I think Pandora, a fantastic customizable internet radio station, is absolutely brilliant. All you have to do is type in an artist's name or song title, and Pandora will find it, then start playing bands that are similar to the band you chose. By clicking a thumbs up or thumbs down buttons you tell Pandora whether or not you like the music it's chosen for you, and by doing so, further customizes your internet radio experience. If you click the "why did you play this song" button, Pandora will bring up a little text box explaining the musical similarities between the band you started out and the song it's playing for you. For example: "Based on what you've told us so far, we're playing this track because it features synth rock arranging, electronica influences, new age influences, a subtle use of vocal counterpoint, and a subtle use of vocal harmony." This service is also free for users, paying for itself by allowing third parties to post advertisements (no pop up ads) on the website.

Pretty cool, huh?

Well, enjoy it while it lasts, because the Copyright Royalty Board in Washington, DC has decided to almost triple royalty fees for internet radio stations, which greatly exceeds the revenue of most internet radio stations. Oh, and on top of that, since the new royalty rates are retroactive to January 1, 2006 so they will cause immediate bankruptcies if they become effective for even one day.

Here are some myths and facts provided by SaveNetRadio.org:

MYTH: Broadcast radio, satellite radio and Internet Radio pay the same amount of royalties to creators of music, or pay proportionate relative to the size of their businesses.

FACT: The smallest medium – Internet radio – pays the most royalties; and under the new CRB royalty scheme the smallest webcasters will pay the highest relative royalties in amounts shockingly disproportionate to their revenue. Broadcast radio, an industry with $20 billion in annual revenue, is exempt and pays no performance royalties to record companies or recording artists. Satellite radio, which has approximately $2 billion in annual revenue pays between 3 and 7% of revenue in sound recording performance royalties. The six largest Internet-only radio services anticipate combined revenue of only $37.5 million in 2006, but will pay a whopping 47% (or $17.6 million) in sound recording performance royalties under the new CRB ruling. In 2008 combined revenues will total only $73.6 million, but royalties will be 58% or $42.4 million.

Small Internet radio services are essentially bankrupted by the CRB ruling, with most anticipating royalty obligations equaling or exceeding total revenue.

MYTH: Internet Radio isn’t really that big anyway. Most people still listen to traditional FM radio.

FACT: At some point every day more than 7 million Americans are listening to Internet radio. Studies by Arbitron and Bridge Ratings conclude that between 50 and 70 million Americans listen to Internet radio every month, and about 20 percent of 18-34 year olds listen to Internet radio every week.

MYTH: If Internet Radio is so big the higher royalty rates should be affordable.

FACT: Internet radio is a relatively new industry with advertising models still developing. Some services rely on banner ads; others are selling traditional audio ads; and still others rely on sponsorships. The vast majority of Webcasters will not be able to generate enough advertising revenue to pay their new, higher royalty fees.

MYTH: The webcasters’ previous royalty rate was too low and needed to be increased to ensure that artists and record companies are paid fairly.

FACT: Bankrupting the Internet radio industry will not benefit artists or record companies, as total industry royalties will diminish. Moreover, the demise of Internet radio will be particularly harmful to independent artists and record labels whose music is rarely played on broadcast radio. The American Association of Independent Music reports that less than 10% of terrestrial radio performances are independent music but more than 37% of non-terrestrial radio is independent music. This benefits artists, labels and music fans.

When Congress provided webcasters a guaranteed “statutory license” to perform sound recordings, Congress intended that Internet radio would flourish as a competitive medium offering diverse programming and paying a royalty. Tripling webcasters royalties undermines all these goals.

MYTH: Big webcasters can afford these royalties and they will each offer hundreds or thousands of channels, so what’s the big deal?

FACT: The CRB royalty is so high that even the biggest Internet-only radio services – including Yahoo, AOL, MTV and RealNetworks – will pay a combined 50+ percent of their revenue for only this single royalty. The only way to make a profitable, scalable business will be to attract the largest audience and advertisers while reducing overhead and innovation. The result will be “mass appeal” Internet radio programming that will look much more like today’s broadcast revenue, rather than the diverse programming that exemplifies today’s Internet radio.

MYTH: The rate is only increasing from 7/100 of a penny per song streamed to 19/100 of a penny per song streamed over a 5-year period.

FACT: Nearly tripling the per-song royalty rate is only the first insult.

No Revenue-based Royalty Option. Prior to this decision all small webcasters and some large webcasters had the choice of paying royalties based on a percentage of their revenue that typically equaled 10-12%. But the CRB decision did not offer a revenue-based royalty option for any webcasters.

Retroactive Impact. The CRB decision is effective as of January 2006, so if it actually becomes effective for only one day its impact will be immediate as the past due royalties alone will be enough to bankrupt virtually all small and mid-sized webcasters.

Per Station Minimum. The CRB piled on even more, by imposing a $500 per channel minimum royalty that for many services will far exceed the annual royalties that would otherwise be due even after the CRB decision. One advantage of Internet radio is that it is not limited by spectrum capacity or bandwidth capacity, which enables several services literally to offer 10,000 or 100,000 stations

So does any of that seem right, logical, or fair?

I have one final thing to say about the issue. Quite a bit of my fairly extensive CD collection was purchased after hearing a band on an internet radio station. Internet radio provides a wonderful way to experience new and diverse music, especially when learning about music or new artists in smaller, less popular genres can be difficult. I support the fact that internet radio stations need to pay royalties - I do not support increasing these royalties to exhorbitant amounts, such as what has been proposed. Shutting down internet radio, intentionally or not, will be a crime.

So how about we stop it?




Visit SaveNetRadio.org and put in your two cents about raising internet radio royalties. And while you're at it, check out Pandora.com. You'll enjoy it. ^_^