Home Update on the State of Internet Radio

Update on the State of Internet Radio

By 2020, eMarketer estimates that Internet radio will have 180 million listeners and generate $19.7 billion in ad revenue. That can’t possibly happen, however, if prohibitively high royalty fees in the United States force the bulk of net radio stations to stop operating in the US or shut down completely.

We’d be remiss not to post an update on the fate of Internet radio during our Online Music Week. When we last wrote about the face off between Internet radio companies and the RIAA’s SoundExchange, the organization charged with collecting royalties, a late-night deal had granted radio operators a last minute reprieve. The group decided not to collect on the new royalties, which some have estimated would cost radio stations as much as $500 per listener, per year, giving time for net radio stations to negotiate lower rates.

Since that time, not much has changed. Negotiations between SoundExchange and webcasters are scheduled to begin again in the next week or so. When they resume, the negotiations will be carried out with the prospect of potential Congressional action in the form of the bipartisan Internet Radio Equality Act looming. In a statement issued last week, IREA co-sponsors Sen. Sam Brownback (R-KS) and Sen. Ron Wyden (D-OR) wrote, “If great progress toward a fair solution for webcasters is not made by Congress’s return to Washington after Labor Day, then we plan to take expeditious steps toward passage of the Internet Radio Equality Act.”

Webcasters, however, are confused as to why the royalty rates from the Copyright Royalty Board were so high to begin with. “One theory is that there is just a misunderstanding about how much money there is in internet radio right now,” Pandora founder Tim Westergren told The Age. “It’s a fast-growing sector in terms of consumers participating but it’s not very profitable. Maybe the RIAA thought we were all making a lot of money and hiding it from them.”

Bridge Ratings estimates net radio will pull in $500 million in ad revenue in 2007, but with 50-70 million monthly users in the US, at fees running up to $500 per user, per year, it is easy to see how the numbers don’t line up.

For now, net radio broadcasts on, but the threat of eventual silence hangs ominously over webcasters’ heads. The National Association of Broadcasters keeps a counter on their site, counting off the days since they made a “good-faith offer” to SoundExchange and have not received a response. That counter now reads 72 days. The fate of online radio may come down to Congressional action in the fall, but webcasters still hope that an amicable agreement is reached over the next month.

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