Monday, March 05, 2007

Save Internet Radio

Dismuke asked me to alert readers to a new threat to internet radio. Information here.

13 comments:

Dismuke's said...

Myrhaf -

Thanks so much for your help in getting the word out about this.

The royalty rates put out by the Library of Congress are beyond irrational - they are downright insane. The royalties I am talking here about are the ones that Internet stations have to pay to SoundExchange in order to play copyright CDs and records.

What is really disgusting is that AM/FM stations are actually exempt from having to pay those royalties for their over the air broadcasts. As a result of the payola scandals of the 1950s, they don't have to pay a single dime. Only Internet radio stations have to pay them.

The old rates which the new ones replace were already outrageous and were MANY times higher than the royalties that stations paid for composers royalties to ASCAP/BMI and SESAC combined. The new rates are, in fact, significantly in excess of 125% percent of revenue of even the most commercially successful Internet radio stations. And, on top of that, the rates are scheduled to increase every year through 2010 by as much as 34% per year. The 2010 rates will be a whopping 149% over what the already expensive old rates were.

If these rates are allowed to stand, the vast majority of Internet radio stations will be bankrupt.

Most Internet radio operators do not have a problem having to pay royalties. What would be a rational royalty scheme would be something along the lines of that which is currently used by ASCAP/BMI and SESAC for composers royalties which are calculated on a percentage of revenue that a station takes in. Those royalties are not cheap - but they are not so high as to drive broadcasters into bankruptcy.

The new rates for SoundExchange are simply not viable - there is no way that an Internet radio station can successfully charge enough money for advertising to pay for the new SoundExchange royalties - and that is not even taking into account the ASCAP/BMI/SESAC royalties, bandwidth and other operational expenses stations have.

Why would the Library of Congress come out with such economically impossible royalty rates? Well, as a certain philosopher once said, don't bother to examine a folly, ask yourself what it accomplishes.

My personal take on it is that Friday's decision by the Library of Congress is nothing more than an outright attempt on the part of lobbyists for the RIAA (major record labels' trade association) and perhaps even the FM radio industry to use political pull to eliminate the competition from Internet radio that will make both industries technologically obsolete.

The last ounce of relevance the RIAA has in today's technological world is the advantage that major labels have in promoting their artists by means of airplay on large FM stations which is essential to turning a song into a hit. Most FM stations won't even talk to independent labels or artists who produce their own recordings - for the most part, they are only interested in the artists represented by the major labels.

If Internet radio somehow survives and becomes available in cars in the very near future, people will have tens of thousands of stations to choose from and most FM music stations will be toast. And when it comes to the economics of promoting music to tens of thousands of small Internet radio operators, the RIAA has no significant advantage over artists who self promote. My very strong guess is that there are some at the RIAA who regard Internet radio as a far greater threat to the long term viability of the major record labels than even illegal downloading.

Of course, FM operators are terrified of Internet radio as well. Once Internet radio is available in cars (which some say is only a year or two away) and people have thousands of stations from around the world to choose from, who on earth is still going to be listening to the lowest common denominator type swill currently being spewed out by FM stations? It currently costs several million dollars to buy a successful FM station in even a small market. Stations in a large markets such as Fort Worth/Dallas have sold for hundreds of millions of dollars. Once wireless Internet and Internet radio becomes affordable and commonplace - well, those hundred million dollar investments will be technological dinosaurs overnight.

Sadly, a lot of my fellow Internet broadcasters are trying to fight this by giving the matter an anti-capitalistic spin and blaming it all on "corporate greed." In fact, this whole mess is nothing more than what one gets under a mixed economy where the rates that everyone must pay are set by a quasi-governmental body and where political pull means everything.

A LOT is at stake here for anyone who enjoys good music from whatever genre - especially if one's musical tastes fall outside of the lowest common denominator mainstream.

Before Internet radio came along, there simply was no place where large numbers of people could tune in and be exposed to unusual genres of music such as that which I play over Radio Dismuke, a station that is strictly devoted to popular music from the 1925 - 1935 decade. Today, there are Internet radio stations that play any kind of music imaginable - and 1920s and 1930s music now has a great many young enthusiasts, some of them of high school age, who would have otherwise never have discovered it had it not been for Internet radio. I hear from such people all the time.

