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SHIFT: How the music industry is destroying Internet radio
Internet radio — remember that? It's still around, and after years of being an also-ran in the digital-media arena, it's recently started to offer some services worth listening to and could, God willing, completely reinvigorate the music industry. That is, unless the music industry has its way. Not content to just kill Internet radio, it's also committing professional suicide. Internet radio is poised to pump new blood into the music biz, but instead that biz decided to slice open its own jugular. Nice move.
Pandora, one of the current crop of Internet radio providers, might be the first casualty. SoundExchange, a division of the RIAA, has set up a royalty-fee system so outrageous that it's threatening to shut down Pandora. In fact, the founder of Pandora, Tim Westergren, says he might pull the plug. Keep reading to see what all the bloodshed is about.
Radio As We Know It
Life used to be pretty simple. Radio stations didn't have to pay royalties to recording companies and performers to play music (though they do pay fees to ASCAP, the American Society of Composers, Authors and Publishers). Nice deal, right? Then along come those feisty satellite radio stations. Fees were put in place so satellite radio had to pay 1.6 cents per hour per listener to the music industry.
However, an obscure federal panel decided last year that Internet radio providers had to use a different pay scale. An exorbitant pay scale. It's high now, but by 2010, sites like Pandora will have to pay 2.91 cents per listener per hour. Right now, Pandora will have to pay the RIAA 70% of its projected revenue for 2008, and that bill is going to shut down the site, Tim Westergren, founder of Pandora, said when interviewed by The Washington Post. "We're approaching a pull-the-plug kind of decision. This is like a last stand for webcasting."
Pandora's Dilemma
Although Pandora is quite popular, it's still not getting enough revenue to pay the RIAA's coming bill. Westergren said they were going to turn a profit for the first time in 2009. "We're losing money as it is. The moment we think this problem in Washington is not going to get solved, we have to pull the plug because all we're doing is wasting money." Representative Howard L. Berman (D) from California is petitioning SoundExchange and other politicians to change the rates before Pandora shuts down, but so far, no luck.
Music Bonanza
Internet radio sites like Pandora and Slacker are exciting for anyone who likes to be exposed to new music. Within minutes of going to Pandora.com, you can type in an artist, get recommendations for other similar artists, even be directed to music by that artist from either Amazon.com or iTunes.
Slacker is similar. You can listen to a station created by virtual DJs. You select an artist you like, and you'll find a station that plays songs by similar artists — exposing you to music you've forgotten about or something new you might never have stumbled upon on your own.
The point is both services are great at exposing music lovers to new tunes — songs they'll probably like and want to buy. As such, they should be wildly popular with new and obscure artists, the kind of musicians that don't get airplay on traditional radio. By showing up on a suggested-listening list, they get exposure that’s priceless. What better way to get to potential new fans?
Why would SoundExchange (and the RIAA looking over its shoulder) want to limit how artists receive exposure and publicity, and even sell their tunes. In less than a minute after going to Pandora.com and typing in an artist’s name, listeners can be directed to Amazon.com so they can buy CDs or downloads of the artists they've been listening to. Internet radio is much more likely to steer listeners to actually buy music than regular radio because they’re already sitting right there in front of an Internet-connected computer. Compare that to when you hear a song you like on FM radio, if you can even figure out who the artist is.
Both iTunes and Amazon make it simple to purchase a song, and Pandora leads listeners not only directly to the retail site, but to the exact song you were listening to. Elegant. Why would the RIAA want to punish these sites that are actually helping their artists? This stranglehold is going to kill a business model that makes it painlessly simple for folks to legally buy music.
If This Isn't Promotion, What Is?
The music industry has been suffering massively reduced revenues lately as music downloads have caused CD sales to plummet. Internet radio was a shining new business model. Not only does it give you a way to listen to your favorites, it gives emerging artists a chance to be heard. Pandora and Slacker make it easy to buy new music too. — music that you might never have heard any other way. The music business must be crazy to limit this pipeline.
There has to be a happy medium. I certainly don't mind paying for my music, no matter how I get it. I listen to Slacker radio at home, XM Radio in my car, and my MP3 players are loaded with probably 1,000 songs I've purchased from iTunes, Amazon or ripped from CDs. I wake up to FM music every morning. Funny, that's the only source that plays commercials to make money, and that's the only one that doesn’t have to pay crazy royalty fees. Terrestrial radio has been exempt from those fees, only paying composer royalties because it was thought that airplay was a form of promotion for record sales. It makes no sense that Internet radio is treated any differently.
