There is no greater enemy of the music business than the music industry itself. Never before in the history of mass entertainment have we witnessed an industry who worked harder to destroy itself. Maybe once upon a time, music companies tried to expand their business and reach wider audiences, but those days ended long ago…and if the RIAA has its way, they’ll be gone for good.

Let us count some the major mistakes the industry has made in our lifetimes: cheering on ownership consolidation that squeezes out diversity on local radio; standing on the sidelines while the Internet revolutionized the way listeners access music…and then trying to close the barn door after the horse had galloped to the next continent; applauding the Copyright Royalty Board’s decision to raise royalty rates on Internet Radio.



In the past several weeks, we’ve seen the recording industry agree to pay penance for engaging in the age-old practice of payola. You know, where the companies pay to have their music played on the radio. Because, you know, radio is the greatest possible promotional device known to the industry. It leads to sales of music (unless you count those pesky souls who tape record songs off the radio). Of course, these same executives who authorize illegal payments are starting to realize a sad truth about radio: the music companies don’t really make money off the radio.

“But wait!” they say, sitting in their executive suites. “We have new technology. We can turn this to our advantage.” It’s quite simple, you see. Radio stations have traditionally paid royalties on the music they play; now, with this new ruling, traditional radio will continue to operate as it always has, but rate for Internet radio will increase substantially. And that increase will be retroactive. Ostensibly, this increase is designed to compensate the performers. In reality, a huge chunk o’change will be going to copyright owners. Often, the copyright owner is none other than the music label.

Can you see the happy dancing in the halls of the music industry?

Making it worse, traditional exceptions for entities such as public radio are all but erased. That’s where National Public Radio comes in. The cost to NPR to play music will increase substantially. The costs to your local public radio station — those entities who are always begging for cash as it is — will increase substantially. Given the economics of the situation, it makes sense that if this ruling stands, these stations will chose to change their business models. Right now, they’re actively increasing audiences by streaming and podcasting and broadcasting online. That’s going to stop if the cost goes up.

NPR is fighting the good fight. Actually, NPR is fighting mad. To quote from Andi Sporking, NPR’s Vice-President of Communication:

…we are being required to pay an internet royalty fee that is vastly more expensive than what we pay for over-the-air use of music, although for a fraction of the over-the-air audience.

NPR’s particular beef is with being treated on par with commercial radio, and it has already filed a petition for reconsideration. One petition is not enough. This ruling impacts Internet broadcasters who operate like traditional radio as well as services like Pandora. Pandora, which follows the crazy set of rules created to, wow, I dunno, stop music from being enjoyed — no requests, limited number of “skips”, limited number of songs by one artist — will see its payments increase to an estimated $3.5 billion. Not a bad punishment for a service that drives listeners to purchase the music they hear.

Kind of makes you wonder what other ways the music industry can devise to torture the very people who are fighting to keep it viable.

SoundExchange, the arm of the RIAA that collects royalties due performers, isn’t worried. Why would they be? The new rules were essentially proposed and written by SoundExchange.

“They’ve been saying this since 2002, that they were going to go out of business,” said Willem Dicke, a spokesman for SoundExchange. “Instead what’s happened is the industry has grown tremendously.” Dicke said the advertising revenues from online music broadcasting have grown rapidly over the past few years, from about $50 million in 2003 to $500 million last year, giving Webcasters enough resources to cover the new royalty rates.

Granted, there is nothing to support these numbers from Dickey that I can find. And that’s not really the point, is it, that Internet radio has increased its advertising revenue? When terrestrial radio increases ad revenue, does the music industry demand a bigger share of royalty money? Finally, sure, the big boys make bigger money, but this ruling impacts many broadcasters operating under the Small Webcasters Amendment; these new rules will likely create payments due that exceed the revenues of these stations, according to analysis done by Radio and Internet Newsletter.

The ruling also changes the reporting requirements for small broadcasters — a change they may not be in a position to accommodate. In the estimate of increased fees for Pandora noted above, a $500 per channel cost is also assessed. Channels are not clearly defined, meaning that these channel-based services will need to plan for extremely high costs if they choose to continue operations. That’s going to kill services.

They say this about the performers. Always, always, always be suspicious when someone says that. It’s about the corporations. CD sales are down and these companies are trying to replace lost revenue. That’s a fair goal. But their solution is one that continues to favor the big hit model over the Long Tail model, and the big hit model is not as sustainable as it once was.

NPR is fighting. Others are fighting. You need to fight, too. Make sure your voice is heard. Don’t just sign a petition, contact your members of Congress.

Make no mistake about it: if this ruling stands, the big loser will be the entity that wanted it so badly. The music industry. As smaller, adventurous stations who operate legitimately fall off the map, consumer will turn to, well, pirate radio. They will not go backwards to commercial radio, they will not return to Tower Records — heck, they can’t. They will find the music they want. And the RIAA will spend exorbitant amounts of money chasing these pirates.

Is that really a business model?

A few good links: