Pay It Forward

Internet broadcasters are calling it the death of an industry. The recording industry calls it a victory for artists and labels. Surely, both can’t be right. Can they?

The "it" in question is the new royalty rates for Internet radio. So far no one seems to like the new rate structure. That is, no one but the major labels and the SoundExchange, the nonprofit group set up to collect online royalties.

"Our artists and labels look forward to working with the Internet Radio industry – large and small, commercial and non-commercial – so that together we can ensure it succeeds as a place where great music is available to music lovers of all genres," said SoundExchange Executive Director John Simson.

But you would have a difficult time finding a netcaster, big or small, that supports the new rates, which calls for Net stations to pay a royalty fee every time a song is played.

Small shops like Pandora or Live365 claim the new royalty fees are a death knell for the industry. For the past five years, royalty payments for small webcasters amounted to 12 percent of total revenue. Under the new rates the same companies could find themselves facing a 300 to 1,200 percent markup, an amount the boutique stations claim far exceeds their income.

But the webcasting industry did receive a small reprieve from the new royalties.

Originally, the new rates were to become law of the land this year and be retroactive to last year. Although a panel of copyright judges denied a request for the Copyright Royalty Board to reconsider the new rate, the judges did make one change in the new fees. They ruled that calculations for rates for last year and this year are to be based on average listening hours with the new pay-per-play rates starting next year. Another request postponing the May 15th deadline date to pay royalties was denied.

On the day of the ruling, representatives of the SaveNetRadio coalition announced a national grassroots campaign aimed to prevent the new rates from taking effect.

"The CRB’s ill-informed decision to increase royalty fees to this unjustifiable level will quite simply bankrupt most Webcasters and destroy Internet radio," said SaveNetRadio spokesman Jake Ward.

Individual Webcasters were also critical of the copyright judges’ decision to deny requests to reconsider the new royalty fees.

Live365 CEO N. Mark Lam said that under the new royalty rates, "there is no industry," while Pandora founder Tim Westergren, in an e-mail to Pandora listeners, described the new fees as "irrationally high," and if left unchanged would "kill every Internet radio site, including Pandora."

But one trade organization representing several large Webcasters has yet to enter into a dialogue with SoundExchange over the new rates. That’s the Digital Media Association, which counts companies like Yahoo and AOL among its members. DiMA’s man-in-charge, Jonathan Potter, did say the situation may change soon. Potter also said his organization might seek support from Congress.

Will the new rates destroy Internet broadcasting? While the small companies appear to be facing a financial tsunami when the new fees begin next year, the larger companies probably will absorb the hike as a cost of doing business and adjust their advertising and subscription rates accordingly.

But the new rates are hardly an inducement for new ventures into Internet radio, and there are rumblings that this is what the recording industry really wants – fewer online channels, leaving webcasting to major companies like Microsoft’s MSN, Yahoo Music and AOL. And, if the Webcasting gloom-and-doomers are correct, the recording biz just might get what it wants.

 

Buying & Selling

Evidently realizing there is still hard currency out there that has so far escaped its grasp, Google recently completed two separate advertising deals that should boost the company’s bottom line into figures containing more zeroes than ever before contemplated by man and/or accountants.

In its march toward forming a galactic empire, Google has cut an advertising deal with Clear Channel Radio, giving the Internet leviathan access to the latter’s ad time inventory.

Under the terms of the agreement, Google will have a guaranteed portion of Clear Channel’s 30-second advertising inventory to sell. Broken down into simple numbers, this means Google will be selling just less than 5 percent of Clear Channel’s commercial time on the company’s 675 stations, during all time periods and during all programming, according to the Los Angeles Times.

The deal marks the latest move by the search portal to derive income from non-Internet sources. While this is not Google’s first move into selling radio time, it certainly is the most significant. Up until the now Google has sold time on mostly small and medium market stations. By aligning itself with Clear Channel, Google will be selling time in the nation’s top radio markets.

But Google won’t be stealing clients from current Clear Channel Radio salesmen. Instead, the company will concentrate on selling time to businesses that usually don’t advertise on radio. The end result is more revenue for both Google and Clear Channel.

"Clear Channel is the market leader in delivering radio value to consumers and advertisers and has built an innovative platform to manage its on-air inventory," said Google CEO Eric Schmidt. "We look forward to working with Clear Channel Radio by providing a unique set of advertisers and a system that will increase the effectiveness and measurability of connecting advertisers with radio listeners."

Google’s deal with Clear Channel wasn’t the company’s only ad-based venture in recent days. On April 13th Google announced that it is acquiring Internet ad server DoubleClick.

Google is paying $3.1 billion in cash to become the sole owner of DoubleClick and said DoubleClick will operate independently until Google’s integration plan is finalized.

 

Anywhere But Here

It was only a couple of weeks ago when iTunes and EMI announced that starting next month, the online music store would begin selling EMI tracks sans digital rights management, causing industry watchers to predict that it wouldn’t be long before other major labels followed suit.

And, sure enough, a new Web site called AnywhereCD appeared, offering unprotected tracks from Warner Music Group.

But was this the next shoe to drop after the iTunes / EMI lovefest captivated audiences just one week earlier?

Not exactly.

WMG quickly issued AnywhereCD a cease and desist notice within 24 hours of the Web site’s debut, saying the site did not have a license to sell unprotected downloads. AnywhereCD complied with the c&d, but said it had received permission to help customers rip their own CDs into MP3s.

Say again?

AnywhereCD, which is helmed by Michael Robertson, the founder of the original MP3.com, sells CDs online. Meaning, like Amazon, buy a CD from AnywhereCD and the company mails it to you.

However, unlike those other mail-fulfillment online CD stores, AnywhereCD goes an extra mile for the customer. Buy a CD from AnywhereCD, and for a slightly larger price tag the company will rip it into MP3 files for you. So you’re buying actual, physical CDs from AnywhereCD. The MP3 ripping and downloading is just an additional service. What’s more, customers can opt not to receive the physical CD they purchased, electing instead just to download the tracks.

"In both instances a physical CD is being purchased," Robertson told Wired News’ Listening Post blog. "Royalties are paid for the CD plus we offered to compensate participating labels for the digital files. The monies are better than traditional album sales. Let me repeat – every transaction involves the sale of a physical CD plus additional royalties. No exceptions. Those CDs not elected for delivery are kept for an audit period and then destroyed."

Although WMG has forced AnywhereCD to stop offering the label’s music for unprotected downloads, that doesn’t mean the independent labels featured on the Web site haven’t followed suit. But it was a major label’s unprotected tracks that stirred interest in the new online music site in the first place.

"AnywhereCD is trying to sell albums," Robertson told Listening Post. "Not sure we’ll be successful because competition is fierce from non-royalty guys (used CD sales, CD traders and file swappers). If we don’t get support of labels then I don’t see how we can be successful. But I’m confident that they’ll realize we’re on the same side of the issue."

.