Bad news for internet radio

Internet radio is a Very Good Thing for everyone in the music industry. It's basically the same as FM radio, except for the physical medium it's transmitted in, and the quality of music is generally considerably higher -- from what I've seen, most web radio stations are run by people basically looking to create a station they themselves would want to listen to. They offer easy access to information about songs, albums, and artists, including a number of places to purchase them. A web radio station's message board lets listeners communicate with others of similar taste around the world. Add these up, and a well-run station has the potential for becoming a community that's semi-obsessed with giving somebody -- anybody! -- money in exchange for music.

So RIAA, in a move that's unfortunately not nearly as surprising as it should be, has passed new performance royalty requirements that will effectively put nearly every internet radio station out of business. Radio Paradise is in the top tier of success, as far as independent web radio goes, and under these new terms will be required to pay at least 125% of their total income just in licensing fees. That's before any other operating costs. There's some analysis on this site -- AOL's web radio will cost them about $20 million a year in licensing, for example.

But that's not all: those numbers, based on $0.0008 per song for everyone who listens to it, are just for what's retroactive for 2006. By 2010, it will have increased to $0.0019 per song per listener. There's a minimum of $500/year per 'channel', but from what I've read, the definition of 'channel' is pretty vague; I wouldn't be surprised if it includes streams of the same content of different sound quality.

For some perspective here, take a look at what an FM station playing the same exact content would pay for performance royalties: $0. The 'logic' behind this is that you can make a perfect audio copy of a digitally-transmitted station, which is not possible with an analog FM station. This is absurd. Take a decent-quality radio tuner with a line-out (any line out, even one for speakers or headphones), and you can plug it into your soundcard's line-in with the right cable. From there it's trivial to capture the audio signal coming down the wire as a WAV file. CD quality? Probably not. But neither is what's streamed from an internet radio station.

In digital audio, quality is measured in kilobits per second (kb/s). Assuming a constant bitrate (which is a very safe assumption), more kb/s = more quality: for MP3s, 80kb/s is comparable to FM radio audio on an average tuner, and your average internet radio audio stream is 128kb/s. By comparison, an uncompressed CD has a bitrate of over 1400 kb/s. The point is, even though human hearing is non-linear and lower bitrates do stand out if you listen for that sort of thing, the quality difference between digital audio captured from FM and internet sources is vanishingly small when compared to the actual CD source. I've tried recording internet radio myself, and even from a 192kb/s stream, I'd never mistake it for an MP3 ripped straight from CD. It's convenient as a time-shifting device, but that's the only thing I'd use it for.

On the other hand, when I have a steady source of income, I buy at least two CDs or records a month. Mostly I discover new music from Radio Paradise, music blogs, and friends (in that order); I haven't bought an album based on something I heard on FM radio since probably 1999. But I still buy plenty of music. (Again: when I can afford it. But cost always flows downhill, and if I can't afford CDs, I can't afford subscription-based internet radio.) I don't think I'm some glaring statistical anomaly of modern music-listening habits. Internet radio is a large minority of music listeners, but they are extremely dedicated, voracious music listeners.

Think about it: FM radio is convenient, and therefore, it's background music (when it's actually playing music, which is a whole 'nother rant). It's for the car, the elevator, or anywhere you don't care to be involved in what you're listening to. Internet radio is a choice. Because it's not as ubiquitous, it's for discovering and enjoying new music; the people who make this choice by definition are people that RIAA should be enabling to make new music purchases. These new licensing terms go beyond RIAA shooting themselves in the foot; they're shooting themselves in the face, and if I were a stockholder in any of RIAA's member labels, I would take this as a sign of serious mismanagement. It makes terrible, terrible business sense that hurts the people who enjoy being their customers, and the business that cater to them.