Private Sector Affirms Webcasting Rates

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Fair rates, business certainty lead to surge in activity for Internet radio.

Anybody can play the top hits, but on the Internet where listeners aren't hemmed in by geography or a limited number of stations, to become a go-to site for music you've got to give the listener a different or specialized experience. Because of that, we're seeing a lot of diversity.

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Business activity in the Internet radio sector has surged since the Copyright Royalty Board (CRB) set new rates 14 months ago for music played on Internet radio, according to SoundExchange, the non-profit organization that collects and distributes webcasting royalties for recording artists and copyright holders. The level and intensity of Internet radio activity belies claims by a few webcasters that the rates are too high for businesses or will somehow lead to Internet radio's demise.

"Clearly, Internet radio has become the place to be for music broadcasters," said John Simson, executive director of SoundExchange. "While there still are few who are loudly predicting the demise of Internet radio à la the boy who cried wolf, the on-the-ground reality is saying something quite different. There is a lot of money to be made in Internet radio and royalty rates are not a barrier to developing strong, workable business models."

Simson pointed out that the increase in business activity has enhanced the listening experience and widened the spectrum of music that is played. "What we are seeing in the reporting of playlists is that the diversity of music played is widening," said Simson. "Anybody can play the top hits, but on the Internet where listeners aren't hemmed in by geography or a limited number of stations, to become a go-to site for music you've got to give the listener a different or specialized experience. Because of that, we're seeing a lot of diversity."

Simson noted that the way in which people are accessing music continues to undergo seismic shifts, moving from owning the music to listening to the music on various platforms. This change in how people listen to music is driving some business away from selling music to licensing - giving people an opportunity to enjoy the music without having to own it outright.

"There are so many new and creative ways to access music, and more developing all the time, that music fans are finding new ways beyond ownership to enjoy music and to expand the types of music they listen to," said Simson. "Nothing is more promising than the Internet for taking advantage of these opportunities, but the fact remains, artists have to be paid fairly for their work."

When the CRB set the rates in March, 2007 for the 2006-2010 rate period, it provided business certainty for the webcasting industry. Prior to the decision, it had been a foregone conclusion that the rates would go up - that artists and copyright owners deserved far more than the flat, below-market rates they received for the previous seven years - but the question was, how much? With the CRB decision came certainty: businesses could develop business plans with confidence knowing the cost of the music.

Ever since the decision, webcasters and simulcasters (radio stations with Internet offerings) have been revving up their business engines and making serious runs at webcasting. SoundExchange points to a steady stream of evidence indicating expansive webcasting growth and opportunities:

  • According to an August 2007 Bridge Ratings report, Internet radio advertising revenue is expected to reach almost $20 billion by 2020 - a dramatic increase from the estimated $500 million in advertising revenue estimated for 2007 by JP Morgan.
  • CBS partnered with AOL after CBS purchased Last.fm for $280 million. The president of CBS' digital media unit exclaimed that Internet radio "is an incredible business - we gotta own this!"
  • AM/FM broadcasters are flooding the world of simulcasting; an estimated 30 percent growth, from 2006 to 2007, in the number of distinct commercial broadcasters or broadcast groups.
  • Said the CEO of the National Association of Broadcasters, David Rehr, "Some people in this business have been staring so long at the door that's closing, they haven't seen the new door that's opening - the digital door."
  • Cox Radio recently reiterated its commitment to its online business.
  • Clear Channel recently completed a deal with Gracenote to post lyrics on its 800 station Web sites and is reportedly close to a deal with Pandora.
  • In the year since the CRB decision, nearly 400 webcasters notified the copyright office that they intend to establish Internet radio stations, building on the 500 who made notifications in the previous year.
  • In an article in the July 17,2007 issue of PC magazine ("The Future of Internet Radio") John Dvorak cites Internet radio's inherent advantages: it's reach is unlimited; it's on-demand qualities enabling listeners to listen to what they want, when they want; and it's low cost. Wrote Dvorak, "The expense of streaming over the Internet is a fraction of what transmitter-based broadcasting costs. There is no big antenna, no transmitters, no special studios."

News of Internet radio business deals and growth statistics have become an almost everyday occurrence, clearly indicating that music - the product that drives all radio platforms - is fairly valued for webcasting. "Any attempt to devalue the cost of music is an insult to recording artists and the hard work they put into creating the music," said Simson. "It's bad enough we have to fight the radio conglomerates to get a law that requires them to pay recording artists for their work. Webcasters should not be drawn into that zero-value mindset that says music - and by extension, the people who create it - have no value, especially when the private sector is recognizing that value."

SoundExchange is a Washington, D.C.-based, independent, nonprofit performance rights organization designated by the U.S. Copyright Office to collect and distribute digital performance royalties for recording artists and sound recording copyright owners when their sound recordings are performed on Internet radio and satellite radio, as well as other services. SoundExchange currently represents more than 3,500 record labels and more than 31,000 artists. SoundExchange members include both signed and unsigned recording artists; small, medium and large independent record companies; and major label groups and artist-owned labels.

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