Yahoo! Music Goes Radio Silent

Apologies to anyone who was hoping to listen to free LAUNCHcast today. We’re shutting down the Internet’s #1 radio service for the day to draw attention to the outrageous rates recently set by the Copyright Royalty Board in Washington, D.C.. We are doing so alongside thousands of webcasters including Pandora, MTV, Real/Rhapsody, WXPN.com, KCRW.com, and many many others. For a more complete list, check Kurt Hanson’s site, RAIN. AOL and Clear Channel stand out as the only two online broadcasters too corporate to show their solidarity (sorry, Lisa ). Hopefully you’ll be seeing lots about today’s protest in the press, and most importantly I hope you’ll let your representatives in Washington know how you feel. Please visit the SaveNetRadio.org site where they make this easy for you. We need your help between now and July 15th when the first payments are due under the new royalty rates.

The situation webcasters are in is simple: the new royalty rates are more than the revenues anyone can hope to make from related advertising. In other words, we all lose money on Internet radio starting July 15th. Yahoo! has no intention of operating LAUNCHcast radio as a loss-leader. This senseless rate hike needs to be changed or our business will have to. And unfortunately the way we’d have to change our business would end up curtailing the great diversity that makes Internet radio uniquely compelling. I think we’d all be terribly sad to see Internet radio start to sound more like terrestrial radio with its limited number of stations playing a small number of songs. The irony that the new rates force webcasters to either go out of business or sound more like terrestrial radio, which pays no similar royalties, is rich.

Here are a few myths which the industry needs to get its head around:

Myth: Yahoo! (and other big Webcasters) can “afford” these rates.
Fact: LAUNCHcast loses money under these rates, Yahoo! has no appetite to run radio as a loss-leader.

Myth: All Internet radio should be for-pay subscription.
Fact: Less than 3% of our radio listeners are subscribers. Subscription is a feature for users who would prefer no interruptions, not an interesting business for anyone.

Myth: Radio drives tons of users into Yahoo! and therefore Yahoo! will operate radio at a deficit.
Fact: Not only is this a terrible way to structure an Internet business ecosystem so that it grows, it’s just not true. We’re fortunate to be a part of Yahoo!, the most visited network on the Internet, and the traffic the network drives to us is what makes us so popular. Not vice versa.

But for those who want a little more color in the story, I thought I’d share a few blips from the last three months of my life as I have come fully up to speed on this issue, visited Washington, met with artists, labels, and the RIAA, and worked with many others to find a solution. It’s been quite an education for me.

I’ve worked at Yahoo! Music for three and a half years (since they purchased my small company, Mediacode in December of 2003), but have only been the General Manager since the beginning of March. I took the reigns the same week the CRB ruling was handed down. That first week Bob Roback called me in to a meeting where I was introduced to Ken Steinthal, the lawyer who handled the case for the webcasters. Ken was shouting and cursing in disbelief on a conference call including AOL, MTV, Pandora, Live365, and others. When we hung up I stated the obvious to Bob: “I guess the decision wasn’t advantageous to us.” “It’s impossible to imagine a worse outcome,” he replied. Welcome to your new gig, kid, I thought.

I quickly came up to speed with the help of many: Bob and Ken (mentioned above), Dina Hellerstein, Jeff Mickeal, and Jamie Hedlund from Yahoo!, and Jon Potter from the industry group DiMA. The basics are simple: you just need to look at the balance sheet to see the business losing more and more money each year as the rates increase faster than the radio ad market does. But coming in late and having not been involved in the litigation, it’s impossible not to continue to ask yourself, “Why? How did we get here? How does this happen?” The answer is unfortunately painfully simple: we’re still in a crossroads where old businesses and policy makers simply don’t understand or believe the realities of a new and growing business.

