Some good coverage today on the supposed reprieve for internet radio stations facing the new royalty structure. At first blush, it sounded like the incredible Hail Mary pass of quick legislative relief might be in sight. Unfortunately, a more detailed review offers minimal solace to Pandora, Live.fm, Live365, Slacker, and others in the space. First, the maximum revenue that a company can make and still fall under the umbrella of relief is only $1.5MM, which only delays the inevitable fee structure for a brief period, and second, it makes incremental fund raising for the current players all but impossible.
This is one more chapter in the saga of excessively tactical decisions by the major labels. That saga began in the 90’s with the stake in the heart of mp3.com (and their song locker in the sky approach), which in retrospect was one of the best rights-friendly, label-friendly solutions out there in the pre-Napster era.
The ongoing dialog we had between our own music service (MusicNow) and the labels always came down to one fundamental message to our partners: no business or industry ever thrived in a model where they refused to let their distribution channels make a reasonable margin. In the face of a flawed business model and imposition of cripling technology (Janus, root kits, et al), consumers will opt for the path of least resistant: DRM-free, royalty free music. The numbers speak for themselves: 95+% of iPod content is MP3, not iTunes originated. 80+% of IP traffic in selected countries is peer-to-peer. The horse has left the barn, the state, the country.
Internet radio is one of the best promotional opportunities for labels, just as terrestrial radio has been for 80 years. It has reasonable inconvience barriers for ripping (limits on same artist songs per hour, hassle-filled audio stream capture, etc.). If it is me as label exec, I should be negotiating for ad-inserting standards and ad inventory allocation, not hard-dollar fees per track per user. Focus on the new opportunities successful internet radio will create, not the supposed new risks it represents.
The rallying cry from the industry has always been “MTV? Never again!” – they saw the free provision of music videos to MTV as a huge mistake, allowing a company a free ride to build a successful franchise with no corresponding financial reward to the labels themselves (I don’t agree with that argument – I think music videos were an incredibly effective marketing mechanism that benefited the industry, and that MTV was the principal who took all the risk to implement a totally unproven business, happened to make the right bold call and, as such, should get the lion’s share of reward). Regardless, MTV went on air August 1, 1981 – we all need to get over viewing any subsequent industry change with the same biased perspective.
My guess about the end game here? The accelerated growth of micro-networks, next generation shoutcast broadcasters, tapping into social playlist services for programming, and using invitation-only networks with sufficient encryption and traffic distribution models to avoid detection/disruption by labels and their ecosystem partners.
It is a shame, this should be a legitimate dialog about the evolution of linear audio experiences, and creative monetization models that work for rights holder and distributor. The world has changed – heck, it is hard to even find a music video on MTV anymore – it’s time for all of us to move on. The only question is if and when the labels will move with us to help co-author the transformation. I am not optimistic.
