Monday, July 13, 2009

Radio on-line: Held up without a gun

I take it back.

The more I immersed myself in studying this Internet radio deal, the less I liked it. Over this past weekend I discussed it with colleagues, friends, and those whose business sense I respect. My conclusion is that it’s a terrible deal for most webcasters.

Start here. Only the largest independent webcasters will survive: Accu-Radio, Radioio, Pandora, and Digital Imported/Sky FM.

These four – and, perhaps one or two others, have effectively negated present and future competition.

Posing as a reformer must be such tiresome work.

Don’t believe the hype. Small webcasters aren’t being saved; they’re being mass murdered.

It’ll be a miracle for even established smaller, single channel independent webcasters like Bill and Rebecca Goldsmith’s Radio Paradise to continue in the long run.

There are thousands of webcasters producing hundreds of different formats. The majority of do it for two reasons – because they can and their love of labor of creating programming. They’re driven by passion – not business.

I’m convinced that the only reason Pandora’s backing this deal is because they didn’t want to jeopardize the $35 million they just raised in venture capital funding. Founder Tim Westergren is being a bit too sanguine if he truly believes he can defray RIAA royalty costs with a subscription service. I doubt he does. Wanna bet that another reason he’s marching like a good soldier to the RIAA’s beat is to keep his current advertisers from bolting?

Tell me if you think there is any fairness to this deal whatsoever.

SoundExchange, the collection arm of the RIAA will take 25 percent of webcasters’ gross revenues – read that carefully gross revenues – not net. And their take is not limited to just what is earned on-air. If a webcaster sells merchandise, for example, T-shirts, coffee cups, hats –25 percent gross – right off the top – will go to SoundExchange/RIAA.

So what if that coffee cup you sold has nothing to do with an artist you played?

Let me put it another way. Should this deal go down, the big four label groupsSony/BMG, Warner Music Group, EMI, and Universal Music Group, through the RIAA, will own a 25 percent equity with independent Internet radio stations that play music controlled by the RIAA.

It makes you wonder who wrote up this deal? Did the RIAA consult with President Hu Jintao and Premier Wen Jiabao of the People’s Republic of China?

I’d like SoundExchange and the webcasters that bought into this deal explicate the difference between it and a protection racket?

Actually, I can. Even a protection racket wouldn’t charge a quarter of total revenues – gross. They want their marks to stay in business. SoundExchange couldn’t care less – unless their plans include help “subsidize” Internet radio through the back door by, perhaps, creating a few pay-for-play schemes to help keep the webcasters’ heads above water. Call it audio water-boarding.

When it comes to dealing with the RIAA – don’t rule anything out. They want both terrestrial and Internet radio to believe that they are still here only because they didn’t kill them off yesterday – and how they behave today will determine whether or not they’ll be around tomorrow.

There is a very real likelihood of most Internet radio stations disappearing, just like that GM or Chrysler dealer that didn’t make the cut, or Tower Records and the Virgin Megastore.

I respect tough negotiators. I have no respect for autocrats.

No one owes the labels a bail out. The labels put themselves out of business when they decided that only important customer was the big box store.

The labels didn’t invent downloading – so they pretended it didn’t exist until the old line retail market withered. Now they’re up the creek and can’t even steal a paddle. But the RIAA knows how to work Capitol Hill better than most. And U2’s touring. Never under estimate the value of a cash bribe or a U2 backstage pass.

The only deal webcasters should consider is one that offers Internet radio, terrestrial radio, and satellite radio the same royalty rate – and that rate must be less than ten percent net – not gross – and only cover income generated from on-air broadcasts.

Once again, the thugs at the RIAA have given us new meaning to the phrase held up without a gun.

It’s not a done deal yet. Keep it mind that robbing isn’t the toughest part of heisting. The getaway is. And no one’s gotten away with anything – yet.



Anonymous said...

terrestrial radio wants to put satellite radio out of business and satellite radio wants to put internet radio out of business. as long as these factions fight among one another the riaa will continue to grow strong in spite of its labels treating both those that play their music and those that buy their music like adversaries.

Anonymous said...

You explained the deal better than anyone. I agree that Pandora is so deep in raising funds they have to play the game. If I were Tim I would be concerned about being aced out of his own company. The more you give away of your company, the less say you have. What if the labels want to buy placement so their artists come up more frequently? John, thank you for explaining this. The RIAA makes the MPAA look like pussycats.

Anonymous said...

