Internet Radio Not Declining

This Despite Higher Royalties, Says Royalty Group

By Joseph Palenchar -- TWICE, 6/4/2008

Washington — The Internet radio industry is on a sound footing and growing despite higher music-royalty rates imposed 14 months ago on webcasters, a music-industry group contends.

When the government’s Copyright Royalty Board (CRB) set rates in March 2007 for the 2006-2010 period, “it provided business certainty for the webcasting industry,” claimed SoundExchange, a group that collects royalties for artists and copyright owners for music played on Internet and satellite radio. The group represents more than 3,500 record labels and more than 31,000 artists.

Before the decision, SoundExchange contended, it had been a “foregone conclusion” that rates would rise, but the wait for a decision on the size of the hike created uncertainty within the webcasting industry. Once the CRB set rates, “businesses could develop business plans with confidence knowing the cost of the music,” the group said.

And businesses did, SoundExchange claimed. In the year following the CRB decision, almost 400 webcasters notified the copyright office that they intended to establish Internet radio stations, the group said, although that’s down from 500 companies made notifications in the previous year.

“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,” the group said. “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.”

The growth of Internet radio, added executive director John Simson, underscores a fundamental shift in the music industry from selling less music and licensing more music, or “giving people an opportunity to enjoy the music without having to own it outright.”

Although “there still are few who are loudly predicting the demise of Internet radio,” Simson contended, “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.” SoundExchange pointed to an August 2007 Bridge Ratings report that forecasts Internet radio advertising revenue will hit almost $20 billion by 2020, up from the $500 million estimated for 2007 by JP Morgan.

Growing business activity in the webcasting market has widened the spectrum of music that is played, Simson added. “What we are seeing in the reporting of playlists is that the diversity of music played is widening,” he said. “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.”