How are you listening to online music lately? You have probably taken advantage of the wide variety of songs available for free or at a cheaper rate. Few commercial, no DJ interrupting the show and throwing some corny jokes; these are the initial attractions of online radio. While these are good news in terms of the listening experience, you may have to wonder how internet radio stations are making a profit, since they have to pay royalty fees for every song they play.
Internet radio has been airing live streaming for quite some time now; it’s an innovative combination of technology and music. In most cases, it offers a wide variety of music collections which listeners can arrange as playlist. Unlike the traditional radio, internet radio stations are usually light on advertisements and free of annoying DJ’s. It’s like having a wide collection of CD’s from your favorite artists that you can choose from. More and more people are learning to love internet radio over any other medium. It has become a new division of the music industry; a new definition of listening experience.
Just like any business which uses some else’s work, internet radio stations pay royalty fees. However, unlike the normal royalty fee in which the fee equals a percentage of the gross sale amount, the royalty fees that internet radio stations have to pay are based on a per-song performance royalty. In 1998, a bill was passed by Congress known as the Digital Millennium Copyright Act, or simply DMCA. This presented a huge problem to Internet radio station providers, as they are required to pay royalty fees every time a song plays. In contrast, terrestrial radio stations pay a flat annual fee.
There had been several opinions toward this new bill. If it will be implemented all across the board, small players will not be able to compete with the big ones such as AOL. To some extent even the big ones could collapse.
Discussion continued until the first week of May came in 2007 when Sound Exchange made a deal with large players about setting up a minimum fee with a structure similar to normal royalty fees. It also offered another rates and terms similar to normal royalty fees. There were qualifications set to filter out the webcasters that earns more than a million dollar annually.
One of the major players of internet radio, Pandora was also burdened by the new law and was forced to limit their users to 40 hours of streaming monthly…a limit which they have not lifted since then; other sites, like 977music have not limited user listening time at all.
The subject of royalties is a tiring issue for people in the music industry; not only does it greatly impacting profit, it somehow limits the internet radio station’s ability to attract more and more visitors each day. Free online music is free only for the listeners…the providers pay for it and display ads to cover the cost.