Internet Radio Saved for Now, But is the Deal Fair?

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After almost two years of back and forth, there is finally a deal in place that will guarantee the future health of Internet radio. If you haven't heard, Internet radio services like Pandora, Blip.Fm, and were in trouble because the royalty fees imposed on them in 2007 were more than double what they were paying previously and threatened to drive Internet radio into extinction. Royalty fees are paid to copyright-holders for the right to broadcast a specific piece of music.

The songwriters, recording companies and performers who own the rights to these recordings feel they should be compensated since many Internet radio stations make money simply by playing music without live hosts, news breaks, and other expenses of traditional radio. This method of broadcasting is also known as "pureplay."

Under the new deal, Internet radio stations will pay about 40 percent less than the 2007 rates, ensuring a fair deal for everyone. Or is it a fair deal? Internet radio is still the hardest hit from royalty fees; satellite radio is next, and of course conventional radio stations have paid minimal royalties for years. So how is this fair?

Let's take a look at the three major radio models we have today:

Traditional Radio

The oldest form of radio out there, traditional radio stations on your AM and FM dials have been playing music with minimal royalty fees for close to a century. Radio stations do have to compensate songwriters for playing their songs, and under the Digital Millennium Copyright Act, radio stations have to pay royalties for making their live broadcasts that include music available online.

To make money, these stations charge for advertisements based on their popularity with the listening public. In its heyday, broadcast radio was the only game in town to connect an artist with listeners. As a result, radio stations didn't compensate artists, since it was believed that radio exposure lead to increased album sales for the performers.

That premise has been basically true over the course of radio's history, but now that new forms of radio are developing, traditional radio is on the decline. But still the old business model persists. Now, a movement called musicFIRST is trying to change that model, but their success is still in doubt.

Compounding the problem is the fact that traditional radio's advertising revenue is on the decline, yet these stations still reach as much as 90 percent of Americans on a weekly basis, according to a Stanford study reported by Reuters.   So, while traditional radio is as popular as ever, its revenue base is still declining.

Satellite Radio

Using digital signals beamed in from satellites orbiting the planet, satellite radio allows you to take your favorite radio stations with you wherever you go. Satellite radio is a subscription-based service and usually consists of commercial-free specialty stations for every kind of music imaginable.

Unlike traditional radio, satellite stations have to pay royalties that are based on their revenues from subscription services.

Internet Radio

Internet radio has the least advantageous royalty arrangement compared to the other two forms of radio, and has a more complicated formula for shelling out payments. But Internet radio is also a fast-rising star with a lot of potential.

Internet radio usually works by having you select some of your favorite artists, and the radio service then shapes a "station" according to your musical preferences. The Internet radio model gives you a little more choice than conventional radio, and is closer to satellite radio in that regard. However, you typically don't get to flat-out pick your playlists like you do with a RealPlayer subscription.

In my view, you're just as likely to be exposed to new music thanks to Internet Radio as with traditional radio. In fact, you may actually have a greater chance of finding new music online since the potential for hearing new music is practically limitless. Traditional radio stations typically play the current top hits intermixed with the same few hundred songs they've been playing since 1996.

Not So Radical Suggestion

Internet radio says it will survive, and so will satellite radio, while traditional radio is in decline. So where do we go from here? I have to admit, I'm a traditionalist and I'm just not buying the music industry's argument that they need to charge royalties to Internet radio, or any radio for that matter.

I honestly believe that radio in any form exposes an artist to new audiences, and this exposure can lead to increased album sales, concert attendance, and so on. Internet radio is an ideal channel for exposing listeners to new music, since Internet radio is all about finding music that you may not have discovered on your own. It's an innovative setup that owes a lot to early pioneers like Pandora.

But if the music industry pushes for more and more royalties the next time Internet radio agreements are up for review in 2015, it must be careful not to drive this emerging medium out of existence.

Sure, if Internet radio disappears you can always sell albums on your own Website or post videos on YouTube, but even in this fragmented digital age you still need to have those mainstream channels that users gravitate toward. So as Internet radio grows up, it may turn out that artists need Internet radio just as much as Internet radio needs their music.

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