Friday, December 5, 2008

Profiting from Internet Radio is Tough

It's a real shame because Yahoo was such a pioneer in this field. It should serve as a cautionary tale of what can happen when copyright holders want too much money.

- Tim Westergren, founder and chief strategy officer of the Pandora web music service

In Michael Liedtke, "Rising royalties send Yahoo's Launchcast to CBS," Associated Press via The Industry Standard, December 4, 2008

Yahoo Launchcast is the second major music website this year to turn to CBS for streaming its internet radio services and the ads connected to them. AOL Radio, owned by Time Warner Inc., hooked up with CBS in June, 2008. Both Yahoo and AOL were responding to a March 2007 decision by the U.S. Copyright Royalty Board that raised the royalties for music streamed over online radio. "That aided the music industry, which is desperate to offset steadily declining revenue from compact disc sales, but it meant by some estimates that royalties could eat 70 percent of Internet radio stations' revenue." Yahoo's executives have also been trying to cut costs substantially in the face of revenue shortfalls.

CBS Radio can afford to carry this type of streaming despite the higher royalty rates for two reasons. One is that some of its internet radio channels steam news and sports-talk formats that attract advertising put do not have to pay music royalities. Launchcast's music-only approach, playing News and sports-talk stations don't have to pay the higher rates because they don't play music. The second reason is that CBS executives believe that they can target ads to listeners better than Launchcast could--based on ZIP codes--and that this ability will help them garner more advertising money while playing music.

Many internet streaming companies, including much-acclaimed Pandora, are under strong financial pressure. Clearly, as Tim Westergren suggests, the Royalty Board's ruling has made a web filled with a huge number of independent music streamers a thing of the past.

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