Why Are So Many Internet Radio Stations Still on the Air?

The CARP and LOC rulings that became law on July 8 impose costs and other burdens that will exile webcasters from the marketplace they pioneered and threaten personal bankruptcy in countless cases. Yet most stations are still on the Web. Why?

On May 22, the Librarian of Congress, James H. Billington, on the recommendation of Marybeth Peters, Register of Copyrights, issued an Order rejecting the licensing rates and terms for webcasting that were recommended by the Copyright Arbitration Royalty Panel (CARP) on February 22. The rates and terms had been regarded by internet radio broadcasters as a de facto death sentence.

Webcasters rejoiced. By nearly all accounts at the time, including my own, common sense had prevailed. The lone dissenter was Jonathan Peterson of Way.Nu, who wrote, “While good news for webcasters, I wouldn't be breaking out the champagne just yet. You can damn well bet that RIAA and the labels are already filling up Congresscritter appointment books to apply some pressure.”

One month later, Peterson proved a prophet.

On June 20, to the astonishment of just about everybody other than the RIAA and SoundExchange (which will collect the new royalties), the Librarian of Congress came out with a Final Determination that differed from the CARP original only in the degree of death its sentence imposed. It dropped the $.0014 charged per stream for “Internet only” broadcasts down to $.0007 for all webcasters and commercial radio stations also broadcasting over the Web. Performance fees were dropped from 9% to 8.8%. Charges for webcasting noncommercial radio stations were held to $.0002 per stream.

On July 8, 2002, the Determination of Reasonable Rates and Terms for the Digital Performance of Sound Recordings and Ephemeral Recordings; Final Rule was entered into the Federal Register.

If you're a webcaster, payment for everything you've played, for every single one of your listeners since October 28, 1998, is due on October 20, 2002, whether you're still broadcasting or not. If you want to stay on the air and pay the price for trespassing in this new regulated marketplace, the clock starts running on September 1, 2002. Forty-five days later, you'll owe for that first month, and you'll pay within 45 days for every month that follows.

For a station with 2,000 listeners playing 15 songs per hour, the math looks like this:

  • 15 x $.0007 = $.0105 per listener/hour

  • $.0105 x 2000 = $21 for 2000 listeners in an hour

  • $21 x 24 = $504 per day

  • $504 x 365.25 = $184,086 per year

That bottom line exceeds the gross revenues of every internet radio station today (if anybody knows a station making more, please doc@ssc.com). It almost certainly exceeds the additional revenues made by over-the-air stations that also broadcast on the Net. These costs also will surely bankrupt many of the individual broadcasters that have been pioneering this marketplace for the longest time. And even the lower rates ($.0002/stream) charged to noncommercial broadcasters are far higher than nearly all of them can afford. (WXYC, the first station to broadcast over the Net, has an annual budget of $20,000. Here's the station's response to the CARP ruling.)

Not surprisingly, there is a growing list of departed stations, including SomaFM, GrrlRadio, KOIT, KDFC, WAAF and WMMR. But it runs in the dozens.

Meanwhile, Live365 continues to host more than 40,000 stations. Every station on the list of favorites I wrote about on March 12 is still on the air (I just checked). So are the ones I listed one month earlier. The number of stations in Google's directory also has not diminished.

Clearly these webcasters have faith in something. Could it be the marketplace?

Unlike the commercial radio stations we hear on the old-fashioned airwaves, Internet radio stations' primary market relationship isn't with advertisers; it's with listeners. In many cases (Radio Paradise is a good example), the listeners are the primary source of revenue. This business model is similar to that of noncommercial (public) radio, only the market relationship is much more direct and efficient. Internet radio stations don't need to stop programming to hold marathon whine-fests begging listeners to call phone volunteers and pledge money to qualify for a mug or a t-shirt. Listeners simply click on a PayPal or an Amazon link, and after a few more clicks they've made a payment.

