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Why American Independent Internet Radio May Go Extinct in 2016

The new performance royalty rates that internet radio will pay artists and record labels were released on December 16 and many small and mid-sized internet-only broadcasters are now fearing they’ll be put out of business. While there was a modest increase on the fee paid for each song played, the bigger concern is what’s missing.

Since 2009 webcasters with lower revenues have been able to pay rates based upon that income, rather than based on tracks played and audience size. Under the Webmaster Settlement Act of 2009 (WSA) stations with less than $1.25 million in revenue were able to pay a percentage of that in royalties ranging from 12% to 14%. That agreement was made between SoundExchange, which negotiates and collects performance royalties on behalf of copyright owners, and a group of internet radio stations. However, the WSA ended on December 31, 2015 and there is no new agreement to take its place.

This means that all internet broadcasters that qualified for revenue-based royalties in 2015 will now have to pay based upon the number of performances. This is calculated based upon the number of tracks played multiplied by the number of listeners to each track, which is then multiplied by the rate of $.0017 per performance. So, if a station averages 100 listeners at any given time and plays an average of 15 tracks an hour, then it has 1500 performances an hour, 36,000 per day, and 13,140,000 performances a year. This adds up to a royalty of $22,338 a year.

To understand how significant this change might be, consider that 100 average listeners isn’t a very big audience. So even if a webcaster were able to make $100,000 a year–equivalent to the budget of a small community radio station–the royalty obligation under the WSA would have only been $12,000. However, it’s more likely that a webcaster with that size audience would have a hard time making even $12,000 a year. For very small webcasters with little actual operating revenue the cost of doing business threatens to greatly outweigh actual income.

Impact on One Independent Internet Broadcaster

Rusty Hodge is the founder of San Francisco based internet radio group SomaFM, which operates 25 commercial-free, listener-supported music channels. Via email he said that given current listenership and use, he estimates that SomaFM’s royalty costs could increase by as much as 10 times, up to about $20,000 a month. He does caution that because the full text of the CRB’s ruling has yet to be published, the full impact on SomaFM is still unknown.

Hodge also explained that the station is considering a number of cost saving measures to limit the number of performances SomaFM has to pay for, like implementing two-hour connection limits. Such measures can help ensure that a stream is being actively listened to, rather than playing to an empty room. “We’ve already started dumping connections after four hours, and that’s lowered our usage (and hence royalties) by 10% already,” he said.

Because several SomaFM stations emphasize small labels and independent artists, another approach is working with those who are willing to allow their music to be streamed royalty-free in exchange for links to their website or other consideration. “We expect that we’ll have 95% of the content on Drone Zone be direct licenses, and that’s our 2nd most listened to channel,” Hodge said. He also predicts that SomaFM will be able to direct license at least half the music for the Groove Salad channel.

A Devastating Blow to Internet Radio Diversity

Nevertheless, strategies like these may not be sufficient for many webcasters to keep their operations going if no WSA replacement comes to fruition. Then, the all-too-realistic scenario is that thousands of US-based small webcasters will be forced to end broadcasts because they’ll be unable to pay the new performance royalty rates. Such a mass exodus may come as soon as the end of January because of the dire situation of the longstanding internet broadcasting platform Live365 which is facing the dual challenges of the royalty rate increase and a loss of investor funding. Live365 hosts thousands of streaming stations, most of which would go silent if the service shuts down.

The predicted loss of small and medium internet radio stations would be a devastating blow to the internet as a viable broadcasting alternative to terrestrial radio. In effect, launching a sustainable internet music station will require as much start up capital as building or buying a terrestrial radio station. David Porter, the founder of the 8tracks streaming platform, estimates that it will require at least $10 to $15 million to enter the internet radio market in the US.

Of course, there also would be a devastating reduction to the diversity of broadcasts available on the internet. While non-commercial terrestrial stations and internet-only college stations are unaffected by this change, the internet radio world is home to countless stations that cater to niches and interests that are barely ever heard even on the most cutting edge terrestrial signals.

