July 08, 2009

It’s Licensing, Stupid

The news that the music industry has sealed agreements with leading Internet radio sites is a great development for fans, webcasters and labels and artists (http://www.soundexchangeblog.com/?p=91).  It is further evidence of our continuing commitment to help make this marketplace work for fans and the industry, along with an eagerness to innovate and experiment with business models and licensing structures.  After all, this agreement provides a flexibile alternative to the Copyright Royalty Board (CRB) rate structure that recognizes not all webcasters are alike.

We’re sometimes asked “why do you ask for particular royalty rates for Internet radio sites”?   For starters, labels and artists deserve fair market rates for the product that is the foundation of a webcaster’s business.  Just like a webcaster pays market rates for computer bandwidth, electricity, equipment, and everything else that goes into making an Internet radio business, music should be no different.  

Additionally, because Internet radio services are a great way to enjoy and discover (or re-discover) music, they are increasingly substituting for other ways artists and labels get paid for the music they create.  Research tells us that (http://news.cnet.com/whats-the-real-cost-of-free-music/?tag=mncol) fans who listen to multiple sources of music (satellite radio, online radio, streaming services, etc) are buying LESS as music becomes ubiquitous.  According to analyses conducted for us by Taylor Research & Consulting, music purchases by people who listen to three or fewer such sources fell 44 percent from the first quarter of 2005 to the first quarter 2009.  Over the same period, purchases made by people who listened to four or more sources declined at a significantly greater rate (53%).    

This past week, we crossed the mid-year threshold of the year, and there was a fair amount of news reporting comparing album sales mid-year 2009 vs. the same time period for 2008.   That sort of analysis, while useful, does not tell the whole story.  The music marketplace is diversifying, and access/performance-based models are increasingly how fans enjoy and listen to music (online videos, digital radio services, streaming services, social networking sites, etc.).  And there’s real revenue growth in many of these business models.  For example, the royalties from digital performances (not just Internet radio sites but satellite radio services too), while still small, (http://www.riaa.com/keystatistics.php) are growing significantly year-over-year with more growth projected in the coming years.  That’s also good news for the music industry and gives us hope for the future, but it means that artists and labels must be compensated fairly by these new services as the market shifts from buying shiny discs to other models so that great music can continue to flow.    

In the meantime, keep on enjoying your favorite Internet radio station!

Steven Marks