The record companies through the RIAA have had their hooks in Congress for years. But it is radio's fault. They did not keep their eye on the ball. Internet radio is still another thing. They have no lobbyists. Who could afford them except for that collective of Internet radio stations that will make out okay. Pandora is a sell out. Tim criss crossed the country asking us what we wanted from his service. Now we know what he wanted. A buyout. I bet Tim will not be with Pandora much longer. He will be enjoying the sun in Bora Bora while the record labels take over control of Pandora.

Anonymous said...

Why doesn't the government investigate the corruption with the record labels? It will never happen. The record labels through the RIAA have a lock on Congress - Democrats and Republicans. The RIAA's CEO is a former GOP conservative cause lobbyist. The Democrats are just as bad when it comes to kissing the record label's asses. You scored a bull's eye by mentioning U2 tickets and backstage passes. Consider VIP tickets and backstage passes as currency and you will get the picture.

Anonymous said...

Congress has given the RIAA a free pass.

Anonymous said...

How can the record companies yield so much strength with Congress? Was it that the NAB was asleep at the wheel when the DMCA was passed and that incident lead to this?

It has been an interesting twenty years in the music, record and radio business to say the least.

Very little of it has been productive. Maybe it is time to write your representatives and tell them to stop accepting gifts from record company and radio station lobbyists.

In both cases they are their own worst enemies. Neither industry is in better shape today and it has little to do with the economy.

Anonymous said...

John I fear that you are right. We will have at best a dozen or so internet radio groups and everyone else will be left out. I wonder how the RIAA will handle Live 365? Are they tiny webcasters or are they going to go after the parent company.

Anonymous said...

Posing as a reformer.....

You got that right. What phonies. Claiming to be working for ALL webcasters while cutting themselves a deal that cut everyone else out.

We will remember you, guys.

Anonymous said...

The NAB will probably laugh at this figuring that they are eliminating competition on mobiles. Little do they know how badly the RIAA will zap them with the performance royalty bill. It will happen. Then radio will see how it feels to want.

Anonymous said...

glad to see you came to your senses. i was surprised you were giving those idiots a free pass. in any other democratic country this would never be allowed to happen. it shows what happens when you have a congress that can be bought and sold on u2 tickets. i don't mean that as a joke. i am dead serious. it is plain to see that regardless of what party is leading congress money talks without exception.

Anonymous said...

You should believe it, John. The RIAA has already gotten away with it.

Anonymous said...

You don't even need U2 tickets to corrupt a politician. Britney Spears will do just fine.

Anonymous said...

My rep came through with Neil Diamond VIP & backstage. He donated $5000. Got other stuff, too. NFL, MLB. A good ticket is worth its weight in gold, no platinum.

Anonymous said...

I don't believe this will ever get resolved. Kurt and Tim will push to get this through and will between their influence with RAIN and Pandora. Other internet stations will be s.o.l. Eventually there will be an European or Asian site that does not have the same royalty restrictions and U.S. internet stations will broadcast from there. Just like Rubbermaid and Mr Coffee. Corporate offices are here while manufacturing is in China. That is the business plan I see taking hold eventually.

Anonymous said...

At this stage of the game if the RIAA is robbing radio stations they are grave robbing. Internet radio is a growth market. They want a piece of it, a big piece of it and I do not see them backing down from their 25% equity demand. They will have I.R. exactly where they want it and Congress willhand it over to them.

Anonymous said...

It's all very simple. If you want a law from Congress, you buy it. It's an auction combined with a protection racket. Radio plays, or it dies. End of story.

Anonymous said...

Hanson's girl friend is spreading his message as him being the savior of internet radio. Savior? Hell. He killed it.

Anonymous said...

This is a little off-topic, but do you suppose that competitor Nielsen is behind some of the problems Arbitron is facing? Nielsen would stand to benefit by grabbing new markets.

thenetwork said...

It's just like you said -- it's the small "mom & pop" labor of love webcasters who are getting screwed.

Its these little guys who play the songs that mainstream terrestrial and internet stations DON'T play. So how do the minor groups and one-hit wonders of the past get their songs replayed to get a share of that Royalty pie now?

If those groups and artists of the past would band together and fight for their right to be heard (literally) on terrestrial & internet stations and demand that these obscene revenue fees be aboloished and that smaller web broadcasters can have the freedom to play what they want without paying an arm & a leg, maybe we can get this problem solved.

This is almost the exact science that Obama is using to screw up the country.

Looks like we're heading back to the days when you would build a small-watt transmitter in your basement in order create a neighborhood pirate station. At least nowadays, the chances of getting caught are less because no one listens to terrestrial radio anymore and nobody works at the big stations anymore. Those that are are too busy keeping their own stations afloat.

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