Want even more inconsistency? Many terrestrial radio stations also stream over the Internet (or for that matter, satellite radio). If they play the latest from The Pussycat Dolls, they don’t have to pay performance royalties for the FM feed. But when they stream the song over the Internet they do.
Let's All Be Reasonable
By all means, put a reasonable royalty fee (which the new fees certainly aren't) on any and all of these services, but don't kill what could be a brilliant way for the music business to grow and expose listeners to new music. Call your Congressman, because this isn’t over yet. Content providers need to look at who they're harming most by removing potential exposure to new listeners.
There's a difference between owning a song and listening to it just once, and it calls for different business models. If sites like Pandora point listeners to a retail site to purchase the song, surely that should be considered “promotion,” and the RIAA should cut them some slack. Obviously, someone needs to pay the labels when you listen to their tunes on the Internet, but it needs to be reasonable. Reasonable enough to keep these exciting listening options up and running — and here's a novel idea — profitable.
By Chance at 8:21 PM ON 08/28/08
I completely agree! I just started listening to Pandora (Introduced by word of mouth 2 days ago) I have already ordered 2 cd's on half.com. It seems like all the RIAA wants to do is abide by the rules THEY create instead of inducing business for the people and companies they TRY to protect.
By GT at 9:37 PM ON 08/28/08
Great article. Every time stuff like this happens I can't help but wonder what would have happened had metallica not wasted their money and needed to sue to make more......
By ryan at 11:33 PM ON 08/28/08
We recently launched an internet radio platform called Highnote which we feel is the scalable business model for streaming music. It's music discovery without irrelevant ads. It's monetized via a promotional platform for artists/labels which is targeted and performance based. Labels and independent artists get promotional exposure for their new music in the most natural way – played directly after artists that are similar. Ex: I am an unsigned band deep in the long tail, and I want to get my song heard. I cite Coldplay as an influence and can have my song inserted into streams after listeners hear a Coldplay song. The user experience is preserved because we only play sponsored tracks that are relevant to what the user is listening to. Think Google adwords in music form. The site is at http://www.highnoteradio.com. Feedback welcome.
By LifeTrek at 12:32 AM ON 08/29/08
"Internet Radio Equality Act (HR 2060), which Manzullo and Rep. Jay Inslee (D-WA) introduced last year. The bill, which maintains the strong bipartisan support of 149 cosponsors, would vacate a Copyright Royalty Board (CRB) decision last year to triple royalty rates Internet radio stations must pay and instead put the rates at parity with satellite and cable radio."
http://rotstar.blogspot.com/2008/06/internet-radio-fight-manzullo-pushes.html
David
By Milaro at 1:00 AM ON 08/29/08
Time for a little "Radio Free Mars" action. Screw the labels.
By thexfile at 2:33 AM ON 08/29/08
nice text , the musick industrie is totaly screwed up :-S
i like pandora , to be honest i wish microsoft had a simmilar feature on it's player....
i have a windows mobile based x-player and the thing that bothers me is that it shuffels so badly , i have like my 80% of my music collection on there and i stil only get to here like 20% of the songs becouse it shuffels like al the same songs :-S
if we had a pandora player for microsoft vista and mobile divices we could have the same stuf we like but withe our own collection... hering songs you never thought you had , insted of hearing the same songs week after week.... i mean when i want a shuffel i do'nt want to here 3 songs of the same artist after another , and stil moast players out there do that GRRRRRR
it's sad that an inovative program like pandora is screwd like this .....
seems the musick indistrie is never satesfied , even if you go the leagel route....
the words that spring to minde are from an old frank song "i'll do it my way"
and that's what i get , the musick industrie just wants people to do as they please trieng to ban al outside competition...
almost sounds like microsoft tactics....
if you ca'nt beet your comppeditor then make them go out of buisnes....
it's very sad....
and then the industrie stil wonders why we do al the stuf we do....
people like pandora found a way to make money and bing new inovative stuf to light...
pleaze do'nt kill it , in the end you ( the musick industrie ) wil shoot yourselves in the foot again.....
