The US government, through the Copyright Royalty Board (CRB), recently announced new royalty rates to be paid by internet radio webcasters for the years 2006-2010. The news is not good. From the DI blog: “the new rates completely ignore the business and market realities of Internet Radio.”

The details

• Much higher fees. Cost per performance (each time one listener hears one song) goes up from $0.000762 in 2005 to $0.0008 2006 (5%), but then rising by 37.5% in 2007 and a further 28% in 2008 and 2009 to $0.0019 in 2010 (this represents a 149% increase over 1999-2005).
• No exemption for small webcasters. Under the previous agreement, online broadcasters could either pay by the song or by the number of hours listeners tuned in. Small webcasters also had the option of paying 12% of revenue, which in the case of specialist stations with few or no adverts would not be a lot of money.
• A new annual $500 per broadcasting channel minimum fee. Some online stations offer 100s or 1000s of listening options. Is each one a separate channel? Personal radio stations like Pandora create a unique playlist for each subscriber. Is each one a separate channel? This would also severely impact on smaller broadcasters who serve a few 10s or 100s of listeners.

The figures

SaveTheStreams.org - a site set up by online broadcasters to draw awareness to the problem - has calculated some figures.

Let’s imagine a webcaster with an AVERAGE audience of 10,000 listeners […] Our webcaster plays 16 songs every hour, 24 hours a day, 365 days a year, to an audience that averages out to be 10,000 people.

$0.0008 X 10,000 listeners X 16 songs/hr. = $128. It’ll cost our imaginary webcaster $128 to play one hour of music for 10,000 people.
At the end of the day, that’s $3,072 ($128 X 24 hrs./day) — for just a single day! […] [F]or all of 2006, this webcaster with a steady average audience of 10,000 listeners would owe $1,121,280!!

And the income:

Advertising rates are expressed as a “cost per thousand” (”CPM,” as M stands for thousand). Rates vary, but national radio ads (pretty comparable to Internet radio) go at about a $2 to $3 CPM. In other words, an advertiser would pay $2 or $3 for every 1000 people that heard their commercial one time. For our hypothetical webcaster, let’s go with a $2.50 CPM. The webcaster would earn $25 ($2.50/1000 X 10,000 listeners) to run a commercial.

If this webcaster ran an average of 5 commercials an hour from 6 am to midnight every day, not only would he or she win the “set of steak knives” for selling more ads than any other webcaster ever, but would earn $821,250 in ad revenues ($25 X 5 commercials X 18 hrs./day X 365 days/yr.). Not a bad job, but unfortunately, it’ll cover just about three-quarters of our webcaster’s royalty obligation for 2006 ($1,121,280). And you can be sure ad rates won’t increase 37.5% in 2007, 28% in 2008, another 28% in 2009, etc. like royalty rates do.

The Chicago Sun Times gives a nice summary of what this means overall:

By way of comparison, the online news site BetaNews.com noted that on a per-listener scale, broadcast radio stations paid an average of about $1.56 in royalties per listener during 2006. Internet radio sites will be paying $8.91 per listener retroactive to the start of 2006, and that figure will increase to $15.59 per listener by 2008.

The impact

Soma FM - comprising 11 independent channels broadcasting from San Francsico - illustrates the impact these fees will have on small stations:

The new fees are a staggering increase over our previous annual royalty rate of about $22,000 to over $600,000 for 2006. And the fees are even higher in 2007. Based on our current listenership, they’ll be over $1 million dollars for 2007! (Which is 3-4 times what we hope to raise in 2007.)

And the big players aren’t exempt either. Kurt Hanson talks about the affect on large players such as AOL and Pandora:

AOL Radio Network had a average audience (”AQH”) between 6AM and Midnight of 210,694 listeners. Multiplied by about 16 songs per hour, 18 hours per day, and 31 days per month, plus adding an additional 10% to account for overnight (Mid-6AM) listening, suggests that AOL played about 2.1 billion songs that month. At the CRB’s royalty rate ($0.0008 per play), I’m guessing that would create a royalty obligation to SoundExchange for the month of November of about $1.65 million. Annualized, that’s about $20 million for 2006.

Here at RAIN, we’re guessing that Pandora has an audience approaching that size. (Pandora founder Tim Westergren claims that Pandora now accounts for 1.5% of all Internet traffic.) Such a royalty obligation might exceed the total proceeds of all their recent rounds of venture capital plus all their sales revenues to date.

The end?

People are increasingly turning away from listening to terrestrial radio (though not in this country), turning away from buying CDs. Is this because of Limewire, Grokster, et al.? Well for some people undoubtedly, though research has suggested that people who download the most music through filesharing programs buy the most music as well. And of course legal downloads, though still small in number, are growing at a phenomenal rate.

Far more likely is that people are simply fed up. Fed up of having the same vacuous crap shovelled in their faces every day, fed up of the same formulaic pop groups with plastic personalities, the members seemingly on day release from some multiple choice proforma of humanity - different, yet curiously the same, like displays in a shopping centre.

Internet radio is one of the places listeners get genuinely passionate about the music. Bands - particularly innovative, exciting ones - are increasingly developing a substantial following online first, leaving the mainstream media to play catchup.
The problem seems to be that, as with file-sharing, the music industry doesn’t understand internet radio, so it is seen as a threat rather than an opportunity.

This issue has united everyone from bedroom broadcasters to mainstream giants like Clear Channel and NPR (check the list on SaveTheStreams). If you have a US passport, sign the petition. And make a noise. At Breakz, the music we believe in is largely championed by small labels, by small events and by small radio stations. These will be the first to go.

Update

Bad news. CRB denies motions for rehearing. Also SaveTheStreams has moved to SaveNetRadio.

More

• SaveTheStreams.org FAQ
• Doc Searls’ Blog - some source material & much better written than my effort
• RAIN
• Press coverage
• Live365
• Salon
• Pandora blog