Om Malik points to the new webcasting royalty regime announced by the CRB:
Till recently, the royalty rate was about 7/100th of a penny per performance, allowing many small webcasters to thrive and build sizeable audiences. At 14-15 songs per hour, it worked out to about penny an hour – one of the main reasons why Yahoo could offer music-streaming services at affordable prices.
However, now the equation has changed – the royalty rates will increase every year through 2010 when it is going to cost about $0.0019 per performance. While not much when taken as a single performance, the amount does add up if you are a company that streams millions of performances per day.
It’s actually even worse for most webcasters, as many were operating under a percentage-of-revenue model that will no longer be available. But put them aside for the moment, as such webcasters will almost certainly disappear, as the RIAA thinks that they should:
Dr. Nagle rested his overall analysis on the fundamental assumption that the current webcasting industry consists of a large number of marginal or insignificant entities (see, e.g., Tr. 13393 (Nagle); Nagle W.D.T. 5) and that a dramatic “shake out†must and will occur. See id. This, in his view, is both inevitable and desirable because it will bring about market consolidation, which will result in the emergence of a far smaller number of viable webcaster companies. These, in turn, will be able to prosper and endure (operate at a “sustainable scale at this future point of viability†(Nagle W.D.T. 6)) and, not incidentally, be able to afford significantly higher royalty payments to copyright owners. [emphasis added]
The CRB’s job is to consider only what royalty agreement a hypothetical marketplace would produce, so the fate of small webcasters is not within its purview. But what marketplace would produce contracts that no purchaser could afford to pay?
What about the big players, like AOL Music, last.fm and Pandora? Pandora says that the new royalty rates will kill their service:
The Copyright Royalty Board (CRB) has recently released a revised fee schedule for internet radio. Left unchanged, these rates will end internet radio, period. The RIAA has effectively convinced this federal committee to establish rates that make online radio a non-viable business.
It’s an utterly ridiculous ruling that renders any form of internet radio non-economic. We are continuing in the belief that sanity will return as everyone involved, including the 50 million avid online radio listeners, realize just how outrageous this is.
Bluster from a webcaster that just doesn’t want to pay? Hardly. As Keith Hanson points out, the 2006 rates alone amount to 100% of the total revenues of a well-run web radio station:
In 2006, a well-run Internet radio station might have been able to sell two radio spots an hour at a $3 net CPM (cost-per-thousand), which would add up to .6 cents per listener-hour.
Even adding in ancillary revenues from occasional video gateway ads, banner ads on the website, and so forth, total revenues per listener-hour would only be in the 1.0 to 1.2 cents per listener-hour range.
That math suggests that the royalty rate decision — for the performance alone, not even including composers’ royalties! — is in the in the ballpark of 100% or more of total revenues.
If that weren’t bad enough, the new rates include a minimum payment of $500/channel/year. In the case of last.fm and Pandora, what constitutes a channel? Is every channel created by each listener a channel for purposes of royalty payments? If so, then the news is even worse. It’s not clear to me how many Pandora stations there are, but six months ago Pandora was reporting 2.5 million users. Each user can create up to 100 stations, but even 1 station per user is a minimum royalty payment of $1.25 billion.
The CRB royalties apply only to non-interactive webcasters operating under the statutory license. It’s always been questionable whether Pandora qualifies for that license - would they be better off under a negotiated rate? All in all, the decision is a bad one. Bad for webcasters, bad for customers, and bad for the music industry (even if they don’t realize it yet). The only winner appears to be terrestrial radio stations, which could pick up a handful of listers if webcasters go away. And what’s good for Clear Channel and the NAB is almost certainly bad for you and me.
March 29th, 2007 at 1:33 pm
What about the possibility of pulling out of Iraq, letting Iran invade and lose resources fighting their own kind,
and then come in and mop up the dregs?