Internet radio companies are reeling from last week’s decision by the Copyright Royalty Board (CRB) to hike performance rates for sound recordings on the Internet.  On their blogs, my friends David Porter and Rags Gupta, both of whom used to work at online radio company Live 365, voice their understandable concern. In his blog, Tim Westergren, founder of popular online radio service Pandora, is urging listeners to write their congressmen to oppose the decision.  "Left unchanged, these rates will end internet radio, period," he said.  Already, large online music companies like Real Networks are appealing to Capitol Hill.  Representative Edward Markey (D-MA) said: "This represents a body blow to many nascent internet
radio broadcasters and further exacerbates the marketplace imbalance between
what different industries pay."

The new per-stream fees alone are likely to exceed a webcaster’s potential advertising revenues for the foreseeable future.  This doesn’t include other substantial costs like publishing/songwriter performance fees, bandwidth, and overhead.  On top of that, there are a couple of other proposed changes such as the elimination of the revenue share option.  This could put many smaller online radio companies out of business immediately.

We all saw what happened in broadcast radio over the past ten years.  The double whammy of Clear Channel consolidating the industry and small radio stations (with no spectrum licenses) being unable to to air broadcasts, left listeners with watered down, centralized programming.  As a result, they have been tuning out for years.

As a former indie label owner and major label executive, I strongly believe that artists and labels need to be fairly compensated for their work.  It is unfortunate that US terrestrial radio has been allowed to play music for free in the name of promotion for decades.  It’s not so in many other countries, such as the UK.  Furthermore, it makes complete sense that artists and labels are paid fairly for performance of their music on the Internet.  However, a balance must be achieved that enables online radio stations – both large and small – to build sustainable businesses.  Online radio certainly fosters discovery of music and leads to greater music sales.  Without a vibrant online radio community, both consumers and the music industry will suffer.