Internet radio: will it survive?

Last night, Pandora Internet Radio started blocking access to Pandora for listeners outside the U.S. because of international licensing constraints. An excerpt from a letter they sent to many Pandora listeners:

"It is difficult to convey just how disappointing this is for us. Our vision remains to eventually make Pandora a truly global service, but for the time being, we can no longer continue as we have been. As a small company, the best chance we have of realizing our dream of Pandora all around the world is to grow as the licensing landscape allows."

This likely won't stop listeners using proxy services, but will inevitably drastically reduce visitors.

Very disappointing. Since Jeff told me about Pandora a while ago, I've been enjoying the benefits, discovering new artists as well as being reminded of old favourites. I don't tend to listen to regular radio anymore, so have been relying on friends and Pandora to introduce me to new music. I've made purchases in music online and offline as a result.

From Techdirt, on the topic:

"It's really depressing to watch the recording industry so consistently shoot itself in the foot, focusing on capturing every immediate dollar, rather than recognizing the ability of using music as free promotion to build up the size of their market."

Catching up on Pandora's blog, I also discovered more about a recent ruling that requires Webcasters to pay a flat rate per song streamed, rather than the traditional percentage of their profits. The change would result in greatly-increased fees for many Internet radio stations.

From this MSN.com article: "The Copyright Royalty Board changed rates from a percentage of revenue to a per-song, per-listener fee - effectively hiking the rates between 300 and 1,200 percent, according to a lawyer representing a group of Webcasters." If the rate goes through, many Web radio stations will shut down, not able to afford the new fees.

On April 26th, the founder of Pandora posted an update. Apparently the outpouring of public support for Pandora and other Internet radio stations resulted in a bill being introduced by U.S. congressmen Jay Inslee and Donald Manzullo: the Internet Radio Equality Act, HR 2060. For more information about the act as well as what you can to help, see SaveNetRadio.

From Nate Anderson of Arstechnica:

"Inslee's bill, the Internet Radio Equality Act, would toss out the Board's decision and return the webcasting industry to a percentage of profits model. In this case, the percentage would be set at the same rate paid by satellite radio, which is 7.5 percent of revenue."

On the topic of increased fees... One question that comes immediately to mind, since those supporting the initial ruling claim that it's helping the artists: how much will artists actually benefit? So far, I've been having trouble finding an answer from a neutral party, so would appreciate feedback from any of you with additional information. Pandora founder, Tim Westergren, says in this article:

"It's disingenuous to say it's better for the artist. With our licensing deal now the royalties we pay go 50/50 to the artist and the label. If the fees increase, stations will enter into direct deals with labels at a discounted rate, but then the entire fee goes to the label and not the artist.""

SoundExchange.com (who supports the increased fees) says:

"Because the bill is so heavily favored to enrich the big webcasters, it raises questions as to who is really behind the SaveNetRadio Coalition. Although this coalition purports to be on the side of musicians, they have come out in support of this anti-artist bill."

In an MSN.com article, however, Ian Rogers of Yahoo! Music (Internet radio leader with 23% of the market's listeners) says:

"SoundExchange is just not dealing with the facts. Internet radio in its entirety is less than a $50 million industry. The amount of money I can make selling ads on my radio product is less than I will pay in royalties."

On May 8th, hundreds of radio stations plan to participate in a "Day of Silence" in support of the cause. It was also announced yesterday that Internet radio broadcasters are getting a two-month extension for paying their new fees.

I'm probably being naive, but I can't help but think that many are underestimating the importance of these Internet radio stations for introducing lesser-known artists and music to those who may be getting tired of mainstream music, or who are at least open to other possibilities. As technology has advanced, more and more people are becoming comfortable with the idea of podcasts and listening to radio via one's computer rather than traditional means. It's difficult to quantify how many of these listeners translate into actual sales, but that doesn't mean the potential benefit should be ignored.

SURVEY:

Do you listen to a Web radio station? If so, which one(s)?

Sources:

SaveNetRadio.org
SoundExchange.com
Radio's Tangled Web (Newsweek)
Internet Radio Equality Act would overturn decision on webcasting fees (Arstechnica)
New Webcasting fees may doom Internet radio (Associated Content)
Pay Per Play: A new royalty scheme for webcasters may shut most of them down. (Chicago Reader)
Paradise to poverty: the fight for I-radio (MediaChannel)
Killing Internet radio, not so softly (Miami New Times)
Net radio sites given more time on royalties
Slashdot discussion (Slashdot)
Internet Broadcasters Get Royalty Deadline Extension (Wired)
Music Industry Continues To Shoot Self In Foot; Forces Pandora To Block Non-US Listeners (Techdirt)




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