This market relationship is entirely voluntary, of course. There are still plenty of free-riding listeners. But there are good-faith buyer/seller relationships involved, and it is easily conceivable that, over time, these relationships will call forth the technologies required to support natural valuation, pricing and payment mechanisms. Given the resourcefulness, entrepreneurial spirit and technological know-how of many internet broadcasters, the emergence of a real and functioning “willing buyer/willing seller” marketplace is bound to occur.

But this was not obvious to the CARP, the RIAA, the LOC or other parties to the proceedings, for the simple reason that the most resourceful webcasters were busy rolling their own solutions without much help from commercial software or hosting companies (with a few notable exceptions, such as Shoutcast and Live365).

But missing market clues was built into the DMCA in the first place. That's why the DMCA provided these instructions (now burned into copyright law):

The copyright arbitration royalty panel shall establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller. In determining such rates and terms, the copyright arbitration royalty panel shall base its decision on economic, competitive and programming information presented by the parties. (The italics are mine.)

One of those parties was Yahoo!, which paid $5.7 billion for Mark Cuban's Broadcast.com in 1999. In those days Yahoo! had big plans for internet radio. Yahoo! was also by far the largest entity on the webcasting side of the arbitration process, and the one spending the most money to develop the “space”. So it made some kind of sense for the CARP to base its “willing buyer/willing seller” thinking on Yahoo!'s plans.

But the results are grandiose and absurd. Worse, the results are now law. Here's the relevant excerpt from the Final Determination:

5. The Yahoo! rates—evidence of a unitary marketplace value.

The starting point for setting the rates for the webcasting license is the Yahoo! agreement. In that agreement, rates were set for two different time periods. For the initial time period covering the first 1.5 billion performances, Yahoo! agreed to pay one lump sum of $1.25 million. From this information, the Panel calculated a “blended,” per performance rate of 0.083¢. This value represents the actual price that Yahoo! paid for each of the first 1.5 billion transmissions without regard to which type of service made the transmission. For the second time period, Yahoo! and RIAA agreed to a differential rate structure. One rate was set for performances in radio retransmissions (RR) (0.05¢ per performance) and another rate was set for transmissions in Internet-only (IO) programming (0.2¢ per performance). These rates were first used in early 2000 and do not apply to the first 1.5 billion performances.

However, the CARP did not accept these differentiated rates at face value. The Panel engaged in a far-ranging inquiry to determine how the parties established the negotiated rates. What it found was that Yahoo! agreed to a higher rate for the IO transmissions in exchange for a lower rate for the RR because this arrangement addressed specific concerns of both parties. In particular, RIAA wished to establish a marketplace precedent for IO transmissions in line with rates it had negotiated in earlier agreements, while Yahoo! sought to negotiate rates which, in the aggregate, yielded a rate it could accept. Consequently, the Panel found the rate for the IO transmissions to be artificially high and, conversely, the rates for the RR to be artificially low. For this reason, it made a downward adjustment to the IO rates and an upward adjustment to the RR rates.

Before making this adjustment, though, the Panel had to consider whether it was reasonable to establish separate rates for the two categories of transmissions. In reaching its decision, the Panel considered two facts, the fact that the Yahoo! agreement provided for two separate rates, and the fact that all parties agreed that performances of sound recordings in over-the-air radio broadcasts promote the sale of records. Report at 74. Based on this finding, the Panel concluded that a willing buyer and a willing seller would agree that the value of the performance right for RR would be considerably lower than for IO transmissions. Moreover, it attributed the existence of the rate differential in the Yahoo! agreement to the promotional value enjoyed by the copyright owners from the performance of the sound recordings by broadcasters in their over-the-air programs, and not to promotional value attributable to transmissions made over the Internet. Report at 74-75. Specifically, the Panel found that, “to the extent that Internet simulcasting of over-the-air broadcasts reaches the same local audience with the same songs and the same DJ support, there is no record basis to conclude that the promotional effect is any less.” Report at 75.

Fine. Except now it's July 2002, and Yahoo! is out of the broadcasting business. (Go to Broadcast.com and see what it says before your browser gets redirected away.) In fact, Yahoo! was already out of that business when the LOC reviewed the CARP recommendations for the final time between May 20 and June 20, 2002. Yet the LOC let those recommendations stand.

