Have we killed music 2.0?

Back in March 2007: The Copyright Royalty Board set a schedule of rates for webcasting of music (also known as MP3 Streaming) for 2006 through 2010.

Before March 2007, webcasters had to pay a flat per station/channel fee to the CRB and then give %12 of their profits to SoundExchange, a royalty collection organization.

Under the system imposed in 2007, websites have to pay a $500 flat fee in addition to established per-play/per-listener fees. Webcasters had to pay any fees that would have applied in 2006, with fees increasing going to 2010.

Royalty rates are set to increase up through 2010

Royalty rates are set to increase up through 2010

This week, August 2008: Pandora Internet Radio has announced that they may be forced to shut down. Currently, royalties account for 70% of Pandora’s $25 million dollars in revenue: that’s $17.5 million dollars in royalties from one website. With the rate increases set to increase in 2009, Pandora’s remaining profit would be used to pay royalties.

In 2007, when the CRB imposed the new fee structure, NPR (National Public Radio) fought the increase, filing for a rehearing. The CRB responded that there wasn’t enough evidence to support changing the fee structure.

As Pandora’s founder Tim Westergren in the Washington Post points out, traditional radio doesn’t pay royalties per play—there is no way to track how many people hear a broadcast. Satellite radio pays 6-7% of its revenues to the Copyright Royalty Board—1.6 cents per hour. Internet radio pays per listener, 2.91 cents per hour. With millions of internet radio listeners, royalties for Pandora could be in the tens of thousands of dollars per hour.

Pandora Internet Radio-- which uses the innovative Music Genome Project software-- may have to close down.

Pandora Internet Radio-- which uses the innovative Music Genome Project software-- may have to close down.

Pandora is already looking into adding advertisements between songs in order to supplement revenue. Many smaller internet radio stations have already had to shut down, with royalties accounting for 100-300% of their revenue. MP3 Streaming Mixtape site “Muxtape.com” has been temperarily closed by the RIAA for not paying royalties, and some speculate this closure could be permanent. Is this the death of “Music 2.0”—web services designed to let users share and discover new music?

Muxtape.com has been temporarily shuttered by the RIAA

Muxtape.com has already been temporarily shuttered by the RIAA

Ultimately, this system is destructive for everyone. Without web streaming, listeners will resort to getting new music through illegal downloads, which is exactly what the RIAA and CRB are trying to avoid.

The royalty system is even worse for new and undiscovered artists. Pandora has helped many users discover new artists through its “Music Genome” software, providing priceless exposure to otherwise underground artists. From an artist’s perspective, the promotional value of services like Pandora or Last.fm is far greater than any royalties the service would provide.

The only way to save Music 2.0 is through the government—the Copyright Royalty Board is controlled by Congress—so send an email to your congressman: https://forms.house.gov/wyr/welcome.shtml asking them to reevaluate the Copyright Royalty Board’s March 2007 Ruling.



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