

It's a sad day for internet radio enthusiasts. Bloomberg reports that AOL and Yahoo may shut down their web radio services as a result of a 38 percent increase in royalty fees.

"We're not going to stay in the business if cost is more than we make long term,'' Ian Rogers, general manager at Yahoo's music unit, told Bloomberg.

The news comes roughly eight months after the U.S. Copyright Royalty Board hiked royalty rates for webcasts effective (retroactively) from 2006 through 2010. For 2007, webcasters must pay $.0011 to stream one song to one listener; and that rate will jump to $.0014 in 2008; and to $.0018 in 2009. The fee structure was expected to drive hundreds of net radio stations out of business with the exception of deep-pocketed businesses such as Yahoo and AOL.

It's not a totally done deal, though: Webcasters are scheduled to begin their appeal of the rate structure starting in February, and the whole process could carry on through much of 2008. (The timing of Rogers' remark leads one to believe that he was probably just posturing.)

Assuming it is a realistic possibility, would the closure hurt Yahoo's bottom line? RBC Capital Markets analyst Jordan Rohan laughed at the notion.

"I've never met anybody, ever, that's a subscriber to Yahoo's radio service," Rohan says. "With the abundance of free or relatively free music available, shuttering the service won't cause that much of a disruption in the market."

Makes sense. We wonder, though, if Yahoo and AOL ever recouped the millions of dollars they poured into the business.

AOL spent $400 million (in stock) on Spinner.com and Nullsoft back in 1999. Yahoo spent $12 million on Launch.com back in 2001, and another $160 million in cash on Musicmatch in 2004 – that's hardly chump change.

Photo: Flickr/Orla_Keating