/FM standards, would see a royalty bill to SoundExchange of over $900,000/year — far more money than a small, entrepreneurially-based webcaster could conceivably, in today’s advertising environment, bring in in advertising revenues.

Why? Because unless you have a large local (i.e., all in one city) or national audience, and correspondingly appropriate sales staff (as do local radio stations that stream their signals, and as do large national operations like Pandora), total available ad revenues — video, audio, and display ads combined — don’t equal $.0017 per song played. That leaves smaller webcasters the choice of either going dark now or going bankrupt later.

As for a large organization like Apple, that presumably might have had an AQH of 200,000 to 300,000 AQH listeners, that’s a royalty bill of $3 million to almost $5 million a month — which, again, is probably far more than the service brought in in ad revenues.

1 (1)It’s not that smaller, independent webcasters don’t want to pay a reasonable royalty to labels and musicians. They do. But they couldn’t even participate in the CRB process, because the costs of participating were so high — I’m guessing, based on my experience, $50,000 to $100,000 in legal bills alone, plus massive amounts of time, energy, and distraction. So the CRB judges never even had a chance to consider their arguments.

Most of us who are still streaming have some kind of plan on how to cut costs, grow ad revenues, and survive. But for the rest, I believe it’s still possible for SoundExchange to offer a “Small Commercial Webcaster” license, as they did in 2007, to keep independent webcasters alive during this 2016-20 period.

Absent such a license, Bloody Sunday has left us with a far less diverse industry. And that’s a shame for webcasters, independent record labels, musicians, and consumers alike.

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  1. iTunes Radio is gone but the Internet Radio feature of iTunes is still there with your desktop app. It hasn’t gone away.

  2. Hmmm! Isn’t “get a new business model” the argument that internet companies have been making for the last 2 decades. The truth is that advertising revenue alone cannot support niche markets. Especially as advertising rates are dropping due to fraud and market saturation.

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