Smooth Jazz Chicago is one internet broadcast that exists to fill a niche that is nearly gone from terrestrial radio. The three year-old station is one of the first casualties, having shut down operations on December 31. According to an open letter by founder Rick O’Dell, the station could not absorb the rate increases.

All Access reports that New York City-based Pulse87 is another station turning off its stream. Joel Salkowitz, owner of the dance music webcaster, told All Access, “Apparently, SoundExchange has decided, on behalf of the artists whose interests it purports to represent, that they would rather get 100% of NOTHING versus some reasonable percentage of SOMETHING!”

That line of reasoning has some resonance in the music community. The Future of Music Coalition advocates for musicians and therefore generally favors increased royalty rates. At the same time, in a statement CEO Casey Rae said,

“We are concerned, however, that there does not appear to be a distinction in rates for small commercial webcasters. Digital music benefits from diversity, and services with more modest operations often help developing talent and niche genres find audiences while contributing to the overall revenue pool. If there isn’t an option for new entrants to perform music from a broad range of artists, we may end up with a less diverse digital landscape.”

Opportunities for Relief?

Though it is reasonable for both listeners and internet broadcasters to be gravely concerned, the timing of the CRB’s decision coming so close to the end of the year and just before the holidays means that there may yet be opportunities for relief. The still upcoming release of the full text of the CRB’s ruling could open a window for a new WSA-like settlement from SoundExchange, though webcasters will probably have to organize quickly in order to make their case.

Broadcast attorney David Oxenford, whose firm represented small webcasters in the negotiation of the WSA, observes that the current situation resembles that of 2001, after the very first internet radio royalties went into effect. He writes on his blog that, “As after the 2001 and 2006 decisions, it is possible that there can be post-decision settlement agreements, but whether such deals can be negotiated and enacted remains to be seen.”

SomaFM’s Hodge said that he is working with a group of similarly-sized stations that has retained an attorney to pursue negotiations with the CRB and SoundExchange. “We are hoping we can get some kind of extension to the small webcasters agreement which ended in 2015. The first step will be getting the CRB to allow SoundExchange to enter into a side agreement with small webcasters.”

Webcasters also may look to their Congressional representatives to intervene and apply pressure on SoundExchange or the CRB. A petition to Congress started on December 27 currently has over 1,700 signatures. Yet, with new rates now going into effect, under current law neither SoundExchange nor the CRB are obligated to make any adjustment.

Small and mid-sized internet broadcasters and their listeners should hope that this looming threat is an oversight, or an unintended consequence, rather than a more concerted effort to quash independent webcasters. We’ll continue to watch the situation closely in the following weeks.

RAIN News has been doing an excellent job covering this issue, which is not surprising–though still greatly appreciated–given the publication’s focus on internet radio. Another site to watch is Net Radio Blog, run by internet radio advocate Robin Henderson.


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0 Responses to Why American Independent Internet Radio May Go Extinct in 2016

  1. RK Henderson January 5, 2016 at 11:44 pm #

    Thanks for this thorough and complete report, Paul. (And also the NRB plug!) This is a true challenge for American webcasters, and could have a devastating effect on the development of this new medium in the US, while much of the rest of the world forges ahead.

    I’m returning your link favour: adding one to this article on my crisis updates page. (http://netradioblog.blogspot.com/2015/12/updates-on-american-licence-crisis.html)

  2. RADIOSATELLITE2 January 7, 2016 at 5:52 pm #

    Hello Paul and all friends readers,

    Hope that they will find a solution for this big problem. It’s more than an issue.

    From Paris, (France) we are following this situation and hoping that pressures and all petitions will lead to negociations and of course : to a happy end for all.

    From here, we are very astonished if nothing could happen to save all radios….

