Feb 21, 2002

Webcaster Licensing Proposals Another Death Nail For Music Industry?

According to this News.com story, online radio stations or Webcasters, will have to fork out .14 cents per person per song streamed on the internet. The decision was made by an arbitration panel which was picked by the US Copyright office.

Under the preliminary proposal, conventional terrestrial AM/FM radio stations will have to pay .07 cents per song per person to stream music on the net, half of what online stations would pay (radio stations do not pay for their conventional broadcasts).

As if this is not bad enough news for webcasters, this Boycott-RIAA story spells out a list of absurd reporting requirements for webcasters suggested by the RIAA. After reviewing the RIAA proposed requests, I am surpised they do not want webcasters to provide a detailed report of how often they take a dump.

The lethal combination of the proposed webcasting rates and unrealistic RIAA reporting requirements will most certainly drive valuable webcasters out of the industry. With these unreasonable webcaster requirements, one can only speculate that it is the intention of the monopolistic music industry to eliminate independent webcasters in order to maintain exclusive online control of thier product.

If this arrangement goes through, it will hurt artists, labels, webcasters and the general listening public. Warning: this is a dangerous no-win situation for all involved parties.

Webcasters Driven Out of Business By Prohibitive Costs

How will these proposed webcaster licensing rates adversely affect the music industry? Let's first begin with webcasters and analyze their potential value to the music industry. It is no secret the music biz is currently in the trash heap and in dire need of serious repair. Among other things, ineffective new media marketing has put the labels into a deep hole. If utilized effectively, webcasters could be very instrumental in sparking a turnaround in the industry.

Webcasters provide a form of music promotion on the internet which is absolutely essential for the industry. Just like conventional terrestrial radio stations have helped spur record sales for many decades, if given the proper opportunity, webcasters can do the same. Whether you apply this principle to a local, national or international scale, the formula is identical: promotion = sales = money.

One major difference is that traditional radio stations pay little or no royalties for playing music. Over the years, this type of no royalty payment setup has helped radio stations create succesful promotional models for the industry. If radio stations were required to pay exhorbitant licensing fees when they started, do you think the music industry would have enjoyed such growth?

The proposed webcasting fees make it financially impossible for most online music companies to stream music. In addition to these licensing fees, a webcaster must pay expensive bandwidth fees (the more music you stream, the more it costs) and equipment fees (such as CD purchases, software, hardware, etc.). Add this to the cost and time involved in recording the music and maintaing the web site, and... you get the picture.

In fact, if webcasters were permitted to stream music without even having to pay the .14 cent licensing rate, 95% of them would probably still go out of business within a year. Webcasting expenses are unreasonably high, as the online advertising market remains weak.

As an example, even though we are several hundred thousands of dollars ahead of the game with our immense record collection and equipment, we still would not consider building a webcasting business - even if the there were NO licensing fees. The costs are just too enormous and there is little chance of any significant returns.

Artists Will Not Receive Effective Online Marketing

Now, what happens if webcasters cannot afford to play and promote music over the internet? This formula is simple also: no promotion = no sales = no money. Has anyone ever purchased an album from an unknown artist? Unless you receive a word of mouth referral or are really into music, chances are you will not come across the record, let alone purchase it.

Obviously, this setup hurts the artists enormously. Believe it or not, it causes more damage to the artists than music piracy can ever cause. As an example, a multitiude of talented and lesser known 80's artists have been completely forgotten about due to conventional radio's reluctance to play their music over the past fifteen years.

If webcasters are not given a fair shot at broadcasting music on the internet, most, if not all artists, will go the way of the lost 80s musicians. Unless artists are able to successfully market themselves online (quite a tall order on their own), chances are they will not survive the uncertain future.

The elimination of professional webcasters and the lack of effective online marketing by the major labels and portals will spell very big trouble for the artists. Whether or not they can do anything about it, remains to be seen.

Major Labels & Portals Cannot Do The Job Alone

Sure, the big guys like the labels and the highly visited web portals (which have partnered with the labels) will be streaming and "promoting" the music, however, is this enough quality promotion for the artists? Not by a long shot.

For the most part, the major labels don't even know what is in their catalogues. Their collections have become so large that they can no longer keep proper track of them. The rubbish you hear on any mainstream radio station today will be the extent of the creativity of the label's webcasting marketing capabilities.

