This ruling was aimed at benefiting the small collection of label-backed artists that constitute the entirety of what is played on existing broadcast and satellite radio channels. Shutting down internet radio suits them just fine because it’s not a medium they monopolize - it drives people back to broadcast which is their bread and butter.

That quote is from an email that I got from Tim Westergren, founder of Pandora Internet Radio, this week when I asked him to comment on the recent ruling by the Copyright Royalty Board that raised the royalties paid by internet radio stations across the board. Pretty strong words, but in order to understand the fuss, here is a lesson in how internet radio works.

Several years ago when internet radio was first getting popular, congress wanted to ensure that both copyrights were protected and that the burgeoning medium of internet radio was able to grow and thrive. The chief vehicle for achieving this was a piece of legislation called the Digital Millenium Copyright Act (or DMCA). Recognizing that there was no way that literally thousands of internet radio stations run by entrepeneurs, major corporations, or some guy in a basement who just loves jazz, could ever negotiate one on one with musicians or their recording labels, the DMCA set up something called the Copyright Royalty Board. The copyright review board’s job is to determine what the market rates would be for royalties and set royalties for streaming songs accordingly. The royalties paid under the DMCA are paid to a company called Soundexchange who distributes to the labels and artists. Soundexchange and the RIAA brought a challenge to the current royalty structure and won; effectively raising all royalty rates for internet radio.

By the way as if all that isn’t messed up enough, did you know that terrestrial radio stations don’t even pay performance royalties? Only royalties to the songwriter under the theory that labels and artists get promotional value out of the airplay (although not apparently on internet radio). If you really want a good analysis of how all this came about, Jason Frey’s article in the Wall Street Journal here is probably a good place to start.

I know that’s a lot to take in, but if you want to understand at a deeper level, check out these posts here and here.

Obviously Westergren is up in arms as he sees his business model being attacked, as do others. The sites are up, including save our internet radio and savenetradio.org.

Predictably, not all are convinced. Blogger Jeremie Miller writes here:

I’m getting indigestion reading all of these complaints about Internet Radio dying. My acid reflux isn’t due to the fee hikes, it’s the short-sightedness of everyone bitching about them.

Folks, we’re ON THE INTERNET here. What happens when a network goes down? You route around it. If the big music licensing conglomerates can’t understand the market, route around them. This could be the best thing to ever happen to Internet Radio, and music in general, a new marketplace and new systems will form in the wake of the dying beast(s). A fallen tree may support more life than a living one.

And the RIAA’s hired gun, Soundexchange executive director John Simson, is quoted in this Businessweek article as saying:

We had the same exact response: that this is terrible, it’s going to put everybody out of business. But the industry grew….

So my thoughts -

First, let me point out in fairness I am absolutely no fan of the RIAA (see here) and I really view this as just another example of how little respect the RIAA has for their customers and frankly how clueless the major labels are about what is going on.

I tend to agree with Tim Westergren. The motivation here has got to be to shut down a medium driving consumers to independent artists. There is no way the labels are going to see more money from this. In the end, royalties from internet radio are a pitiance of what someone like Justin Timberlake will earn for his label from commercial radio and cd sales. Instead this is all about restricting choice, an effort to shore up a business model based on creating mega-blockbusters.

I also tend to agree with Jeremie Miller that information wants to be free and the economics of digital distribution mean that more and more music will get out there. I am also a bit of a libertarian and do believe the market corrects itself in situations like this.

So why all the screaming? And why am I infinetly pissed off about this?

I guess because it’s about music and I’m passionate about it. I guess because I know there are artists out there putting there heart and soul into their work and they should be heard.

Think of the RIAA and the labels they represent as a big, predatory animal with a fatal wound. Granted they could have avoided the wound. Years ago they could have embraced digital distribution; given away music as a marketing ploy (ala Wilco), not forced Apple and others to put DRM in their download sales, etc; but instead they chose to hang on to a flawed business model because it had worked in the past. In doing so, the internet gave them a fatal wound.

So they can lie down, accept the inevitable and go genlty into that good night, if you will, or they can thrash about battering at anyone and anything in their death throes. They have of course chosen the second route and that’s all this is.

Sure they will call it ‘protecting the rights of copyright holders’, but I’ll echo something else Tim Westergren put in his email to me:

it [the ruling] is a crushing blow to the tens of thousands of artists just beginning to be heard through internet radio who will once again be muffled and relegated to obscurity…I challenge anyone to find a single one of those artists who agree with this decision…it’s absolutely devastating for them.

So while we are waiting for the inevitable to happen, consumers get screwed; independent artists get screwed and entrepenuers like Westergren who built a business model around the royalty structure in place, get screwed.

Tim is absolutely right. What about the artists that are finding an audience through internet radio that can’t get on XM or a Clearchannel station? They are pretty much screwed by this ruling. They’ll have to figure out another way to get their music out there.

Even the artists themselves are saying so. The Roots Music Association which represents independent artists in roots and bluegrass music put out a statement on their web site, saying in part:

This decision has the very real potential to force the closure of a wide realm of online webcasting sources that have significantly impacted the growth and development of independent roots music across all genres. To lose this avenue of promotion and support for roots based music could be potentially devastating with respect not only to its financial impact on the industry, but to its cultural survival.

.

That’s not an internet radio conglomerate or some hipster blogger pissed off about his internet radio station. That is an artists organization representing a whole GENRE of music saying this decision has the potential to relegate its artists back to obscurity.

Hmmmm, that kind of sound like exactly what westergren was saying. But remember, the RIAA doesn’t represent these folks. They represent Garth Brooks and Alan Jackson. And that is who they want you listening to. So here we have the artists who need the royalties the most, saying, ‘no thanks, we’d rather have the distribution and promotion’.

Still think this is about the royalty money?

Please, can someone call up the RIAA and give them the news? Ask them to just go lay down in a corner somewhere, pump out a few dozen more dance albums and then quietly expire? In the meantime I’d like to make sure that I can still find a band or two on internet radio that I never would have heard of somewhere else.

If you want to get involved, email or wrtie your congress person; send a letter to the editor; if you have a blog post about this (the riaa can’t even figure out what a blog is so they’ll never see that coming.) The links already referenced have some templates or the post Tim put on the Pandora blog will get you started.

Okay, rant over. I am going back to listening to my pop-punk fun station on Pandora.