Tim Westergren, founder of music discovery service, Pandora, has sent out an email urging Internet radio fans to sign a petition against the recently announcement royalty increase, which means that music streaming services will see a near three-fold increase in the license fees they'll have to pay to the music industry's collection service, SoundExchange.
The increase was proposed by the RIAA (through SoundExchange), and, despite protests from webcasters (small and large), the Copyright Royalty Board (CRB) made it official. To make matters worse, the first hike in charges will be retroactive from 2006.
Unless the CRB does a u-turn, it's likely that most smaller Internet radio stations will have to close shop, and that web 2.0 discovery-based 'stations' (such as Pandora) will have an even tougher time turning a profit than they already are.
The sad thing about the music industry's stance on this issue, is that music discovery services (just like traditional radio) have the ability to actually drive music sales. It therefore seems a backwards move to bring in rates that could effectively put these new companies out of business.
In an earlier interview with Gizmodo, Tim Westergreen also tries to set the record straight with regards to two common misconceptions surrounding the new rates:
- That higher rates mean more money for artists. Not true, he says. The reality is that the few Internet radio companies that opt to continue will be forced to license directly from labels [We've already seen Last.fm announce a number of such deals]. In this scenario, the artist share of the revenue will be a lot less as the majority will go directly to the record labels.
- Internet radio is highly profitable. Wrong. Contrary to any statements by SoundExchange or RIAA representatives, Internet radio is not a highly profitable business nor will it be, argues Westergreen. For most (including Pandora), it's still a money-loser at the old rates that we are working as hard as we can (15 full time sales people are on the job) to turn profitable in a year or two. It's a thin margin business at best.
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