Will royalties kill the internet radio star?

18 Aug 2008

Internet radio site Pandora may have over 40,000 listeners per day, but the crippling weight of music royalties looks likely to shut the site down for good — an event that will indeed be a black day for the already struggling internet radio station.

Pandora, a streaming music site that allows users to create personalised stations, based on their music preferences, has previously succumbed to the music industry’s high fees when two years ago it pulled its services worldwide to focus on the US, due to royalty costs.

The founder of Pandora Tim Westergren tells the Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2008/08/15/AR2008081503367.html) that the firm is “approaching a pull-the-plug kind of decision” and that “this is like a last stand for webcasting”.

While this might seem like a dramatic statement, it is placed in the context of the high cost of streaming music on the web, especially in comparison to the much lower cost incurred by terrestrial and satellite radio stations.

Last year on 26 June 2007 internet radio stations participated in a ‘day of silence’ (http://en.wikipedia.org/wiki/Internet_radio#Day_of_Silence) to protest against the rising royalty costs that went into effect on 14 July after the US Copyright Royalty Board (BRB) stated that it would be upping fees in the years to come.

The protest had no discernible effect as the CRB plans to raise these royalty fees for inter radio in 2009 and again in 2010.

“Internet streamed radio is already paying more in royalties than broadcast radio, particularly in the US, and this can’t continue,” says internet media consultant Brian Greene of Doop.ie (http://www.doop.ie).

According to the Washington Post, Pandora is already using 70pc of its annual revenue of US$25m to pay royalty fees and this is one of the bigger, stronger radio stations that can afford to do this.

Ironically, Pandora’s is one of the top ten downloaded iPhone 3G applications from Apple’s App Store, but may not be available for much longer given the circumstances.

According to the Chicago Tribune (http://featuresblogs.chicagotribune.com/eric2_0/2008/08/pandora-doubles.html), this new iPhone App has doubled its listenership. “We went from 20,000 listeners to 40,000 a day. Pandora has soared past the 15 million users it had before the iPhone relaunch, adding 400,000 new users in the first 10 days the app was available,” says Westergren.

Added to the situation of rising royalty fees is the view by some of the music industry that websites should pay for the privilege to act as a platform for artist’s music sales.

Take for example punk musician Billy Bragg who in March 2008 wrote a piece for the New York Times (http://www.nytimes.com/2008/03/22/opinion/22bragg.html) stating that “the musicians who posted their work on Bebo.com are no different from investors in a start-up enterprise” and as such deserve a percentage of its profits.

While musicians are finding it difficult to navigate the waters of the online digital music industry, the webcasters providing this music for eager listeners are finding it hard to stay afloat.

Who wins in this situation? Well, the situation is changing according to Greene of Doop.ie: “Radio is about to get social. Broadcast radio needs to adapt to the social side of the internet and currently if it looks at what is happening in the royalty space, traditional radio would stay put.

“Pandora and Last.fm (now owned by CBS) are the flag carriers,” says Greene. “They are the Napster’s of their age.

Pandora may or may not close down, but the new iPhone app has given it a lease of life, while Last.fm is busy ‘widgetising’ its service so that it can be plugged in and enjoyed in a social sense through sites such as Facebook and Bebo.

Greene is of the belief that we are smack in the middle of a big change in the online music model: “Along will come an iTunes for the social radio age and really stir the pot. Social radio will take on many forms from streams, to apps and players to muxtaping and account-based services.

“The only thing we can be certain of is uncertainty in this flux period.”

By Marie Boran