Think about it. Yahoo!'s original “deal”--the CARP's starting point for imagining a real-world market—is worse than unproved: it never happened. The CARP might have learned something if Yahoo! had tried and failed, but its efforts were stillborn. Without Mark Cuban's entrepreneurial savvy to guide them, and without sky-high stock valuations to encourage and fund all kinds of expensive market experiments, Yahoo! simply gave up and wrote the whole thing off.

Meanwhile, internet radio is being regulated on the basis of Yahoo!'s abandoned ambitions.

The feeble quality of the CARP/LOC due diligence work was fully revealed by Mark Cuban's e-mail to Kurt Hansen of RAIN, the Radio and Internet Newsletter, after the LOC's Final Determination. Here's the full text of that e-mail:

It's very interesting that they built this on the Yahoo!/RIAA deal.

When I was still there (the final deal was signed after I left Yahoo!), I hated the price points and explained why they were too high. HOWEVER, I was trying to get concession points from the RIAA. Among those was that I, as Broadcast.com, didn't want percent-of-revenue pricing.

Why? Because it meant every “Tom , Dick, and Harry” webcaster could come in and undercut our pricing because we had revenue and they didn't. Broadcasters could run ads for free and try to make it up in other areas so they wouldn't have to pay royalties.

As an extension to that, I also wanted there to be an advantage to aggregators. If there was a charge per song, it's obvious lots of webcasters couldn't afford to stay in business on their own. THEREFORE, they would have to come to Broadcast.com to use our services because with our aggregate audience, if the price per song was reasonable, we could afford to pay the royalty AND get paid by the web radio stations needing to webcast.

More importantly—and of course I didn't tell the RIAA this—we had a big multicast network (remember multicasting? Yahoo! didn't seem to after I left). Well, multicasting only sends a single stream from our server, so that is what we would record in our reports for the RIAA, and that is what we would pay on.

So that was the logic going into the Yahoo!/RIAA deal. I wasn't there when it was signed, but I'm guessing and I've been told that there weren't dramatic changes.

Now, no one asked me any of these things prior, during, or after the first or second pricing. I'm not sure that this matters. But if it does, here it is: The Yahoo! deal I worked on, if it resembles the deal the CARP ruling was built on, was designed so that there would be less competition, and so that small webcasters who needed to live off of a “percentage-of-revenue” to survive, couldn't.

There you have it, if anyone cares.

Mark CubanDallas Mavericks

So the real plan was to squash the little guys and o play rope-a-dope with regulators by funneling many streams into only one, so Yahoo! would spread the cost of one stream across hundreds or even thousands. Nice, huh? How come the CARP panel didn't pick that up in its “far ranging inquiry”? Mark Cuban's a talkative guy. Did they even bother to ask him about it?

In “Labels to Net Radio: Die Now”, in the current (July 15, 2002) issue of Newsweek, Steven Levy writes,

So why are the record labels taking such a hard line? My guess is that it's all about protecting their Internet-challenged business model. Their profit comes from blockbuster artists. If the industry moved to a more varied ecology, independent labels and artists would thrive—to the detriment of the labels, which would have trouble rustling up the rubes to root for the next Britney. The smoking gun comes from testimony of an RIAA-backed economist who told the government fee panel that a dramatic shakeout in Webcasting is “inevitable and desirable because it will bring about market consolidation.”

Which gives us CARP/LOC's final solution: consolidate the market to zero.

This idea became even more clear to me on June 21, when I talked with Howard Greenstein on the phone. I first met Howard in the summer of 1996, when he was an Internet radio pioneer, running a startup that fielded a whole fleet of stations. Howard later moved on to other things, but he learned a lot about internet radio business models in those pioneering days, and he has followed the whole CARP/LOC process with growing astonishment.

