Music Royalties Hamper Growth of Internet Radio
     

Psychedelik is a psychedelic music Internet radio station
based in Guipavas, France.
OTTAWA, Ontario — Music royalties are an understandable fact of broadcasting life. After all, the artists who made the songs deserve to be paid.

However, the actual regime of music royalties varies wildly from country to country, uninfluenced by any global standard of “fairness.” Worse yet, the fees charged to over-the-air broadcasters are substantially less than those charged to Internet (streaming) radio stations, because the two sectors are governed under different rules. In some cases, the fees are so onerous that countries such as the United Kingdom simply do not have Internet-only music radio stations.

COPYRIGHT HISTORY
A comprehensive history of the development of radio music royalties would fill a book. The short version: Radio broadcasters didn’t initially pay artists and publishers for the use of their materials on-air, because this use was too novel. However, as radio gained traction around the world, music rights-holders such as the American Society of Composers, Authors and Publishers (ASCAP) started charging radio stations for recorded music usage.

The battles between ASCAP and broadcasters in the United States over ever-rising music royalties grew so heated, that the broadcasters formed their own music rights organization called Broadcast Music Inc. (BMI) in 1941.

For eight months that year, CBS and NBC radio only played lesser-known BMI artists on-air; boycotting ASCAP’s artists until the two sides reached a deal that saw music royalties lowered. This is just one nation’s copyright story; there are many, many others. The fact that there are so many others explains why broadcast music royalties vary so much from nation to nation, to this very day.

“There have been some efforts to unify how different nations handle copyright — like the Berne Convention and European Copyright Directive — but there are still many distinctions and differences that make operating an international streaming service very complicated,” said Geoff Duncan, a media distribution/production consultant who writes on digital media for www.DigitalTrends.com and www.TidBITS.com

“This is why streaming services can often operate under different terms in different countries, or don’t operate in some countries at all,” he said.

RadioBoss24.com is a Bangladesh Internet-only radio station
that streams Bengali content live 24 hours a day.
DISADVANTAGE
It is reasonable to assume that an Internet radio station cannot match the listenership of an over-the-air broadcaster. After all, an Internet radio station delivers content using a one-to-one delivery method, with each new listener requiring his or her own audio stream that must be provisioned and paid for. In contrast, a broadcaster can reach millions with a single one-to-many transmission, with the only limit to audience size being the transmission’s coverage area.

Given this fact, one could assume that Internet radio stations should pay a fraction of what over-the-air broadcasters pay in music royalties; at least in terms of their overall audience size and revenues. In reality, this is not the case.

“Historically, traditional broadcast radio has received favorable agreements for using music, though the level of these differ to a great extent country by country,” said James Cridland; managing director of Media UK, a U.K. media analysis website. In practice this means that “Most countries charge broadcast radio stations a percentage of qualifying revenue, which significantly lessens risk for these companies,” he said.

In contrast, “Internet radio stations are charged per song, per listener — irrespective of revenues being earned,” said Cridland. “And, in most countries, the charges are comparatively high in comparison to broadcast radio. A radio station that becomes successful has a double-whammy of higher bandwidth bills and higher music costs, without necessarily being instantly able to translate that popularity into advertising revenue.”

Smooth Jazz Florida streams from Coconut Creek, Florida.
Again, the onerousness of the fees charged Internet radio stations playing music vary from country to country. In the U.S., for instance, hobby and small to midsize streaming stations can cope by purchasing a “blanket license” from a third-party firm such as Stream Licensing (streamlicensing.com), which covers the royalty payments, reporting and other details in exchange for a monthly fee.

But this won’t help “larger broadcasters,” said Marvin Glass, the company’s owner. “When a larger broadcaster discovers that unless he takes in a significant amount of money he is going to be paying out more than he takes in, he quickly throws in the towel on Internet music radio.”

NO RELIEF
Internet music royalties are even tougher in the U.K. “I believe the online music royalty structure here is a large reason why we have no Internet-only radio stations of any scale,” said Cridland. “It is simply uneconomic to attempt to run an Internet-only station.”

Cridland has calculated that should Pandora ever try to launch in the U.K., their music rights liabilities alone would be almost 100 percent of their available advertising revenue. This is “10 times what traditional broadcasters pay,” he said. “It’s impossible to run a station like that.”

There are a lot of players in the music royalty business; particularly the Big Three recording companies — Sony Music Entertainment, Universal Music Group and Warner Music Group — who have major stakes in maintaining music royalties at current or higher levels.

As well, “It’s almost impossible to find an artist who is satisfied with income they receive from Internet streaming,” said Geoff Duncan. “Sure, massive acts like Jay-Z and Beyoncé might earn millions, but for every one of those massive success stories there are thousands (more likely tens of thousands) of artists who earn only a few dollars — if anything at all.”

Against this backdrop, it seems unlikely music royalties will ever drop significantly for Internet radio stations; despite the fact that these royalties are stunting the sector’s growth, and limiting the potential for exposing online listeners to music that they might subsequently buy and download directly.

“Maybe streaming music services can generate enough ad revenue off non-paying users to stay afloat,” said Duncan. “Or perhaps streaming music services can survive as an adjunct or loss-leader to another, higher-margin business; like Apple with its iOS device empire. Either way, it’s difficult to see right now where some of these companies will end up.”

James Careless reports on the industry for Radio World from Ottawa, Ontario.

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Dear Mr. Careless, I read your article with great interest and was wondering if you might be able to help me with this question; Is it OK to play a short 15-20-snippet of a song in a podcast if you're promoting a concert or CD by that artist? Thank You
By Kamasami Kong on 6/30/2014

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