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The Mad Schemes of Dr. Tectonic [entries|archive|friends|userinfo]

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[Mar. 19th, 2007|03:53 pm]
I subscribe to a website (www.di.fm) that streams trance music all day for me to listen to at work, all day, every day.

This makes me happy.

On March 2nd, the Copyright Royalty Board made a decision about rates for webcasts that is likely to destroy Internet radio utterly.

This makes me unhappy.

FAQ here, write your congresscritter here.

I want the ability to wave my magic wand and cause organizations things that displease me to suffer catastrophic existence failure. Grr.

[User Picture]From: dr_tectonic
2007-03-19 10:57 pm (UTC)
The problem is that it kills the user-acquisition model of internet services.

The internet business model they're using is the one where you give away a low-quality version of whatever your product is for free, and allow people to buy upgrades. That's how LJ works, right? You get a whole lot of potential users trying it out, some fraction of them will convert to regular users, and some fraction of the regular users will actually find it worth paying for.

So the population of paying users is much smaller than the population of freeloaders, but since (I'm guessing) costs scale nonlinearly with total population, it's worth supporting the freeloaders for the extra paying users that they generate.

If they have to charge per user, rather than per paying user (which is what the percentage-of-revenue proposal basically is), suddenly the freeloaders cost far too much, and you can't support them anymore. But without freeloaders, you have no new users, and gradual attrition sends you into a death spiral...
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[User Picture]From: melted_snowball
2007-03-19 11:29 pm (UTC)
No, I understand that. But the fact remains that this model doesn't have an a priori right to exist. The "I haven't yet figured how to pay for my content and make a profit" argument is not, in my mind, justification for the status quo.

I realize I'm outside the mainstream here, but the mainstream seems very desiring of free content free content free. If the only way that can be justified is if their content cost per user per hour is around $.003 or less, that's kind of pathetic, no?

We were just talking about this, and da_lj said, "but, Pandora has a cool database". If that database isn't worth $2/month/user, it just seems hard to justify to me that it's a great database. (And besides, all of my channels keep trying to merge. Why is my Erasure station playing Eiffel 65, and my Eiffel 65 station playing Erasure? Oy.)
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[User Picture]From: dr_tectonic
2007-03-20 12:52 am (UTC)
Is there an a priori reason why the model *shouldn't* exist? If you look at it from the perspective of the motivation for having royalties in the first place, that artists should be entitled to receive payment for the reproduction of their works, is it not a workable system?

Probably what they'll need to do is to put ads on the non-subscriber channels. But the problem with that is that there's no pre-existing large audience that an advertiser would be willing to pay for, and there's nobody who's making money off the infrastructure that's willing to bankroll the content providers until the audience does exist (as was the case with radio, TV, and cable). That's the basic "this is a new industry, we need different rules" argument.

I think the opposition to things like the percentage-of-revenues royalty scheme comes not from artists being ripped off by nonpaying audiences, but from businesses that are threatened by a new distribution channel they don't control. Does Clear Channel and its business model have an a priori right to exist?
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[User Picture]From: melted_snowball
2007-03-20 01:08 am (UTC)
I don't believe in the "this is a new industry, we need different rules" argument, I guess. I didn't believe in it ten years ago when people who didn't know anything about book publishing explained to me that books were old fashioned and should be replaced by around now by e-books, for example. All of these Internet radio corporations are VC-funded, no? Just like Sirius or XM were, no?

I don't understand why $.01/hr is an unworkable content rate for entertainment content. I seem to be willing to pay roughly $.25/hr for my daily newspaper, and many people seem to be willing to pay roughly $.25/hr-$1/hr for cable television. My understanding is that millions of people are willing to pay $.50/day to have satellite radio in their car (and, assuming that they spend something incomprehensible to me, like 2 hrs/day in their car, that's $.25/hr).

