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 groups – Sony/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.

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The Buzzard at Fantasy Fest in Key West