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Increased royalty fees may force some internet radio stations to shut down

Over the last year, the online music industry has been in what many call as a major shakeup. Music artists and labels represented by SoundExchange say they are being treated unfairly, receiving less than a fair amount of money being generated by online radio stations. SoundExchange has been lobbying Congress over the last year to force online radio stations to pay for or pay higher royalties for songs played.

Working closely with Congress, SoundExchange has successfully convinced the industry that increased royalties are a necessity. The D.C. Circuit Court of Appeals has declined to put a stop on increased royalties. This Sunday, Internet radio stations will be slapped with a bill forcing them to pay higher royalties going forward and pay for music aired in 2006. By 2010, royalty rates will nearly triple what stations currently pay. Stations will also incur an annual fee of $500, but the annual fee hasn't been fully worked out. SoundExchange is unsure if it wants stations to pay $500 per station or per channel.

"This is just about the artists getting paid fairly. Artists and labels just want a fair share of the pie," said Richard Ades, a SoundExchange representative.

Late last month, many online stations banded together for a single day of silence, marking their stance against SoundExchange and its demands. Called "Day of Silence," the move created public awareness about how damaging the new proposed royalties could be. Despite the demonstration, SoundExchange chief executive John Simson said, the "rates are fair."

Tim Westergren, founder of Pandora, one of the largest Internet radio companies, said, although his company is able to pay for the new royalties he and his company would not go down without a fight. Pandora along with Yahoo, Rhapsody and Live365 represent the four largest Internet radio companies today. Whether large or small, all types of broadcasters will be affected. SoundExchange said it has taken this into account. Small and non-profit broadcasters will have a royalty cap of $50,000 per year -- still a very large amount.

"Nobody wins when Internet radio gets shut down, including artists who ostensibly are being represented by SoundExchange, the organization pushing for high rates. It's ironic. If SoundExchange gets their way, it means less money for musicians because people will cease to pay royalties all together," Westergren said.

Even with the cap, small broadcasters are still in distress. Michael Clark, owner of two small stations said that after Sunday, he would owe roughly $14,000 USD just for the holiday season of 2007. As for all the music that his station broadcasted during the 2006 year, Clark will owe $8000 on Sunday. One of Clark's stations already closed down because of the new changes and he was unsure of what to do after Sunday, he said.

Jake Sommers, owner of a similarly small station that plays jazz faced similar decisions and consequently closed down his station. closed on April 30th of this year when Sommers realized he would have to pay $2000 per month to keep his station of 20,000 listeners afloat.

"We never made a dime. It was a labor of love. Everything we made we put right back into radio station. It was a bunch of trumpet geeks playing music for other trumpet geeks," Sommers said.

As Patty Smyth once sang, "sometimes love just ain't enough."

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Crushing rates
By alifbaa on 7/13/2007 5:13:23 PM , Rating: 5
Sommers realized he would have to pay $2000 per month to keep his station of 20,000 listeners afloat.

10 cents/listener/month is a crushing royalty to pay for a relatively obscure station. While it doesn't sound like a lot, the bandwidth costs inherent to a quality station are enormous if you aren't generating a similarly large amount
of advertising revenue. For a less popular genre like big-band Jazz, you can forget about generating the necessary revenue to pay those kinds of fees.

It seems to me that the music industry knows this, and is simply trying to exert the same control over online radio that they enjoy over terrestrial and satellite radio. Soon, the only independent internet stations will be user supported like most independent radio stations are today.

While it's certainly a less desirable solution than before, this is probably an easier model to sustain than on traditional radio since the audience is worldwide and a website can be constantly running a membership drive.

RE: Crushing rates
By Treckin on 7/13/07, Rating: -1
RE: Crushing rates
By simko1ra on 7/13/2007 6:15:37 PM , Rating: 4
ROFL, $2000 per month / 20,000 users = $0.10/user. Do everyone a favor and finish math class before you post again.

RE: Crushing rates
By MonkeyPaw on 7/13/2007 7:47:13 PM , Rating: 4
"calc.exe" must have fallen off his Recent Programs list.

RE: Crushing rates
By buckeye25osu on 7/15/07, Rating: 0
RE: Crushing rates
By Hawkido on 7/16/2007 11:06:23 AM , Rating: 2
LOL I think what our quite embarrased poster was trying to say is that Satellite radio costs about ~$10 per month. (Is that true? I never checked into Sat Radio)
he was trying to juxtapose the $0.10/user/month VS. $10/user/month fee which is completely ludicrus as internet radio has ads to pay for it and Satellite Radio is purely Subscription driven (or so I have been told, I think the Sports casts have inherent ads in the actual broadcasts)

If you look at it this way his math wasn't off as much as his logic was bad, compounded by the fact he failed to articulate himself effectively.

RE: Crushing rates
By Avalon on 7/13/2007 6:16:29 PM , Rating: 3
You've got no room to be rude, idiot.

10 cents x 20000 people = $2000.

There is no excuse for that kind of attitude. Grow up.

RE: Crushing rates
By Cullinaire on 7/15/2007 12:39:39 AM , Rating: 3
The sad part is, this isn't the first time you've made a complete fool of yourself trying to correct others.

I look forward to future attempts as well.

RE: Crushing rates
By RaisedinUS on 7/14/2007 11:16:24 AM , Rating: 1
I don't think people understand the rates they want to charge.
It isn't just a $.10 charge per song, it's also per listener.
It's $500 per stream. If a station plays 5 different genera's on 5 different IP addy's, that's $500 EACH.
If each stream(IP) has 5000 listeners, that's $.10 PER LISTENER. 5 x 5000 x $.10. Now, kick in the per stream fees and you have a LOT of money.
$500 per stream plus $.10 per listener per song per stream.

RE: Crushing rates
By PlasmaBomb on 7/15/2007 2:52:20 PM , Rating: 2
Realnetworks said that this would cost them $200 million annually. I don't think that even they make $200 million of pure profit.

RE: Crushing rates
By Slaimus on 7/16/2007 12:34:52 PM , Rating: 2
The most absurd thing about these royalties is that it is unconditional. If I were to release songs for free (as in royalties) to be broadcasted online, the radio website would still need to pay royalties to SoundExchange. SoundExchange does not even need to inform me that they are collecting royalties on my behalf. I guess they intend for me to get a royalty check from them (minus fees), and pay it back to the radio website.

This setup greatly profits the labels (they also run SoundExchange), and discourage independent distribution, which was the original intention of internet radio.

"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain

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