I urge everybody who is reading this, regardless of what genre of music you enjoy, to PLEASE, tell as many people as possible about what is going on and what is at stake. Tell your friends - especially those friends who are passionate about music. Talk about this issue in discussion boards you participate in. If you blog, please mention it in your blog postings. If you know someone who blogs, ask them to spread the word in the same manner as I sent a brief message to Myrhaf. Webcasting is a very new industry and very few operators have yet to turn any profit on it - so they simply do not have the resources to hire the lawyers and lobbyists to compete with the RIAA which is still vastly wealthy by virtue of its continued economic momentum from the days when it was actually economically and technologically relevant. The only way that the Library of Congress is going to listen is if enough people become irate enough and speak out.

At some point, I am probably going to endorse some course of activism for people who are concerned about this. For now, I am waiting to get further details on what is going to happen and to make a determination about which of the various efforts that people will be undertaking I think will be the most effective.

I have set up a "Save Internet Radio" section on my Message Board which contains the postings that Myrhaf linked to. I will continue to update that section as more information becomes available. You can access the board at http://RadioDismuke.com/forum. Eventually, I will probably have links up there to places that will be far more authoritative and up-to-date than my board will be - but for now it is a good place to check for updates and to refer people to for additional information.

Thanks in advance to all who help spread the word about what is happening.

- Dismuke

softwareNerd said...

I read through the RAIN site and I don't think I fully understand the fundamental change. Which change is going to be the real stumbling block:

1) The increase in the per-song/per-person rate; or,
2) The $500 per channel charge; or,
3) The change in the structure (it sound like something other than a per-song/per-person structure was previously allowed)

BTW: Mark Cuban (once an intenet radio guy himself) has blogged about this today too.

Dismuke said...

softwarenerd -

The answer to your question is: all of the above.

1) The increase in the per-song/per-person rate;

Quoting from one of the Live 365 staff members:
...the new per performance royalty rates for the years from 2006 through 2010 would be $0.0008, $0.0011, $0.0014, $0.0018, and $0.0019, respectively, representing an increase over the existing rate ($0.000762) of 5%, 44%, 84%, 136%, and 149%, respectively, and a year-over-year increase of 5%, 38%, 27%, 29%, and 6%, respectively."

That $0.000726 per song per listener rate is what LARGE webcasters have had to pay up til now.

As a result of the political unrest the last time the RIAA tried this, an agreement was set where small webcasters under a certain revenue threshold were able to pay a percentage of revenue with the minimum annual payment being $2,000.

Under the new rates, ALL stations regardless of their revenue would have to pay the per-song, per-listener rates.

Under the old rates, a large webcasters had to struggle mightily in order to sell enough ads to cover those costs. The new rates are crippling - especially for an emerging medium. Note that by 2010 those rates go up 149%. Yet nobody today in 2007 is in a position to know what the state of the economy will be in 2010. If we are in a recession, ad revenues will be the very first thing to dry up and large stations would be very hard pressed to sell ads to cover even the current rates, let alone the 149% increase. And yet this crazy proposal makes no provision for changing marketplace conditions and the fact that ad rates fluctuate with the economy. Royalty rates for ASCAP/BMI/SESAC do take such factors into consideration as they are based on a percentage of revenue and will, therefore, fluctuate with the goods time and the bad just like the rest of the economy.

Furthermore, a small independent station simply CANNOT sell advertising at such a rate. A large network such as Live 365 which can have thousands of listeners at any time tuning in to its various stations can charge a certain rate for CPM - impressions per thousand listeners. If Radio Dismuke were to go it alone - well, during the peak hours on my better days, I might have just a little over 100 listeners across my Live 365 and LoudCity streams combined - and late at night that number might go down in to 30 something listeners. Those numbers are simply too small for an advertiser to mess with even if the cost per thousand impressions were the same. And the cost of my time and expense as an individual to solicit and sign up such ads alone would exceed any revenue I might get from it - there are fixed costs that can only be recovered by selling in bulk. Unlike royalties that have to be paid to ASCAP/BMI/SESAC, the new SoundExchange royalties do not take such factors into consideration.

2) The $500 per channel charge; or,

Exactly what this $500 per channel charge means is not yet known. The copy of the full decision with all of the various nuances is supposed to be released today as certain confidential information from companies who testified need to be removed before the full details are disclosed.

