SoundExchange reaches web royalty deal with NAB, but not webcasters

SoundExchange collects royalties under the US Government's compulsory licensing of music for radio stations. How much to charge for a web stream, and whether royalties for performance rights are included along with SoundExchange's traditional publisher royalties has been a point of contention for about a decade.

From what I can find in the press (which leave some questions unanswered), the National Association of Broadcasters (NAB, which represents terrestrial radio stations) has agreed to $1.50 per song per thousand online listeners, ramping up to $2.50 per thousand by 2015. (No news what stations pay for their airways broadcast listeners.) That deal is for radio stations that simulcast their programming over the Internet. It's also for any online-only programming those broadcasters might also provide. That $1.50 rate will more than eat up any online advertising the stations can sell, which typically sells for less than $1.50 CPM (thousand impressions) these days - and that's assuming they can sell a display ad for every song, not a single ad for every 3-5 (or more) songs typical of terrestrial audio ads inserted into broadcasts.

So it looks like the deal with pure online broadcasters got hung up on the question of programming interactivity and what appears to be an irrational insistence by SoundExchange on a percentage of a company's revenue, rather than a simple per-song fee. Some also blame RealNetworks for screwing up a deal reached in November 2008 by at least twice seeming to agree to terms, then pulling out at the last minute. (Sounds like Rob is being Rob again.)

US law grants an automatic license to play music as long as the broadcaster follows certain rules. The main rule is the music can't be played "on demand": a listener can't push a button and hear a specific song. Online services like Pandora skirt the on demand rule by allowing listeners to program their own stations by listing some artists they like. The listener is not guaranteed what song will be played, but it's likely something she or he wanted to hear. SoundExchange deems this outside the compulsory license law and wants extra money for that interactivity. They seem to forget that I can change my car radio from a country station to a rock station to a Latino station to an urban rap station whenever I want. Though I'm not selecting the music or affecting what an individual station plays, I'm still interacting with what I'm listening to.

True on-demand streaming services like Rhapsody, Napster, Zune, and others must negotiate separately with recoding owners (labels) to play music as US compulsory license law was not written for on-demand performances.

Labels kill distribution

Pandora can't make money, may pull the plug

Here's another story about the music labels and publishers pricing a popular service out of business. Pandora is the most loved personalized radio service on the internet (in the US anyway - the British publisher association blocked them from the UK market some time ago). Due to increases in compulsory radio rates, and differences in prices between terrestrial, satellite and internet rates, Pandora can no longer survive paying 70% of their gross margin for content.

The article attempts to lay some of blame on Pandora for extending onto devices without support for their current method of monetizing stations. But it's not for a lack of trying creative solutions. Pandora has tried various ways to monetize their service, including subscriptions paid by the listeners (failed even with free trials), a la carte song upsell via Amazon Associates (that pays only 10% of any MP3 purchase back to the referring site), advertising (their current model), and others. All of which don't work given the too-high cost of the content.

So rather thanfinding a way to make the most popular music discovery service work for all parties, content owners will force Pandora's shutdown over lack of net income.

Investors will only buy music for others for so long. The labels today are betting the farm on "stupid VC" advances that will never be recouped. That's no long term music strategy - offering yet more proof for this blog's thesis that the labels will put themselves out of business and the industry will be reborn without them.