“There's no business model”, he told me. The DMCA, the CARP and the LOC all conceive webcasts as “performances”, and insist on pay-per-song royalties, yet there is little or nothing in reality to suggest that hearing an MP3 stream is worth anything more than zero to a listener. The royalty rates also are set so high that stations would have to charge a 20x advertising premium (over a nominal $10 cost per thousand), which barely cover the costs of playing a few songs between ads, ruling out advertising as well.

So, if you rule out pay-per-listen and advertising, what's left? The short answer is nothing: just a fenced-off space with severe fines for trespassers. The long answer is let's see: give the pioneers and their customers a chance to work something out.

But the long answer wasn't the one the lawmakers and regulators wanted to hear. They were working on behalf of what Joni Mitchell calls “the star-maker machinery behind the popular song”: namely, the record industry and the commercial radio business it pays to help manufacture and promote blockbuster artists. Since the money collected from internet radio will be divided up according to record sales, most of the income will go to blockbuster artists—not to the actual artists whose songs are streamed by the stations (even though the new law requires that stations keep unbelievably detailed records of what's being played, along with a mountain of other information, and even though the technologies for capturing and organizing all this information do not yet exist).

We customarily think of markets as cold, hard “forces”. But in fact, most people, given a choice, go into business to do what they love. And in some business categories, such as music, customers love the goods as much as the vendors do.

Internet radio as we know it today—what the RIAA and the Librarian of Congress want to kill off—is mostly by and for people who love music. To a significant degree this was also true of commercial radio, even up to its golden age, which on AM ended in the 60s and on FM ended in the 80s. What killed music-loving radio was bean-counting at all costs. And now it's about to strangle internet radio in the cradle.

Maybe, if enough of us love music and radio as much as these webcasters do, we can find a way to stop this insanity.

Where to start? Visit Save Internet Radio and Save Our Streams, look over your options, and start making some of your own noise.

One opportunity for that will come up today, July 17, when the US Department of Commerce Technology Administration hosts a public workshop on digital entertainment and rights management. The Department invited public comment through an e-mail form on the workshop site.

It'll be interesting to see what happened to it.

As background, here are other Linux Journal pieces I've written on the subject:, with the most recent items on top:

Doc Searls (doc@ssc.com) is senior editor of Linux Journal. His opinions are his own.

______________________

Doc Searls is Senior Editor of Linux Journal

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Server outside US?

Clerlic's picture

What about setting up a server in a country without the greedy RIAA and CARP and whatever a**holes there are, and sending all streams to that server, technically that will mean that only 1 listener is online per stream, the out-of-US server. I hope every station does that, so CARP can suck on their pennies and die.

Four years later, where are we?

David V's picture

It's been four years since this article was written. In that time, Internet radio has not gone away, but it has changed. There are three basic models that seem to be in play:

* Run Internet radio as a loss leader, because the RIAA and PRO fees negate any possibility of profits
* Pay to broadcast your favorite tunes to other people, such as with Live365
* Ignore entirely the whole RIAA/major label/major radio cartel, and do the other thing described in the DMCA: go to the artists and only play those who agree to grant royalty-free permission

The majority of Internet radio station seems to be going to the third model. We don't know if this will go anywhere or not, but there are a few observations to be made:

* Dissatisfaction with the quality of radio is at a peak
* Dissatisfaction with the quality of music released by major labels is at a peak
* Labels that embrace the quirks of the Internet are being rewarded (e.g. Wired's article this month on Nettwerk)
* There is a surplus of bands producing quality music with no record deal who are all too willing to grant permission for airplay, no matter how fragmented the Internet radio market is
* There is a growing number of people who don't think listening to music on their computers is weird anymore

Listenership at these stations is, for the most part, nowhere near what is necessary to justify charging for ads. Most are bankrolled as hobbies by their owners. They're all in a holding pattern, just in case critical mass is achieved in one direction or another. If it all collapses, no big loss. If it's destined to go somewhere, it's not *that* expensive to wait it out. If they can wait it out, the potential rewards are immeasurable.

Re: Why Are So Many Internet Radio Stations Still on the Air?

Anonymous's picture

What about broadcasting from a server outside the US? Same problems? Maybe not.

Re: Why Are So Many Internet Radio Stations Still on the Air?