Just visit any bland web site owned by a major label and you will get the picture. Do you actually think today's kids are interested in the crap the labels are pushing? Just take a look at this story and you will get an idea as to how interested the youth is in today's mainstream music scene. Enough said.

As for the larger web portals, they are great as gateways to the internet, however, they are not music experts. Since they have no legitimate experience in marketing music through webcasting or any other method, it is highly unlikely they will be much of a factor in providing adequate promotion. A large amount of web traffic does not necessarily translate into good promotion or, more importantly, increased record sales.

Listeners Will No Longer Receive Variety

The extinction of webcasters will also have a negative affect on the listeners, a group already accustomed to being exploited by the industry. The lack of authentic online radio will mean that internet radio will eventually mirror conventional radio, a scary thought to say the least. Since the music consumer is the last person the industry thinks about when creating such policy, this comes as no great surprise to anyone.

Webcaster Licensing Payments Require Restructuring

At the heart of the problem is the way the proposed licensing payment structure has been set up. Regardless of the tariff, the per song per listener rate will never work in the real world. Even if a webcaster gets an audience of one million listeners listening to one million songs does not mean you will bring in any sort of substantial advertising revenue. Ask the major portals.

During the current poor market conditions, chances are a webcaster will not even generate enough revenue to pay for their licensing fees. The webcaster will end up in the hole faster than a Tiger Woods' two foot putt.

Does it really make sense for a webcaster, who is not guaranteed of generating any substantial revenue, to pay the music labels money to promote THEIR music. Any webcaster who is willing to do that must certainly have their head examined.

Instead of the per listener per song sham (which is only intended for the music industry to rip off and discourage webcasters), licensing payments should be tied into advertising revenue. This is a payment structure which rewards everyone fairly.

For example, the labels, artists, copyright holders, publishers, etc. should be given one flat percentage fee to split up as they see fit. If a webcaster receives advertising revenue from one of his web pages where music is being streamed from, he should be required to pay a percentage of the gross advertising revenue from such a page. A figure of say 10% would be fair.

This type of setup also provides incentive for webcasters to start up new music services. Since such an arrangement will not require webcasters to pay licensing fees until they secure advertising revenue, it gives them a fair shot at making a go of it. Under the proposed structure, webcasters are required to pay licensing fees prior to generating any revenue. This is hardly a fair system.

In addition, those assenine proposed RIAA reporting requirements need to be scrapped immediately. I do not even maintain that sort of detailed information for my business. If the RIAA thinks webcasters are going to be their little information/marketing slaves, they should think again.

What Is A Screwed Over Webcaster To Do?

Under these proposed rates, all webcasters should cease webcasting and promoting major label material immediately (which is exactly what the labels want them to do). Why even bother going into the hole promoting an industry which is synonomous with one word: GREED?

As an alternative, webcasters should consider promoting independant artists who do not request fees for playing their material. In addition, there are several high profile artists who have left major labels and are in need of quality promotion.

If these artists were smart, they would permit webcasters to promote and play their music free of charge. Now if these artists were geniuses, they would approach webcasters and request them to play (stream) and promote at no cost to the webcaster. Remember, a stream, unlike a download, is temporary in that it evaporates into cyberair once the music finishes.

As an analogy, in the log run, it is better for an artist to give a free concert and have one million people show up, than to charge $100.00 per ticket and have nobody show up. With the proposed webcasting licensing fees, chances there wll be nobody in attendance.

In addition, with the recent exploding popularity of the techno music genre (a great deal of which is indie), it may be in the best interest for webcasters to look to techno artists for webcasting material. Needless to say, techno artists are a lot more reasonable than the majors when it comes to licensing. The way things are headed, indie techno music will be a lot more valuable and marketable in the future than the trite material being pushed by the labels.

Conclusion

Tying webcaster licensing fees into advertising revenue is the only way to encourage and build successful music promotional models on the web. Without this type of structure, the online music industry will continue to remain stagnant (which is exactly what the labels want).

The current per song per listener proposal only serves the purpose of catering to the recording labels, who are too ignorant about the new media technology to realize the tragic economic pitfalls of such a setup. Hopefully, the artists will not be as ignorant.

As with file sharing, CD copy protection and music subscription services, the labels will learn a mighty expensive lesson only when it is too late. So what else is new?

Sphinx
"There's Only 1 Station"

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