The Record Industry’s Nuclear Option

With Yahoo and Time Warner considering shutting down their web radio services due to the potential of a 38% increase in royalties, how does that bode for Internet radio?

Will Internet radio be at a disadvantage vis-à-vis terrestrial radio if streamers can’t afford to operate?

Hell, if big mega companies like Yahoo and Time Warner can’t afford to operate, how does paying high royalties for music work for the tens of thousands of small Internet streamers?

For that matter, will terrestrial radio be able to keep broadcasting music if the record industry gets its way and imposes further performance taxes on over-the-air stations?

Not that HD radio matters with so few stations offering programming and so few sets being sold, but you can kiss that pipe dream goodbye as well.

Don’t worry. The record industry isn’t going to win draconian royalties imposed on terrestrial stations.

It’s far worse than that.

They're going to get a small fee -- a precedent setting levy -- that mean instability and unpredictability which will be far worse. That's the SoundExchange strategy with Internet streamers. You don't hear of any progress being made between SoundExchange and the streamers who were supposed to be negotiating a more reasonable royalty rate, do you? Thus dragging your feet appears to be a good strategy when you're out for another pound of flesh.

Radio doesn’t need to pay royalties as high as the ones imposed on Internet streams to harm their stations because any performance tax – no matter how modest at first – will be too high.

What the record industry is doing is impeding the growth of Internet streamers and at the same time jockeying to get something more out of terrestrial radio. That something more will kill the radio industry before Internet streaming does.

Retail establishments, restaurants and bars are in the sights of the dying record business that can only levy fines against people intent on promoting their music -- for free!

Radio doesn’t need friends like the record industry.

You know the drill. Radio sells CDs and the record companies keep all the profits. Radio stations get little in ad dollars from record labels in terms of spots radio buys -- never did, really. Stations get what amounts to promotional consideration – the privilege of playing the labels’ music over and over again while the cash register rings for the record business.

Only the myopic record industry could bite the hand that feeds it at the same time that it is performing premeditated murder on the burgeoning Internet streaming business.

This is all bad enough but there is more.

Most radio execs think that Internet radio is 24-hour streaming. They could be right, but from what I have observed from my work with the next generation it is a false assumption.

Watch anyone from Gen Y consume their music.

Their iPods are shuffled, reshuffled, prematurely advanced to the end or to another tune. This generation is not like the generation running radio stations. They don’t want someone to entertain them. They want to entertain themselves.

So let’s do the math.

One assault on Internet streamers with blatantly unfair music royalties (even in comparison to their radio brethren).


One sneak attack on the best friend the record business ever had (terrestrial radio) for burdensome taxes for selling the labels’ CDs.


One misconception that Internet radio will be like terrestrial radio except on a computer or handheld device.

My fuzzy math has one plus one plus one equaling -- one!

One giant disaster.

It's the record industry's version of the nuclear option -- pushing the panic button and unleashing a devastating attack on everything and everyone in sight.

If you want a vibrant music business you need a vibrant delivery system to expose your product. You don’t tax and penalize the people who are working on your behalf.

No wonder Steve Jobs doesn’t put radio on an iPod.

His iTunes consumers pay 99 cents per song (to cover the rights) or they just steal the music.

They can then enjoy it again and again on several devices without being taxed further.

How can radio or Internet radio compete with that?

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