Anonymous's picture

NOT IN FINLAND

The group that is called TEOSTO wanted extra money from radio station from internet broadcastings . First you are charged from "normal" radiobroadcasting then you are charged from

interner radio same money and yes the "local" radio stations dont send programs anymore.Its expensive to have radiostation if you dont have anyone workin and dont play old music royalties take more

than your 24 dollar you get per hour !

Tax money radios are still on internet

TEOSTO maybe the same as CARP

Internet good gready artist bad !

Re: Why Are So Many Internet Radio Stations Still on the Air?

Anonymous's picture

Hmmm. As Doc noted elsewhere, we've got a harbor, we've got some tea, we've got some angry colonists. Imagine this: on October 20, 2002, the date the taxes are due, hundreds of thousands of webbers all stream music for 24 hours ..... my own choice would be songs of freedom, starting with Richie Havens Woodstock performance of 'Freedom' ....

Re: Why Are So Many Internet Radio Stations Still on the Air?

Anonymous's picture

The best tactical response I can see is negotiate with your local independant artists, makeing sure the song copyright is also covered. I.e, cut the RIAA out totally, preferably the BMI. et al also.

It wouldn't hurt to have some lawyers on stand by, preferably prepared for a class action law suit, the RIAA and company have deep pockets. ;-)

Re: Why Are So Many Internet Radio Stations Still on the Air?

ZPO's picture

Right now the RIAA through paid positioning (or whatever the payola euphamism is today) can restrict the heavy-play/heavy-rotation list to the current crop of new artists they desire to derive sales revenue from. The vast majority of commercial broadcast outlets are owned by a very few media conglomerates. This creates a small cozy (read exclusive) atmosphere for the record labels. To ensure paid positioning on the top 85% of all radio station nationwide a label need only strike deals with 3-4 companies.

Internet radio turns that on its ear. Now there are suddenly hundreds/thousands of outlets for music. Very few of these are controlled by the large media conglomerates (Clear Channel, et al). These outlets are also likely operated by persons or groups who play particular artists and/or genres because of a personal affinity for it. These outlets are unlikely, in the event the labels desired to pay them, to change their artistic choices based on "input" from the major record labels.

The members of the RIAA derive their dominance of the industry only through control of outlets for music. If artists could directly and relatively simply get their music on the radio, in record stores, and in the print media do you think they would be paying huge percentages of their artist's royalties to the major record labels? So now we have an industry based on control of promotion and distribution channels faced off against a new distribution channel. Do you think they will allow it to exist without an ability to control it?

The current state of affairs is greatly dissappointing. It is not at all surprising. Unfortunately the lobbyists whispering in the congress critter's ears belong to the RIAA and NAB. The Internet radio community doesn't have an effective seat at the table.

Re: Why Are So Many Internet Radio Stations Still on the Air?

Doc's picture

Yep. Well put.

We have to turn that table over.

Re: Why Are So Many Internet Radio Stations Still on the Air?

ZPO's picture

I'm open to suggestions. Less a dramatic change in the wheels grinding behind the scenes of government I don't see things getting better any time soon.

A Little Perspective

Anonymous's picture

If you are running an Internet radio station that averages 2000 visitors per hour, 24 hours per day, you are bringing in almost 1.5 MILLION visitors per month (1,440,000 to be precise). Now if you figure that the average person listens to the radio for 1.5 hours per day (and that's regular radio - it's hard to listen to Internet radio on your morning drive) we can estimate that 32,000 unique visitors frequent your site every day. If we establish a very conservative listener ratio of 1:3 (meaning the average listener listens for 1.5 hours over 3 days - ie, most don't listen on the weekends or every single day, some do, some only listen once or twice per week, nobody listens 24 hours per day), that gives you around 96,000 regular listeners (to be very conservative). Remember that number, we'll come back to it.

Now, that's not a small-time operation and shouldn't be afforded carte blanche to broadcast copyrighted material, license-free. I'm sorry!

A legitimate radio station of any kind is just like any other retail reseller of product. You pay a wholesale cost for product (the music) then you "resell" the product to your customers in the form of ad revenue.