By We7Steve at 6:20 AM ON 08/29/08
The inconsistencies in the Cost models go way beyond Internet Radio to such an extent that any legitimate Internet Music business is challenged to do the right thing and this is killing the ability to get Internet Radio or on-demand streaming services to get to scale so it can be made to work. This means that non-legitimate sites thrive and no-one gets paid. The powers that be need to let companies like Pandora and We7 work out the models and together work out realistic rev and profit shares that allow businesses to be sustained or it will be x% of nothing.
Steve Purdham
CEO We7
www.we7.com
By junmhoon at 8:23 AM ON 08/29/08
The Music Industry must retool and or adopt a new platform for distributing and promoting artists and theirs products. That's it. junmhoon/iammusiconline.com
By Haekon at 9:51 AM ON 08/29/08
I discovered a ton of music on Pandora before they blocked IP's from outside of the US (thats another issue) this is such a shame I bought a ton of music from Pandora that i'd have never heard of before they really are shooting themselves in the foot! if they opened it up for global sales the money would ROLL in.
By TheTinkerer at 11:52 AM ON 08/29/08
The music industry have been trying to revolt against for the past 3 years, but apparently not many higherups care.
Another station you might want to check is www.di.fm and www.sky.fm
Besides having very cheap rates, there is a lot of music going on. Been on these for the past 5 years and love it.
By Omniblast at 1:21 PM ON 08/29/08
Great Article. The RIAA is going to be the end of us all. FREE THE MUSIC!
By budgethero at 1:36 PM ON 08/29/08
take away all the bells and whistles and FM radio is no different from internet radio. it's like having two people who want to get married. BUT they're both female or both male. oops, DENIED. this is the same. both net and FM broadcast music. at their bare essentials, that is what they are. it *SOUNDS* like corruption (note how put "sounds" in asterisks to emphasize that i'm not saying "it is corruption"). your telling the older form to do the affordable process and telling the new whipper-snaper to do the expensive process. and in an NPR report, i quote
"Richard Ades, spokesperson for Sound Exchange, disagrees. He cites the wide availability of stream ripping software and he says webcasters have as much to lose from the practice as the record industry.
"If somebody is a fan of '60s music and webcasters has a '60s channel and someone rips the music for a week, they don't need the webcaster anymore," Ades says."
http://www.npr.org/templates/story/story.php?storyId=12228259
i can take my computer mic and record from the classic rock station on my clock/radio and convert the songs into mp3s. i wouldn't need the internet or FM or cds. how is ripping software any *WORSE* (note how i put "worse" in asterisks to emphasize that im not saying ripping software is a good thing)? i at least don't think it's so bad that you would need to punish the net radio providers to recoup.
By Mo at 9:49 PM ON 08/29/08
I agree, this is ridiculous. I've bought 3 cds from artists recommended to my by listening to Pandora, AND gone to several concerts! I'm not to buy the damned CD unless I know I like the music, sheesh. And if he has a problem with the stream ripping, then go after the stream ripping software, NOT the person who wants the music!
By Mike at 10:34 PM ON 08/31/08
Possibly the best summary of this issue. Thank you sooo much! I know soo many people that don't understand this issue. They will be getting this e-mailed to them.
By Anonymous at 7:31 AM ON 09/01/08
At least you can still use pandora, in the UK it has been closed for a while now.
I used to use it all the time, and found some of my favorite artist through it, but licensing cost meant they closed it to the UK.
By ghosty191 at 1:48 PM ON 09/01/08
I don't know how many times I had to call an FM station to see who was playing, and then I might like it enough to go buy the whole album. I have been burned too many times by buying a totally worthless group of songs, just to get one good one. I quit buying them.
Then I discovered Satellite Radio, which not only gave me a variety of music without commercial interruptions, of any genre I felt in the mood for. I still love it, and will never go back to FM.
After that I discovered Pandora, which I love because I can listen to artists I like, but I also get introduced to artists that are similar and I can vote on their sound, which I am sure gives the recording industry a heads up on what is wanted by the consumer. If they take that away, because of revenue gathering tactics, then that would be not only criminal, but insane. You can't treat the consumer to new venues, then take them away because of greed, and expect them to be happy about it. I will never go back to the old ways again, and I will refuse to listen to anything which isn't like I like it. I’ve tasted the good life.