If that $500 per channel charge is to be taken literally, it means the end of Live 365 and LoudCity who I pay to cover my license under a blanket agreement with other small webcasters. LoudCity has HUNDREDS of channels streaming from their site and Live 365 has THOUSANDS.

softwarenerd - you are familiar with my friend Vladimir Berkov from Objectivism Online. He for example, has a Live 365 station that plays popular Russian recordings from the 1930s and 1940s. It is a VERY nich format - he mostly markets it to his fellow World War II reenactors. He doesn't have a very high listenership - his total listener hours in a month usually in the low hundreds. Currently, with a station that small, he is able to pay about $10 per month to Live 365 and even with the current royalty rates, they are able to make a profit because it streams so few hours. If the $500 per channel ends up being taken literally, Live 365 would have to add on an additional $42 per month to his bill even though he only stream a very small number of hours. Vladimir is a college student on a budget and would have no choice but to immediately pull the plug. I have enough listeners that I might be able to turn to them for help to keep the thing going via donations. He doesn't have such listeners. Yet stations like his are wonderful and downright precious. I had always been curious about what sorts of recordings were popular in Russia at that time - I only have a few Russian 78 rpms in my collection. Thanks to his station, I now know and so can everyone else who might be curious. It is those tiny Internet radio stations which often are the most interesting.

3) The change in the structure (it sound like something other than a per-song/per-person structure was previously allowed)

Yes, as I already mentioned above, smaller stations under a revenue threshold of $1,250,000 had been covered under a percentage of revenue of 10 percent for the first $250,000 in gross annual revenues and 12 percent for gross revenue above $250,000. That meant that, if Radio Dismuke went it alone outside of Live 365 and LoudCity, since my revenue is next to zero, I would only have to pay the minimum payment of $2,000 per year. Under the new rates, based on my current listenership of around 34,000 hours per month, my obligation under the new 2006 rates (which, by the way, are being charged to existing webcasters RETROACTIVELY!!) would be about $544 per month with that going up to $1,292 per month by 2010. And that is JUST for SoundExchange royalties.

And, what is the most disgusting aspect of this for Radio Dismuke in particular is that not a single artist I play would ever see a dime of that large sum of money. All of the artists I play are DEAD. And even their estates wouldn't even see a cent. Before an artist ever sees a penny of that money, they have to accumulate a minimum of $10 in royalties. It takes something like 14,000 times of a song being streamed to a simultaneous listener before the artists share of the royalties reaches $10. Let's see...I have approximately 1,750 tracks in my playlist which means any given song is played only about twice per week. During my best hours I might have 100 listeners. With those kind of numbers, even assuming the crazy odds of a song coming up in the rotation ONLY when there are 100 listeners which is HIGHLY unlikely, it would still never even come close to 14,000 listeners. So every single last precious hard earned penny that I would be forking over would be used to administer the royalties for artists that I personally consider to be crap and beneath contempt.

The only artists who see any significant amount of money under this are pretty much the same artists you hear on FM radio.

The whole mess is bloody disgusting - and the result if something is not done to reverse this very quickly is going to destroy one of the very few signs of hope that exists in today's very sordid and disgusting world of popular culture and entertainment.

Myrhaf said...

Blair put Dismuke's first comment on his blog.

Myrhaf said...

The irony of all this (to me at least) is that if internet radio kills FM, then I lose my job. Of course, the way I feel about my job these days...

Myrhaf said...

My guess is that the government will not allow internet radio to kill FM. In our somewhat fascist economy, the government uses big corporations to effect social engineering schemes. The government allows corporations to exist and in exchange makes them become mini-welfare states. This advances collectivism and statism, but disguises the state’s responsibility, so that if anything goes wrong the politicians can blame the greedy corporations. If anyone can start an internet radio station on a shoestring budget and this kills FM, then the government loses power.

It is richly ironic that leftists such as the rock DJ Jim Ladd rail against corporate greed in radio, when in fact if we had a completely free market in communications, the corporations would have to evolve to give people what they want or go out of business. Only government guns maintain the status quo and stifle progress.

The internet is emerging as a tremendous threat to mixed economy fascism. This is certainly a big story to watch in coming years.

madmax said...

"Only government guns maintain the status quo and stifle progress.

The internet is emerging as a tremendous threat to mixed economy fascism."


I completely agree. There are so many elements to the current economy that exist only because of the mixed economy regulatory state. Hell, government highways themselves have caused so much of our country to evolve around socialist roads.

