The future of internet radio

Though you might not be aware of it, a market for music which has been building up for about fourteen years might, or might not, be driven out of business in the near future. It's an easy fact to miss, because the major news outlets have been reluctant to cover it.

The first internet radio station, Internet Talk Radio, was developed by Carl Malamud in 1993. Since then different methods of streaming music have popped up all over the internet, many of them offering advantages that conventional radio never could, including the ability to buy the music you listen to immediately.

In May of 2007, the Copyright Royalty Board changed the royalties, and the rates paid by internet radio are actually higher then that of conventional radio. Many internet radio stations have shut down, and even the very biggest providers may abandon web radio entirely as a result of the increase.

According to a Club Net Radio report released in March 2007, the new royalties would cost internet radio owners $2.3 billion by 2008, which is quadruple the cost paid by ordinary radio stations. According to the 1998 Digital Millennium Copyright Act, "terrestrial" radio is exempt from the additional royalties on digital broadcasting outlets, in theory because radio stations help market the music they play.

Terrestrial radio stations do accomplish that, but why would anyone think that internet radio doesn't provide the same service? After all, many of these stations allow you to click on the name of the track so you can look it up and immediately purchase it online, a service which old fashioned radio isn't able to provide.

Destroying an emerging new market is not in the best interest of musicians, regardless of how the RIAA may seek to spin it. The change in rates is so extreme, that it appears that some entrepreneurs in Canada are hoping to allow the industry refuge in their country. I'm sure they'd be happy to get the income, but it's not clear to me how driving business out of the country is in American interests.

Pandora is a perfect example of the trend, because it works off something they refer to as the Music Genome Project. They ask you to name a band or track you like, and they break down that song by more then four hundred "genomes" to find other music you'd probably like. For instance, they'll determine whether you like East-Coast or West-Coast influences in your rap, or if guitar solos are more to your taste. If you don't like a song, you can give it a thumbs down and you won't hear it again. If you like it, they will use that to determine what other sorts of music you might like.

And the good news for musicians is that every time you vote up or down on a song, that fact is recorded. If you wish, you can go over your list later and find the things you liked, and go buy them. That's something the radio station you listen to on your way to work can't give you, and it's a way for any musician, big or small, to promote his work.

Tim Westergren, the founder of Pandora, sees Pandora as a way to expose listeners to music they may never have heard before. "It's a huge genre buster," he said in an interview. "More then 70% of our catalogue is unsigned."

Westergren considered the changes in rates to essentially be the end of internet radio, but he's optimistic. "The reason that we are still streaming, is because we still believe that we can get the decision reversed," said Westergren.

There are signs that the desired reversal will occur, but what the new rates will be has yet to be determined. While the rates will likely be lowered, it isn't known by how much. In the meantime, SoundExchange has agreed to stop collecting royalties while a new deal is worked out.

Still, skepticism is warranted, because it's unknown how much lower the rates will be. Most likely, this is not the last problem that internet radio is going to face. Until the new industry has had time to build up, it's vulnerable to the powerful lobby of the recording industries.

If you'd like to read more about what's going on in music, click here to see other Listen in in articles

Back To Top