At $504/day in licensing fees, that is $15,120 per month in licensing. Essentially, this means that you need to get about $.0105/month in revenue from each of your 1,440,000 monthly visitors to cover the "wholesale" price of the product. If you get $.02 per visitor, you are making $12,880 in gross profit per month. At $.03 per visitor, you are making a GP of $28,080. And so on...

At $28,080 GP per month, that's $336,960 per year in GP minus operational expenses (bandwidth, personnel, advertising). That is significant revenue.

The model is workable, you simply need to figure out how to get $.03 from every visitor. Now is every visitor going to chip $.03 into your toll booth everytime they listen? No. But you've got 96,000 regular listeners. If you can get 1 out of every 10 regular listeners to give you $4.50 per month for your services, you've got your $.03 per visitor. Call it a "membership" like public radio stations do. I can tell you this: personally, I listen to my local public radio station about 1.5 hours per day, and I give them a lot more than $54/year in donations.

And of course, this is just membership fees. We haven't even looked at online advertising or merchandising.

Of course, all of this is from the perspective of a large operation (2000 listeners per hour). I think that a small-time operation consisting of a couple of guys on a DSL link from their college dorm would be able to come up with the $150 per month or so needed to run their 20 listener/hour, 24 hrs a day hobby radio station. And if they classified themselves as "non-commercial", they could do it for around $43 per month. What's that? One keg of beer?

Re: A Little Perspective

Doc's picture

The DMCA, the CARP, the LOC and the RIAA all in fact imagine a pay-per-listen system. Given the fees ($.0007 per stream in most cases), we're talking micropayments here.

Hasn't never been done.

But maybe we should look into it. Hate to do it because the freaking bad guys force us to do it, but: whatever.

That's one thing.

The other is your math. You're starting from the premise that streams are visits. Not the same. There is no reason to assume that every hour brings 2000 new and different listeners. They could conceivably be the same listeners. And without unique listener IDs, and a willingness of listeners to particpate in a system that keeps track of them, we'll never know. I believe the unique ID requirement in the original CARP report was dropped for privacy reasons.

Anyway, it's worth mentioning here that over-the-air radio station ratings come in a variety of mathematical flavors. The most popular is share of total listening by all stations in a given demographic in an average quarter hour. (It's what you see here, showing the great KPIG, the best station both on the Web and on the air, in the whole world, kicking serious ass... a wonderful thing, since on KPIG the jocks and the listeners still choose the freaking music, and everybody still has fun.) The second is the AQH itself. This 2000 number we've been hypothetically talking about is roughly an AQH figure. The third is cume, or the cumulative number of listeners over a given week. A successful classical station typically has a relatively high AQH and a relatively low cume; while a successful news station typically has a relatively low AQH and a relatively high cume.

(Can you tell I used to be in this business? Long time ago; but, like certain infections, it never goes away.)

Go here and run a ratings search for noncommercial stations in a given region. Take Raleigh-Durham, for example. You'll see that WRQM/WUNC (one station with two transmitters, basically) has an AQH of 8600 persons, which is a 6.2 share of all listening (pretty darn good), a cume of 162300 persons, and a cume rating (% of all persons in the region who listen to the radio during a week) of 15.6. The last number is Avg TSL (average time spent listening): 6.7 hours... a little under an hour a day.

These new Internet radio fees are imposed on every stream for every song. How we get Internet radio to pay for itself, however, is another matter. But I think if we do it right, or just well, we can blow a lot of minds — and maybe help some deserving stations make some money too.