By darkamor at 3:11 AM ON 09/04/08
I <3 Pandora.com (and use it all the time to locate songs which I DO purchase online vs. dealing with the b.s. of attempting this inside an actual store).
If those money grubbing Corporate S.O.B.'s and
those S.O.B.'s in Congress can't cut the crap they can all go f' themselves and the f'n donkey they road in on!!!!
viva pandora.com y no mas to b.s.
~(^)~
By JAQO at 8:35 AM ON 09/04/08
Many good points, except for the unheeded need to get the government involved in this matter and not getting any comments from Sound Exchange and the RIAA on their business model. Government intervention is never the answer, let the free market roam as free as possible and we will be better off.
By JAQO at 8:38 AM ON 09/04/08
Many good points, except for the unheeded need to get the government involved in this matter and not getting any comments from Sound Exchange and the RIAA on their business model. Government intervention is never the answer, let the free market roam as free as possible and we will be better off.
By moviedemon at 10:31 AM ON 09/04/08
The whole stream-ripping defense that the RIAA clings to is completely ridiculous. They are butting their heads against a wall for no reason.
If someone wants to capture a song, there are a multitude of ways to do it, even if it's an analog solution.
The music industry way overestimates the public's need for "hi fidelity". (When I was a kid, I used to record songs off the radio onto cassette tape!) It's not that hard to record analog audio on your computer and you end up with "near CD quality" which is good enough for all but the most staunch audiophiles.
Radio, in ALL its forms, is the only way to "test drive" music before you buy it. Terrestrial radio stations have so much overhead that they can't afford to take chances on anything but the most formulaic, cookie cutter music.
Thus, killing internet radio has the potential to kill music innovation altogether.
Don't believe me? Consider this- the RIAA claims that they have the right to collect royalties on ANY music that gets streamed over the internet, regardless of whether the artist has signed with them or not and even if the artist doesn't want them to. That means you can't even start an all-indie radio station and avoid paying the fees.
And if you think the RIAA does all this strictly in the best interests of artists, think again. If you're an indie and you want your share of the royalties that the RIAA has forcibly collected on your behalf, you have to pay them for the privilege! If you don't, they just keep it for themselves.
What's worse, the RIAA actually petitioned the federal government to allow them to REDUCE the amount of royalties they pay to artists.
No organization should have this much power over an industry, and it's time both artists and consumers get together and bring them down!
By Looneyone at 1:09 PM ON 09/04/08
Yeah, I agree. Why is it that the music industry continues to shoot the feet of the up and coming and independent artists. I have many friends that are musicians that have albums out there. Yeah, they are available on iTunes, but If people dont know about that, how can they get the sales on there. I have never used Pandora, but it sounds like its the perfect model to sell MORE music and not hurt the industry.
By HADENOUGH at 3:51 PM ON 09/04/08
Great article and commnets. You can be sure some one from the RIAA is reading this and maybe with some brains as well. What my two cents is all this from the RIAA revenue is acually a smal part of what they are doing. The MAIN reason and my opinion is CONTROL... PERIOD. The RIAA is just freaking out losing control of the "Artists" and YOU. They RIAA decide what we hear an buy and they are losing that. Many "ARTISTS" are leaving record companies and goingg direct to the internet to promote and sell their music. We all have eard stories from the artists from screwing over financialy by the RIAA "Record Companies". Backdoor sales and over seasa sales of an Artists products is not divulged to the artists Cortney Love and many others come to minds and told the Record Companies "RIAA" to get lost and left. Hey I have no problem paying for my music I listen to; but heck why is it I have to spend around $100-150.00 for a bunch of CD's to get just the few songs I want; according to the RIAA? I just go to a legal web site pay for the songs I ONLY WANT, and be on my way. Thing again IT IS ALL ABOUT CONTROL OF YOU AND I...
By rradiko at 3:32 AM ON 09/05/08
WHO DIED AND MADE THE R.I.A.A. THE BOSS ?
WHY DON'T WE SUE THESE NEOFASCIST BASTARDS OUT OF EXISTENCE !