And, truly, I don't understand anything resembling a justification for percentage of royalty. What's to stop me from deciding to carry a loss leader, just to take an extreme example, just to screw Sony?
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[User Picture]From: dr_tectonic
2007-03-20 04:19 am (UTC)
All of these Internet radio corporations are VC-funded, no?

No. They're websites; you start with a server and add capacity as you need and can afford it. Why would you need venture capital? Some of them are literally mom-and-pop outfits.

You have spurred me to do further research, and what I discovered is that the big deal is really that the royalties for streaming will be about five to eight times as much as those for regular broadcast.

Regular broadcasters pay royalties only to songwriters, not to artists, and they collectively negotiate royalty rates based on their expected revenues. (So there's your justification for percentage of revenues right there: that's how regular radio stations do it.)

This article estimates it this way:
On a per-listener scale, broadcast radio stations paid $1.56 per listener on average during 2006; and in 2010, that figure rises to $1.94 per listener. BetaNews estimates that Internet radio sites, by contrast, will pay $8.91 per listener for 2006, rising to $15.59 per listener in 2008 and staying flat beyond that time.

Cross-check: the same article estimates that the three main royalty organizations in the U.S. took in $437M in 2006 from 14,000 radio stations. $437M / 14k / 52 = $600 per week per radio station. Arbitron says the average radio listener listens to 19.25 hours of radio per week, and that 93% of the U.S. population listens to the radio. 250 million * 0.93 * 19.25 / 14k = 320,000 listener-hours per radio station per week. $600 / 320,000 = 0.001875 in royalties per listener-hour.

So I don't know whether $0.01/hr is sustainable or not, but it is more than five times what traditional broadcasters pay.
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[User Picture]From: melted_snowball
2007-03-20 11:41 am (UTC)
Wow. OK, I'm surprised. (This really doesn't match what I would have expected, from reading a tiny bit of the decision yesterday, but I was skimming too fast.)

One might have expected that the Internet radio companies would trumpet the 5x ratio in their copy. That would have been a lot more compelling to me than, "it's more than even our revenue is!"

Of course, is there any sort of implicit payment to artists or songwriters through other fees that radio broadcasters pay for their station licenses? (Here, I really have no idea how the US works: in Canada, the answer is yes: part of radio license fees turn into a fund that somehow promotes [and maybe even helps to produce?] CanCon. But I can't recommend that, because we also have other absurdities like the blank media levy, and ...)
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[User Picture]From: dr_tectonic
2007-03-20 01:19 pm (UTC)
But it occasionally leads to things like KanKon, so it can't be all bad!

I think the lack of recompense to artists for airplay may be a part of the whole "artists hate the RIAA" thing. Nothing about implicit artist payment leapt out of my (admittedly scanty) research, but that doesn't necessarily figure. Since we're currently in the midst of yet another payola scandal, I think maybe it goes the other way, if anything? Dunno.
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[User Picture]From: melted_snowball
2007-03-20 01:32 pm (UTC)
Er, you mean Kon Kan. (I was just listening to that last night at the gym!)

I didn't realize there was yet another payola scandal in the US. Oy.

I should listen to one of my music streams now, just to have done so some more. I'm not sure in the case of the one I have in my iTunes how I even could pay them...
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[User Picture]From: drdeleto
2007-03-20 02:34 am (UTC)
What about the artists', labels', and production companies' business models?

Seems to me that if not getting paid for performances of their work makes the music producers money (say, because people will hear the free music and buy the CD), then they can waive the fees for all their works. Otherwise, I don't see why streaming stations shouldn't have to carry part of the burden. I have no idea if the new rules are imposing an appropriate burden or not, but they don't seem obviously exorbitant. Percentage-of-revenue sounds peachy keen, but it all depends on the number of freeloaders there are. Unfortunately, in the realm of music, there are a lot of freeloaders.
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[User Picture]From: dr_tectonic
2007-03-20 04:21 am (UTC)
Having now done my research, see my comment to dan above. The big complaint is that the royalties for streaming are five to eight times the royalty rates for broadcast.
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