Clarification

Anonymous's picture

Just thought I'd better clarify my math, since my math skills deteriorate after 10:00pm and that's when I posted my last comment. All month values are based on a 30-day cycle. As it turns out, my math was off, somewhere I messed up. But the error was actually in a good way. See below:

Users/Hr: 2000

Total User-Hrs/Day: 48000

Average Hrs/User/Day: 1.5

Average Unique Users/Day: 32000

Average Unique Users/Mo: 960000

Percent of Regular Users: 10% (or 3:1 of Users/Day)

Regular Users/Mo: 96000

Streams/Hr/User: 15

Total Streams/Hr: 30000

Total Streams/Day: 720000

Total Streams/Mo: 21600000

Royalty/Stream: $0.0007

Total Royalties/Hr: $21.00

Total Royalties/Day: $504.00

Total Royalties/Mo: $15120.00

Royalties/Unique User/Day: $0.01575

Royalties/Regular User/Mo: $0.1575

Wow! So, your average cost for each "regular" user is about $0.16 per month. That means that for every ten people who come and spend an hour on the site, there is one who frequents the site several times per week and spends an hour or more listening.

So now, your regular listener is only costing you about $0.16/mo. Of course, we can't assume that every regular listener is going to pay. So let's set a membership target of 10% of our regular listeners. Each of these members needs to generate $1.60/mo to cover the other 99% of the listenership that are freeloading. Now, we want at least a 200% profit margin, so let's say $4.80 per member. We also need to cover the Visa minimum transaction fees, so let's add $3.50 to that just to be safe. That comes to $8.30 per member. Ah, let's just make it $9.99/mo. It just sounds better, and it helps our bottom line. To help build faster cash reserves, we could offer a discounted rate of $99.00/yr payable up front. This will bring our monthly back down to around $8.30/member, so we aren't losing anything except the gravy we added in for pad.

So, if you get 1% of your total listenership to become a member, you now are generating revenue to the tune of $1,150,850 per year. That's a gross profit after the RIAA and Visa take their cut of $566,210 per year. Not bad. Subtract out your overhead for bandwidth and personnel, and you're probably looking at around $200,000 in profit. You could probably do better if you can negotiate better merchant rates with your bank for credit transactions.

Now, this is just subscription fees. This hasn't even touched advertising or merchandising. You could throw banner ads on your site and generate some decent revenue with 960,000 unique visitors per month. And merchandising - oh, how sweet it is. 40%+ markup on t-shirts, mousepads, coffee mugs, etc.

This is a business. I don't see how people can reasonably defend the position that anyone should be allowed to stream copyrighted content royalty-free while they collect around $1M per year in revenues.

Re: A Little Perspective

Anonymous's picture

Actually, I never said that each of the 2000 visitors per hour were unique. I did make a point that if they were it would represent 1,440,000 visitors per month. Perhaps this was misleading.

But in the next section I clearly said that if the average listener listens for 1.5 hours per day, then the average number of visitors per day is 32,000 (based on 48000 user hours divided by 1.5 hours per listener). Of course, that's still 960,000 visitors per month, 2/3 of the total streams, so let's not mince numbers, eh?

Then I made a conservative estimated ratio of 1:3 to derive the total number of regular listeners at around 96,000 per month. You'll have to forgive me for not presenting figures in AQH and cume, since I was never in the radio business. I just applied a little common sense math and some basic business principles.

However, I think the statistical numbers you presented based on ratings would actually suggest a much larger regular listenership. Which means that a radio station would be able to have a much smaller ratio of listeners to members than 100:1 or they could collect a much smaller membership fee from those members (like $2.00/mo instead of $4.50).

I think the basic formula still applies nicely. You need a small portion of your total listenership to support the total audience. Public radio has been doing this successfully for years, and given the nature of online radio, the ability to establish incentive for membership is great:

1) Members could get access to higher-bandwidth content than non-members.

2) Members could get access to ad-free content (no banner ads).

3) Members could get access to value-added services like web-mail, real-time chat, or forums.

There are probably 20 or so value-adds that an online radio station could use to build a revenue stream.

As to micro-payments, it's an unworkable system, especially given the current fee structure of most credit card companies, which extract around 3.5% of every transaction from the seller's pocket. But what credit card company wants to maintain the infrastructure to conduct millions of transactions for a fraction of a penny so they can collect $.0000245 per transaction. It would cost them more to conduct the transaction than they would make on the fee. Which is why almost all credit card companies have a minimum fee per transaction.

