Internet Radio Just Got More Expensive

radio.jpgKurt Hansen’s Radio And Internet Newsletter breaks down the higher royalty costs for Internet radio broadcasts, which were announced today by the Copyright Royalty Board. The board decided to go with the rate suggestions put forth by SoundExchange*, the division of the RIAA focused on collecting digital royalties, and not broadcasters; perhaps unsurprisingly, they’re prohibitively expensive for even the largest broadcasters, and in some cases the required royalty payments may equal or exceed 100% of an Internet radio station’s revenue. Hansen breaks down the math for each type of radio station–AOL Radio, under the new rules, could owe royalties of about $1.65 million a month, based on November’s statistics–and closes his column with this thought:

Although this is undeniably a huge victory for the legal departments of record labels (or at least for the lawyers at their industry trade association, the RIAA), I doubt that the heads of the record labels and their marketing executives actually want to see Internet radio driven out of business. (This may be a case of “Be careful what you wish for, you may get it.”)

Oh, we don’t know. Judging by the RIAA’s apparent wariness toward having its members’ music promoted online at all, we wouldn’t be surprised if this is, in fact, a case of exactly that.

*UPDATE: Thanks to a slight misunderstanding of the relationship between the RIAA and SoundExchange–as our commenters pointed out, SoundExchange spun off from the RIAA a few years ago, and now it’s actually a nonprofit organization that pays out royalties to indie labels as well–the above joke doesn’t work at all; however, this decision’s detrimental effect on the future of Internet radio can’t be overstated. As Hypebot notes, smaller stations like Radio Paradise will have to pay as much as 125% of their total revenue underneath this new rate structure, effectively putting them out of business.

Webcast royalty rate decision announced [RAIN: Radio And Internet Newsletter, via Hypebot]

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  • Deadly Tango

    I agree completely that these new rates are ruinous to just about everyone. The big kicker (along with the rate hike itself) is the elimination of the “percentage of revenue” payment option, and the retroactivity to January 2006 — meaning people are already in the hole even if they turn off their streams today.

    It’s important to note that the biggest players (NPR, Yahoo!, AOL, etc.) won’t really be hurt. They have all negotiated their own deals instead of paying the “statutory rate” that was adjusted today.

    Also, SoundExchange spun off from RIAA a few years back, so there’s no longer any direct linkage. Many recording contracts allow the labels to receive SoundExchange payouts, but that’s different from SE-as-direct-subsidiary. I’m not defending SoundExchange or RIAA, but the facts should be out there.

  • shovelingslop

    You got your facts wrong here. SoundExchange is not a “division of the RIAA.” In fact, while SoundExchange’s board does include a percentage of RIAA-appointed spots, it’s equally represented by independent labels, and is officially a nonprofit. Much of the money goes straight into artists’ pockets without even traveling through record labels’ checkbooks. The non-profit has an overlap with Jenny Toomey’s Future of Music Coalition (they share at least one board member), and fights hard for compensation.

    I’m not saying that I agree with the CRB’s decision. It’s way too fucking high and will drive small mom & pop webcasters like 3WK.com out of business (I wrote a story about all this a few months ago). But, for once, it’s not accurate to blame this on the RIAA.

  • Maura Johnston

    Thanks, guys. I’ve updated the post with your corrections. (I misread “created by the RIAA” as an indication that the two organizations still had a relationship.) RIAA or no, this is still an awful decision.