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What is “sustainable growth” for Internet radio?

Internet Radio Fairness CoalitionAs promised, a host of radio and Internet radio companies have launched the Internet Fairness Coalition, which supports the Internet Radio Fairness Acts making their way through the House of Representatives and the Senate. Major supporters include Clear Channel, Pandora, and AccuRadio. The proposed laws would put performance royalty rates for net radio on a par with rates charged satellite and cable based services. Internet radio listeners are always on board for these campaigns. So a huge portion of the fight is for the hearts and minds of musicians and artists who, obviously, would receive lower royalties under the new standard.

“Without a sustainable market, rates don’t matter,” the coalition’s legislation page explains:

The revenue to artists is a function of rate times number of users. Both need to be considered to build a robust and sustainable market. The current rate structure actually deters volume on existing services — along with hindering the entry of new services into the marketplace. This prevents more music from being played to more listeners, which then prevents artists from making more money – and prevents record companies from making more money as well.

Bottom line: “The record labels and their allies don’t seem to understand how to help develop a sustainable market, and without that expertise they have defaulted to simply pushing for rates that cause possible new entrants to decide against entering the market and existing players to either drop out or reduce their volume.”

Obviously the labels and their allies disagree.

“It’s true that as digital radio continues to grow, so does the amount that performing artists and rights owners receive for the use of their content,” blogged the royalty distributor SoundExchange on October 10, in anticipation of this initiative. “We’re proud to support this growth, and it’s our hope that Internet radio platforms like Pandora continue to thrive. But the company can’t cut costs at the expense of musicians. It’s simply unfair.”

Thus the question boils down to what the term “sustainable growth” actually means. How could this be measured? What percentage of revenue spent on royalties would be acceptable? Do cable and satellite companies bear greater infrastructure burdens that make comparatively lower royalty rates logical?

These are the kinds of questions that lawmakers will ask as these bills receive hearings in the House and Senate.


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One Response to What is “sustainable growth” for Internet radio?

  1. Grant Goddard October 28, 2012 at 3:54 am #

    The differing cost structures of broadcast radio and online radio undoubtedly holds the latter industry back. Broadcast radio is a largely fixed cost business where, once your revenues exceed your costs, a high proportion of incremental revenue goes straight to the bottom line as operating profit. Online radio is largely a variable cost business where, as you gain more listening/listeners, your costs rise almost proportionately (sometimes the increase is even progressive). So, for example, Pandora’s problem is that increased usage translates into increased costs, whereas increases in revenue cannot keep up. The more popular it becomes, the more money it is likely to lose. This cannot be a realistic business model in the long term.

    I explained the UK situation – where online radio pays at least six times as much as broadcast radio for the same music copyrights – in a conference presentation last month. See it here: http://www.scribd.com/doc/107099932

    In the UK, the situation is even more inequitous because broadcast radio pays the same comparatively low low royalty rates for its online live streams, whereas pure online radio businesses pay a rate at least six times higher. That certainly does not create a level playing field in the online platform space, effectively disciminating against new online-only entrants to radio.

    “Sustainable growth” is impossible where your marginal costs often exceed your marginal revenues when growing a buisness. Basic economics.

    Yours,

    Grant

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