Digital Royalties, Profitability Hot Topics At Internet Radio Panel


Terrestrial radio conglomerates love Internet radio: it gives them great ideas about how to play music but they don’t have to worry about making money off of it or paying exorbitant digital royalty rates to artists and record labels. Meanwhile, Internet radio reps, as they’ve insisted before, continue to argue that without lower royalty rates, their companies will soon be out of business.

That was the central debate between the panelists during a discussion about the future of Internet radio at Wednesday’s Digital Music Forum in New York.

The conversation wasn’t nearly as interesting or headline-making as it could’ve been because Pandora founder and outspoken digital performance royalties opponent Tim Westergren, who was supposed to be there, cancelled at the last minute. But the terrestrial vs. solely-online radio debate still got heated at times, like when CBS Radio’s president of digital media, David Goodman, praised companies like Live365, whose CEO was sitting next to him, for letting “kids” create their own playlists. This and other ways that online stations present their music really inspire the folks at CBS Radio. They want to take what the Internet guys do and figure out a way for professional broadcasters to do the same thing.

Live365’s CEO Mark Lam then shot back that a lot of their users aren’t “kids” but professional DJs who no longer have jobs because of conglomerates like CBS and Clear Channel. Fortunately the moderator intervened before things got out of hand.

But terrestrial stations who’ve begun to dabble in Internet radio the way CBS has done, particularly through its purchase of, and straight-forward Internet radio stations like Live365 are in very different places in terms of profitability and the strain they’re under from new digital royalty requirements.

Internet radio’s only a small source of revenue for big radio companies like CBS who also play music over the air, put videos online and provide news, talk and sports streaming, which means they have the freedom to experiment online and the money to pay digital royalties

But for Internet stations like Live365, they have to run “as many ad spots as [they] can,” as Lam put it, to make money and that’s only a small source of revenue. Plus, Lam says he still feels like his company will be pushed out of business by the high digital royalty rates set by the Copyright Royalty Board in March 2007. (The broadcasters recently reached an agreement over those rates, but the Internet companies, like Pandora, couldn’t strike the same deal.)

Lam noted that 20% of the royalty fees Live365 pays go to artists and record labels via SoundExchange. The publishing companies like ASCAP, SESAC and BMI only take about 4% of Live 365’s royalty payments.