    When a country ( whatever is this country) , when a gvrmnt wants to create jobs, future jobs, to encourage entrepreneurs…How could they reach such target ?? when … at the same time… thousands of webradios/ radios are forced to close.. and people losing their dreams and jobs also.( or the hope to get a job later).

    Best

    Pierre.

    (http://radiosatellite.co from France )

  3. NANMERK January 30, 2016 at 8:54 pm #

    HI Paul,

    I’m new to your site but someone sent me the article you posted and, after reading it and these other posts, I felt the need to respond also. I belong to a very small doowop club and internet radio station. I have been a DJ there for the last 13 years. As of right now, there are 22 DJs there. We don’t get paid for what we do, we do it because we love it and because we are trying to keep this genre of music alive. Most of the artists we play have passed on and most of the labels have long since gone out of business. We play songs from the 40’s, 50’s, and 60’s almost exclusively. We play a lot of obscure and unreleased tunes that were seldom, if ever, played on commercial radio. We also have absolutely no revenue. We exist solely on donations from our listeners, of which less than 100 listen at any given time. We are licensed with an outfit to pay the royalties which, up until now, was a nominal fee that we could afford. But now things have changed dramatically. It is only a matter of time before we will probably have to close our doors and that will be a sad day for us all. When stations like ours close down, what we consider “our” music will die. No one plays R&B, doowop, and oldies on the radio anymore.

    ZZ, I read your post and your second to last paragraph hoping that Sound Exchange will do the right thing is a pipe dream. I called Sound Exchange and spoke to someone there. I explained our situation, the type of music we play, etc. I asked him where the money goes when they can’t find the artist or label. He gave me some crap about it going to the families of the artists, etc. I have friends who know a few artists from that era that are still alive and they have said they haven’t gotten royalties in over 30 years from any of the music we play. I also told the guy from Sound Exchange that these new rates would force us off the internet. Ya know what he said? He said “I’m sorry to hear that.” That was it. They just don’t give a damn.

    We have a listener who is an accountant and he told us that donations are not revenue or income. Too bad the licensing people don’t see it that way. We have all signed the petition and have encouraged all our listeners to do the same. Right now it has over 5,000 signatures. I just don’t know what good it will do but nothing ventured, nothing gained I guess. In the meantime, we will continue to play our music until we can no longer do so. I hope that day never comes but I don’t hold out much hope.

  4. mtaffer March 19, 2016 at 12:54 pm #

    I have to comment on how this is going to destroy certain types of music that we are just going to deem “underground” for now. And no I am not talking about hipster bands in coffee houses i’m talking about the metal industry. The one that is all but overlooked in the US in particular. Most of these bands fit into the power metal/progressive metal genre and it’s very difficult to hear these bands, much less know they exist. A lot of this music comes from Europe where this music style is still embraced. My point to all of this is that internet radio shows like The Metal Madman are one of the only ways for unknown artists to have their music heard. As a result of this corporate greed for royalties, there is little to no thought given to music that is not deemed “popular” and it needs to be looked at. No matter if your taste does not veer that way, it doesn’t give SoundExchange a right to destroy musical avenues for artists that have limited resources to have their music heard. For these bands EXPOSURE is worth more than any royalty costs. The Metal Madman show exists because of the love that he has for this music and he takes no advertising costs and funds it strictly on his own. He believes in having music that is not heard or not “popular” to be given in a shot in the US…you know the land of opportunity. So I really wish that SoundExchange would take into consideration they are going to make exposure for these bands even more difficult in the US as a result of this plan. I don’t care if they deem this music not worthy of their time, they have no right to destroy art or artists that are struggling to get their name out there. I have made many purchases of albums and songs based upon the radio show hearing bands I have never heard of before. I think to myself how many of these bands would NOT have gotten my money because I would have never known they existed. This is a travesty to the music industry as a whole, who has a right to dictate what music lives or dies? If you don’t like the genre of music I am talking about fine, it’s just a matter of time before yours is on the chopping block!

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