By scifimojo at 5:41 AM ON 09/05/08
The RIAA reminds me of the 'old' guard of communist China. They refuse to believe that things have changed and are afraid of the loss of power. Do they even use computers? Are they aware of this new fangled thing called the internet? Doesn't sound like it. Like so many entities that have refused to change with the times, they and the bloated music companies they serve have outlived thier usefullness. Both need to die off and let musicians and the people find each other without so much interference. We need to support the smaller music companies who care more about the music and musicians than what they can pimp out of them.
By Diggs at 2:03 PM ON 09/05/08
Let's face it,appealing to the RIAA is a complete and utter waste of time.When will people learn?The lables do NOT care what you,the consumer wants.They never had.They never will.In point of interest,it's not the lables persay.........it's the people running the lables.Stop wasting your time,people,trying to beg/plead/cajole these greedy s.o.b.'s to do the right thing.They won't.Not ever.Put the labels out of business! "What?!" you say."That's wrong.That's not fair to the artists,to the fans!"Don't make me laugh.They're called 'Independent'! Let people put their music out there the way they want to.Screw the labels! Stop being ignorant people.Apparently the majority has not yet learned. It's sad.Don't buy from these fools!It's simple.Support the artists thru other means.In fact, let the artists advertise by themselves.With the internet today,it's much,much easier.The only way to get thru to the RIAA,the music industry, the big, greedy,labels is.....................put em' out of business.I don't need to tell you how to do that.Everyone knows.Pay the artists, NOT the labels.Artists.........wake up! As for the older stuff? Well...........time will tell.
By Fury at 10:32 PM ON 09/05/08
Well, would be nice if we COULD sue the RIAA out of business, problem is, they've got more lawyers than even many large companies.
About the best way to give the RIAA a heads up because I have high doubts that they WOULD read all the comments here.. would be to simply boycott all industry-based music. The drawback to that, being that it would cause problems for many artists who don't deserve it.
But yes, the RIAA, while I don't think the government can, or should do anything about it, is too asinine (rather like most of our government) with it's head up it's collective ass, to realize that they're prepping themselves for some severe nether penetration.
By Zachary Bernstein at 1:02 PM ON 09/06/08
If the RIAA, SoundExchange, all those people hear from all of us, it might do something. Obviously, having an RIAA bossman reading this and other articles might have an impact. Hearing it from our mouths - from the customers - might help to. Being vocal is key right now. And yes, boycotting major label stuff (or at the very least, focusing on indie stuff) is a good strategy.
By Merddyn at 11:15 PM ON 09/07/08
I can tell you exactly why Internet radio is being targeted by the RIAA and Terestrial radio isn't... the RIAA more or less controls what terestrial radio plays. They get to decide which artists get a shot and, more or less, that means that they control what we get to hear. The very model that Pandora represents will drive more money to them in the short run, but I very much doubt that every recommended band you find via Pandora will be on a label. If it's allowed to go unchecked, at some point the artists will realize that they can, in fact, get by without the labels. This effectively kills the labels, which kills the CD business, which kills the RIAAs power over our musical tastes and futures. From the perspective of being smart enough to see what this could mean, I applaud the RIAA for seeing the writing on the wall. From the perspective of their obvious desire to keep the artists from being able to do something on their own without 'requiring' label representation or to make any real money, not to mention maintain their monopoly on who we can listen to when, I think they should be lynched. It comes down to control, and the RIAA as well as the labels who drive it, are the ones with that control today, with the power to crush those who might compete with new artists we might come to love better than the artists they want us to love. They avoid the whole anti-trust thing because it's separate labels that control the RIAA, but make no mistake, it IS a monopoly and internet radio can bring it down. It would have been much smarter, both politically and tactically, to openly embrace internet music and then work feverishly on getting those providers to agree to some of the same constrictions placed on terestrial radio today...but nah, they would have had to spend a little money to do that...they had to do that back when radio became the main delivery method, but now they can just crush the competition.
By tiredoldman at 6:27 PM ON 10/09/08
Stupid fools,(RIAA).
Don't they have a clue ?
By Geminix3 at 7:06 PM ON 12/11/08
I didnt know about Pandora until I read this but I love it. I hope a miracle comes and it doesnt have to go. If the radio feature inside iTunes had the features that Pandora does, I could listen to that...
By apmusicservices at 1:09 AM ON 02/04/09
i agree to this!great article.
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i agree to this!great article....More »