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The Sound of Silence, or A Hypothetical on the Demise of Internet Radio

Internet radio underwent a "day of silence" yesterday to protest the impending royalty rate hikes that will be levied on Web radio come July 15. The protest was orchestrated by the SaveNet Radio Coalition and included popular stations like Pandora, Rhapsody, Live365, and LA-based KCRW.

The controversy has been brewing since March, when the U.S. Copyright Royalty Board determined that webcasters would have to pay a per-play fee (instead of the existing -- and much preferred -- method of allowing small webcasters to pay a percentage of their revenue). Adding insult to injury, when the increase goes into effect, it will be retroactive to 2006 -- imposing rates that, in many cases, far outweigh the yearly revenue of Internet radio stations. (To check the math equations done by some incredibly ambitious Consumerist commenters, go here.)

These rate hikes will raise music royalties by 5 percent for this year and last and up to 20 percent per year for the next three years. A recent article in monthly music magazine Paste elaborated on this point.

"There's also the issue of fairness. Internet radio stations pay no less than 10-12 percent of revenue in performance royalties. Satellite radio -- XM and Sirius -- pays 7.5 percent of its revenue to cover the same royalties. And good old fashioned terrestrial radio pays exactly nothing … Your local FM station gets weed, cash, and free sneakers in return for spinning the hits; your local Webcaster -- who's promoting all the other music -- is forced into bankruptcy."

In short, Internet radio was already paying a higher percentage of their yearly revenue for royalty rights than either Satellite or FM stations and now, if the pay-per-play method goes into effect, most of them will be forced out of business. Internet radio stations have soared in popularity in the past several years, with an estimated 50 to 70 million listeners, and provide a welcome respite from the dregs of Top 40 nonsense that plague most FM dials. With low overhead costs (as Paste wrote, "You just need a computer, some tunes, and an audience), these stations introduce listeners to countless new artists, songs, and genres. It will be an enormous setback to independent webcasters, non-mainstream artists, and the general listening public if these new rules are allowed to go into effect.

The House Small Business Committee is set to hold a hearing on the matter tomorrow and determine the impact of the royalty rate hike on both webcasters and artists. Stay tuned.