Last week, I wrote how the recent large increase in performance royalty rates for digital streaming music were bad for radio not only because it would make the radio industry's forays into the online sphere slower and more expensive, but also because the rate increase was only the first battle for Sound Exchange and the RIAA. They are increasing rates for online streamers because it's an easier battle to fight since they don't have as much clout as the radio industry. However, once they get that precedent established, they are coming after radio.

I figured that Sound Exchange and the RIAA would at least wait until the debate about internet royalty rates was settled before they started to come after radio. Instead, last week this was reported at CNet :

"Howard Berman, the California Democrat who now heads the Subcommittee on Courts, the Internet and Intellectual Property, wonders if it's time for everyone to pay the same fees. 'Is it finally time for a performance right to extend to terrestrial radio?'"

Yes, the Congressman representing Hollywood (literally - Hollywood is in his district) has announced that he's looking into radio paying the same insane fees they are trying to charge Internet streamers. So, if you are a music playing radio station, your life may be about to get much more expensive.

As I wrote last week, if the internet rates were to be applied to radio stations - stations would be responsible for fees of $1.65 million a year for 10,000 listeners in 2010. And that number will just keep on rising. The worst part is that rate will only be in effect if the Copyright Royalty Board thinks that broadcast radio and internet streaming are equally profitable. But since terrestrial radio makes a lot more per listener than internet radio right now, there is a strong possibility that radio rates could be set even higher.

A Steaming Pile of Flawed Logic

For some reason, the Copyright Royalty Board and Sound Exchange think that internet radio is wildly profitable, despite much evidence to the contrary. In the March 19th edition of RoyaltyWeek (PDF) , they estimate that internet radio pulls in 89% less revenue per listener than terrestrial radio. That's right, for every listener, internet radio draws in only 11% of the revenue of a terrestrial station. Bank of America analyst Jonathon Jacoby said in a recent conference call that even if internet radio made great strides in advertising revenue, it would "be losing per listener per hour .0064 cents. So, the way that we look at it, there’s almost no way to make money."

For reference, that article puts revenues at $8.47 per listener per year for internet streaming, $71.43 per listener per year for traditional radio and $115.46 for satellite.

The perverse thing is that radio and the record labels are just getting over big payola scandals. Why does this relate? In that earlier mentioned edition of RoyaltyWeek (PDF) , there was a very telling interview with John Simson, the head of Sound Exchange, where he said (emphasis is mine):

"I’m tired of the claims that have been made over and over, a sort of arrogance on the webcasters side that we’re doing you a favor playing your music. And it’s like no, you’re not doing them a favor; you’re playing it because you either love it or because you think it helps you gain an audience and it serves your purposes."

You can hear his anger in the quote. He really believes strongly that internet and radio broadcasting are essentially stealing from the music owners. But that proposition is completely wrong.

If labels and artists did not benefit from radio airplay, then why does payola exist?

I don't think the case can be made any simpler than that. If artists and labels were getting ripped off by radio, then why are they willing to pay money, even though it's illegal, to get their music on the air? Why do up and coming artists do radio tours and visit with stations if those same stations are robbing them of their livelihood? Why do music calls happen every week?

It's a fact that apparently everyone in the music and radio industry understands except for the RIAA and Sound Exchange. But how could they misunderstand it? These aren't stupid people.