Is Internet radio on the brink?

The arcane system by which songwriters, publishers and other rights-holders get compensated when their music is played on the radio in the United States is complicated enough, with quasi-governmental bodies that decide how many pennies each instance will cost, and so on. But at least the fees that are charged aren’t so high that they threaten to make it uneconomic to run a radio station (not yet). Internet radio, by contrast, is almost at that point, according to Tim Westergren, the founder of Pandora (and a former musician), one of the leading Internet streaming-audio services — and one I used to enjoy using until it was forced to cut off access to users outside of the United States.

This danger, which Westergren describes in the Washington Post story linked above, isn’t new. The Pandora founder was warning about it in interviews over a year ago, and so were other Internet audio players. The freight train that is currently bearing down on Pandora and similar services got underway more than six years ago, and since then there has been much frantic lobbying by both sides. Finally, last year, a federal agency boosted the rate that Internet radio stations have to pay — it has already doubled, and by 2010 will have tripled. Westergren says the licensing fees that Pandora has to pay this year will consume about 70 per cent of the company’s revenues of about $25-million.

As many people have pointed out — including Doc Searls, who posted a good overview last year — the music industry clearly sees Internet radio as an opportunity to institute fees that it hasn’t been able to get from regular radio stations (although outside of the United States, payments to artists based on radio play are fairly common). Not surprisingly, the industry has been trying to change that state of affairs as well, in many cases using the Internet radio decisions for leverage, and even going so far as to argue that radio airplay is a “form of piracy.”

Obviously, some of what Westergren is saying — and has been saying for the past year or more — is designed to put pressure on the music industry and get it to agree to lower royalty rates, something the Washington Post says is being promoted by at least one congressman. But all hyperbole and spin aside, if those rates don’t get reduced there appears to be a very real chance that services like Pandora may cease to exist, and I think that would leave us all a little poorer as a result — and not just music listeners, but musicians as well.

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