Web Radio Gets Deal, Still At Disadvantage

Internet-based stations pay lower royalties, but they're still the hardest hit when it comes to paying for the right to play songs, PC World says

by Ian Paul

After almost two years of back and forth, there is finally a deal in place that will guarantee the future health of Internet radio. If you haven't heard, Internet radio services like Pandora, Blip.Fm, and Last.fm were in trouble because the royalty fees imposed on them in 2007 were more than double what they were paying previously and threatened to drive Internet radio into extinction. Royalty fees are paid to copyright-holders for the right to broadcast a specific piece of music.

The songwriters, recording companies and performers who own the rights to these recordings feel they should be compensated since many Internet radio stations make money simply by playing music without live hosts, news breaks, and other expenses of traditional radio. This method of broadcasting is also known as "pureplay."

Under the new deal, Internet radio stations will pay about 40 percent less than the 2007 rates, ensuring a fair deal for everyone. Or is it a fair deal? Internet radio is still the hardest hit from royalty fees; satellite radio is next, and of course conventional radio stations have paid minimal royalties for years. So how is this fair?

Let's take a look at the three major radio models we have today:

Traditional Radio

The oldest form of radio out there, traditional radio stations on your AM and FM dials have been playing music with minimal royalty fees for close to a century. Radio stations do have to compensate songwriters for playing their songs, and under the Digital Millennium Copyright Act, radio stations have to pay royalties for making their live broadcasts that include music available online.

To make money, these stations charge for advertisements based on their popularity with the listening public. In its heyday, broadcast radio was the only game in town to connect an artist with listeners. As a result, radio stations didn't compensate artists, since it was believed that radio exposure lead to increased album sales for the performers.

That premise has been basically true over the course of radio's history, but now that new forms of radio are developing, traditional radio is on the decline. But still the old business model persists. Now, a movement called musicFIRST is trying to change that model, but their success is still in doubt.

Compounding the problem is the fact that traditional radio's advertising revenue is on the decline, yet these stations still reach as much as 90 percent of Americans on a weekly basis, according to a Stanford study reported by Reuters. So, while traditional radio is as popular as ever, its revenue base is still declining.

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