Sadly, most of today's businessmen would fight tooth and nail *against* the dismantiling of the welfare/regulatory state. In their pragmatist worldviews, they undoubtedly feel threatened. The Orin Boyles and Wesley Mouches of the word as well as many otherwise honest businessmen will oppose the Reardons and Galts and will probably do so with bitterness and ferocity.

Myrhaf said...

Established businesses always love regulation that stifles new competition. If you owned the only grocery store in town, wouldn't you love laws that make it impossible to build new grocery stores?

Anonymous said...

The effin aristocracy of pull.

Dismuke said...

A few weeks ago in another blog comment here I said I had no interetst in blogging.

Well, that was before the Library of Congress Copyright Board and the RIAA set out to destroy Radio Dismuke and Internet radio - the only source outside of my own private record collection that I have of listening to the sort of music that I enjoy.

I have now set up a blog to keep my listeners and other supporters advised of the latest events along with my personal commentary and analysis on the situation.

You can visit the blog at:

http://radiodismuke.blogspot.com

I already have put up 5 postings so that it will hit the ground running. If you like it, please spread the word.

Myrhaf said...

Well, this bad proposed law had an unintended good consequence -- it got Dismuke to blog!

Dismuke said...

No - that's not a good consequence. I already dislike blogging. It is a lot of work and not something that is fun to me as an end in itself. It is an unpleasant and very time consuming necessity right now. I am looking forward to the day I can put up my last posting with the headline WE WON!

This particular blog is especially difficult for me. My audience is VERY diverse politically and philosophically. For example, I have noticed from mentions of the station over they years in blogs and such that I have a number of hard core Air America fans in my audience. I also have some staunch Religious Conservatives. And I hear from Objectivists who regularly listen in as well. Music taste does not fall along ideological lines - and I welcome and value all of my listeners.

The groups that I mentioned above rarely agree on much - but the one thing that my listeners in each camp DO have in common is a love for great music and they value having an endless variety of listening options open to them that simply did not exist prior to the advent of Internet radio. So when I do commentary and analysis on the issues, I have to try and speak up on behalf of ALL of them and take great care not to smuggle any outside agenda of my own into the situation.

I always find it distasteful when celebrities use their status in order to promote ideological agendas. Barbra Streisand is a good example. People listen to what she says because of the good will they have for her. But the source of that good will is from the fact that people value her musical talent - not because of any beliefs or opinions she may hold. Obviously she is as entitled to have an opinion on issues and to speak up as anyone else is. But when she and others use their celebrity status as a means of promoting their personal opinions on highly controversial issues - well, I tend to regard that as exploiting the goodwill that has been given to them. There are a LOT of other ways that she could promote her causes very effectively. And, I think there are even ways to do it openly which are not necessarily exploitative of their fans.

I do not wish to be guilty of similar exploitation of my listeners. People will be visiting my blog because they want to save the music they enjoy listening to - not to be lectured to on my opinions regarding politics and philosophy. At the same time, I am having to deal with what, in fact, are political issues - and, of course, in order to discuss such issues, one must have some sort of broader frame of reference. What that means is I must keep things VERY focused and keep that focus VERY specific. That is MUCH more difficult to do than if I were to blog like most people and simply write what I thought about whatever issues of the day happen to come up.

I actually resent it has become necessary for me to do this. I would much rather be spending my time producing new programming for the station. What is sad is that, even if webcasters win this, there will be no provision for them to go back and bill the bastards at SoundExchange or the RIAA for the time and energy that has been and will be expended to fight this. And that does not even count the hit larger webcasters are taking on revenue. Imagine trying to sell a long term ad contract to a customer who is already a bit skeptical about spending money on a new medium when you don't even know if you will be around for the balance of the contract or whether the bankruptcy court will allow a refund on any unfulfilled pre-pays. Or if an organization is not yet profitable, imagine trying to raise the investment capital needed to keep you afloat under circumstances like this. In other words, even if this is overturned, if it is not done so quickly, there may be webcasters going out of business simply because they cannot remain standing for the duration - which I suspect is what the RIAA has intended from the get go. Never forget, the ENTIRE POINT of this whole matter is to protect AT ALL COSTS the audience concentration that FM radio currently enjoys. The day that concentration goes away, there will no longer be much of a need for record labels other than to collect money on sales of legacy recordings from the glory days before they became technological dinosaurs.

Myrhaf said...

I hope your day of victory comes soon. The faster you put me out of my job with Clear Channel, the better. But you're a David up against a Goliath with lobbyists in Washington, D.C.