Here’s what happened, as simply as I can tell the story:

• Sound Exchange (the organization which represents the copyright holders and administers the payments) and Webcasters can’t agree on a royalty rate.
• The Copyright Royalty Board (CRB) is formed by Congress, a process is established, and a standard is established. The process is reasonable enough, the standard is “willing buyer / willing seller” and not liked by the Webcasters as it is a more stringent standard than terrestrial and satellite rates were determined by.
• The CRB process begins, both sides spend millions of dollars on the litigation.
• During the litigation, the CRB sees financial information from both sides, but one side never sees the other’s complete testimony as much of it is redacted so confidential information is not shared with potential partners and competitors.
• 18 months later a decision is handed down which is incredibly unfavorable to the Webcasters and includes a footnote saying the CRB couldn’t be bothered with “inefficient” businesses which aren’t able to cover the rates. In addition to tripling the per-song rate, broadcasters are no longer able to account by the “Average Tuning Hour” (ATH, the absence of which sends the costs higher), and there is a $500 “per station minimum” administrative fee that’s completely out of step with the reality of technologically-advanced stations like LAUNCHcast, Pandora, and Rhapsody where there is a literally unlimited number of potential “stations”. “Willing buyer / willing seller” proves to be the joke the Webcasters knew it to be as there is only one seller (Sound Exchange) and there aren’t any buyers at the decided rates. The only good news is that Sound Exchange won too big, so big a big spotlight would soon shine on the decision as protests like today’s call attention to the issue.
• Webcasters ask for a clarification on some of the more ridiculous parts of the decision. Clarification denied.
• Sound Exchange issues press releases which spin the truth wildly, including this one which talks about how Yahoo!, Clear Channel, and Microsoft are trying to short change artists, neglecting to mention that Microsoft got out of the Internet Radio business YEARS ago because the RATES WERE TOO HIGH. Thankfully, no one buys their story.
• Webcasters form SaveNetRadio.org, Representatives Jay Inslee (D-WA) and Donald Manzullo (R-IL) introduce the Internet Radio Equality Act, and Sens. Ron Wyden (D-OR) and Sam Brownback (R-KS) introduce the Internet Radio Equality Act. Co-sponsors sign on in numbers beyond webcasters’ expectations.
• Webcasters file an appeal, and are currently crossing their fingers hoping it’s granted in advance of the July 15th “pay up” date.

I’ve had the pleasure of meeting with Jon Simson and Michael Huppe from Sound Exchange. They’re good people, by all accounts, and I can only imagine that they believe in the position they’ve staked out in the press, that the CRB saw the details of our business and chose a rate which we could afford. If only. Unfortunately the CRB made a mistake, handed Sound Exchange a loaded gun, and gave them the option to shoot Internet radio dead. How the CRB came from the testimony presented to this outcome is a complete mystery to everyone involved. I’m guessing Sound Exchange is nearly as puzzled as we are at this point.

I’ve also had the pleasure of meeting with our representatives in Congress and understanding their position. Congress doesn’t like to set rates, and I think we’d all agree that we’d prefer they didn’t micro-muck with the economy at this level. Instead, they set up a process and a standard, we all went through the process, and they’d like to think the outcome served the needs of the people. Our continued protest just sounds like “wah! the rates are too high! wah!”, which they’re sick of hearing and I don’t blame them. So we’ve been working hard to show them that the conversation here isn’t just “hey, we aren’t making as much money as we used to” but really “um, we are losing a lot of money on Internet radio, and we’re going to have to change our offering in such a way that it’s going to lose a lot of its great diversity of programming at the very least or that it’ll go away entirely at the very worst.” But it’s a tough slog and has taken a lot of convincing.

Finally, the elephant in the room is that while they’re asking Internet radio to pay more than 100% of revenue in royalty fees, satellite radio pays about 7% of revenue and terrestrial radio pays 0%. Killing the newest, most diverse, with the most growth potential, is asinine for all involved.

I’d like to think we’re making progress, though. Please do your part and write or call your representatives in Washington and let them know what you think of the above process and outcome. With your help, we can put Humpty back together.

Tune in to KCRW.org anytime on Tuesday, June 26th, they will be looping an hour long radio program where Webcasters discuss the specifics of their situation.

Thanks for reading and your support.

ian c rogers
Yahoo! Music