The only way to do this kind of system would be for the merchant to maintain an account for the user, and even then the balances would be on the order of $2-4/mo. In most cases, this would be less than the minimum transaction fee, which is based on a $10 purchase.

So a subscription service is about the only way it would work. And then the subscription would work best on a quarterly, semi-annual, or annual basis (which is the way most public radio stations collect donations).

I'm simply trying to make a point here that we shouldn't begrudge an industry (the music biz) from insisting that others pay a price for redistributing their product, particularly at a profit. I think the $.0007 commercial fee to the $.0002 non-commercial fee also represents a significant accomodation for non-profit redistribution, although perhaps not as significant as it could be ($.00002).

But I think this issue speaks of a larger cultural pandemic. Frankly, as a businessperson as well as a consumer, I'm getting a little sick of the "gimme" attitude we're seeing in American culture today. It seems like everyone thinks that *everything* should be free, without considering that someone, somewhere must pay that bill.

For example, how long would Linux Journal survive as a for-profit venture if you provided your magazine in complete form online for free? Or worse, allowed other websites to redistribute the material you published, royalty-free?

But I'm sure that you've gotten complaints at one time or another from website visitors complaining that certain content was available only in print form, and not available for free online. In fact, I'd wager that your loyalty to the "open source ideology" has been called into question at least once over such an issue. If not, I'd be very surprised.

Is this the legacy from the dotcom/Napster age?

Free Internet Radio

Anonymous's picture

To the Anonymous "why" guy:

There are probably so many radio stations on the internet because they're really not hurting anyone.

So, get laid and leave them alone.

Just don't give a hoot...

CoreyJRoman's picture

A lack of unity is the only thing making this work for these greedy organizations. If the original 1,641,218 internet radio stations simply said go (censored) yourself and refused to pay anything thrown at them then the organizations would be up (censored) creek without a paddle. The only reason that things like this happen to us in this country is because we have forgotten what it means to stand up together and just say got to(censored)!

hobby or business

Ista's picture

I agree with Corey's statement but have to add that the " buggar off" attitude wont forever defang the blood suckers. And that's just what the RIAA is. I personally cant understand why some people insist that internet radio is a business, its a hobby, its something we do because we like the quasi fame, and yes sometimes excitement generated by listeners to our shows. It is the closest most of us will come to being broadcasters.
What next RIAA? Make all bars offering Karaoke pay a per song sung per listener fee? sure the DJ's playing the songs, paid for their CD's and SO DID I... What if the music travels out of the bar into the street? it's possible that someone in the bar is recording the singers and replaying it someplace. Internet radio stations do not "Redistribute" they play music only, to suggest playing it is redistributing it is to say the least " STUPID" Most are hobbyists and are not profit making businesses and cannot even be classified or defined as a business by any stretch of the corporate imagination, nor are they in the process of collecting any revenue. they might on a good night get 40 listeners, but mostly its 4-6 listeners and our encoders set to 24kbps, 22.050kHz, mono so dial up can connect and listen-in.
Who the hell has the right to say "ok you have this hobby and NOW YOU WILL turn it into a profit making business so we can collect fees" Who the hell are you to say ' but you can charge your fans to hear you, charge people to go to your web site, load up your website with advertisers, even sell nifty baseball caps n mugs... just so some fat ars'ed corporate terrorist scrooge miscreant can have more money?? I demand to know how much of the collected fees actually end up in the artist accounts... ((calling IRS for general audit)) You can be damned sure the major part is in the corporate accounts as their just due. Shame on anyone suggesting it.
Sound Exchange is nothing more than a modern day Mr. Bumble and internet radio is Oliver Twist, only there's no rich forthright grandfather coming to save it from the illegal collection of fees (Fagin) or the vile Dodger (RIAA)
I want to know what government agency set up the RIAA as this government regulated agency, fully endowed with the legal right to impose such fees and rules? from what I have read it is self appointed, and self governed and totally separate from the Federal Government. Maybe the Federal Government should launch a full investigation into the illegal racketeering practices of the RIAA and all those who support it.

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