No Music on Internet Radio

It’s only fair that Internet radio stations should pay something for the music they play. The royalties should go to musicians to pay for the music they recorded. The U.S. government recently set the Internet radio recorded music royalty rate at .07 cent. This doesn’t sound like much money, but the rate is being charged per listener per song, and it adds up quickly. If you listened to an Internet radio station all year long, the station would have to pay $100 a year in royalties just for you. A station with an average of 10,000 listeners — a tiny operation by broadcast radio standards — would have to pay a million dollars a year for music. A hugely successful Internet radio station, the sort that currently exists only in webcaster’s dreams, might have to pay a billion dollars a year. Suddenly, Internet radio doesn’t sound like such a profitable idea.

But actually, the high music royalty rate, combined with the fact that the rate is based on the number of listeners, provides a strong disincentive for an Internet radio station to have a large audience. If the radio station is supported by advertising, the only way it can hope to make a profit is by drawing a small audience that targets a specific category of listeners more accurately than any radio station ever has. Ordinarily, advertisers wouldn’t pay much to reach an audience of 2,000 or so, but if the audience was the exact group an advertiser was trying to reach, the advertiser would pay more — possibly even enough to cover a station’s music licensing royalties and operating expenses.

Perhaps, then, the future of Internet radio can be seen in legions of tiny, carefully targeted radio stations. But this whole scheme depends on legions of music directors, each with an uncanny sense of a specific market. Do such people even exist? I suspect not. And so, by the end of the year, there may not be any traditional music radio stations to be found on the Internet.

This does not mean the end of Internet radio — not quite. Talk, sports, comedy, and educational formats will be largely unaffected. Most listeners, though, want to hear music. For them, there may be room for coverage of special events, such as concerts by top touring acts, when there is specific sponsor support for the live webcast. A station might even be able to create a weekly series of featured music events.

And Internet radio stations can continue to play music if they have a subscription fee. In theory, a fee of $10 a month or less could cover music licensing fees for any combination of radio stations for a single listener. But even if this could be implemented perfectly, it would make it impossible for Internet music radio to reach a mass audience. The average music fan spends less than $100 a year on records. Only a handful of them are ready to spend that kind of money to listen to music over the Internet, and those who are are more likely to subscribe to a music-download service than an Internet radio service.

Congress could revisit the Internet radio law, but with other issues such as national security and budget problems on the agenda, they are not at all likely to take action this year. That means that every Internet music station could be gone before Congress takes up the question again.

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