Apr

17

Armageddon For Internet Radio

April 17, 2007 |

networkingThere is no dearth of coverage of the recent decision by the US Copyright Royalty Board to uphold the rather excessive increase in royalty fees for Internet radio broadcasts. Betanews reports that the hike isn’t as bad as it could have been:

  While the new ATH rates will represent a rise over 2005, they may not be as intolerable as the per-performance rates. BetaNews projects, based on ATH ratings for November 2006, AOL Radio - the nation’s largest streaming provider - could owe retroactive royalties of about $946,000. Likewise, Launchcast may owe $700,000, Clear Channel $365,000, and Live365.com $264,000. Had the originally planned rate gone into effect, AOL Radio might have owed $23.6 million for 2006.

However, given how fragile this market is, these kind of new price pressures are going to affect especailly the smaller companies (think Pandora) and college radio stations.

Erik Schartz from Foneshow.com is looking at the general business model of Internet radio and its costs:

The business model in internet radio was dodgy to begin with, as incremental listeners incur incremental expenses in a linear fashion. In traditional radio, the entire listener base offsets a large capital expenditure for the infrastructure and the FCC license. But once you have the infrastructure, 1 listener costs the more or less the same as a million listeners. Once your advertising revenue covers servicing the capital expenditures everything else is gravy. The more listeners you have, the better your margins.In internet radio each listener incurs additional fixed expense — server overhead, bandwidth and licensing. So if your revenue per user is lower than those expenses per user, adding users just means losing more money. Under the new license rates I can’t see how rev/user ever gets higher than expenses/user.

I think that’s a pretty good analysis and should come as a warning to everybody in the content business who is hoping to make a profit. Bandwidth is expensive. Serving lots and lots of mp3’s comes at an enormous costs and I would be surprised if a company like Pandora can make enough money back on being an Amazon associate.

What upsets me most about this decision, though, is that it makes life harder for inherently non-commercial broadcasters like my local college radio station or my local NPR station. These are the stations that are providing the services that are so dearly lacking in the American corporate media landscape.

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