[real-eyes] Fw: Yahoo, AOL May Abandon Web Radio After Royalties
- From: "Duyahn Walker" <themusicman1@xxxxxxxxx>
- To: <real-eyes@xxxxxxxxxxxxx>
- Date: Sat, 1 Dec 2007 12:48:17 -0500
This is rather depressing for Internet radio stations and broadcasters such as
myself.
Duyahn
Yahoo, AOL May Abandon Web Radio After Royalties Rise (Update2)
By Meg Tirrell
Nov. 28 (Bloomberg) -- Yahoo! Inc. and Time Warner Inc.'s AOL unit may shut
down their Web radio services after being hit with a 38 percent increase in
royalties to air music.
``We're not going to stay in the business if cost is more than we make long
term,'' Ian Rogers, general manager at Yahoo's music unit, said in an
interview.
Yahoo and AOL stopped directing users to their radio sites after
SoundExchange, the Washington-based group representing artists and record
labels, began collecting the higher fees in July. Those royalties may stifle
the growth of Internet radio, which increased listeners 39 percent in the
past year, according to researcher ComScore Inc. in Reston, Virginia.
Radio sites have been ``dealt a severe blow,'' said Jeffrey Lindsay, an
analyst at Sanford C. Bernstein & Co. in New York. ``It seems very unlikely
that at this stage a solution will be reached.''
Yahoo, based in Sunnyvale, California, is promoting a music service offering
videos and songs for sale rather than its Launchcast, the largest Web radio
site, Rogers said.
As a result, the number of people using Launchcast fell 11 percent to 5.1
million in October, according to ComScore. AOL Radio users declined 10
percent to 2.7 million from 3 million. Radio sites attracted 51.2 million
U.S. visitors last month, more than a quarter of all U.S. Web users.
`Very Challenging'
SoundExchange, which represents record companies including Sony BMG, Warner
Music Group Corp., and Vivendi SA's Universal Music Group, sought the
royalty increase amid a drop in industry revenue. U.S. sales of compact
discs fell 20 percent from 2004 to 2006, according to data from the
Recording Industry Association of America.
The two sides couldn't agree on new rates in late 2005, putting the matter
before the Copyright Royalty Board, a panel of three judges appointed by the
U.S. Copyright Office.
Siding with the music companies, the board in March ordered that royalties
be raised to 0.11 cent for each song listened to from 0.08 cent last year.
The rate is scheduled to reach 0.19 cent in 2010.
``The current math doesn't add up,'' said Lisa Namerow, managing director of
AOL Radio in Dulles, Virginia. ``If the rates remain as they are, it would
be very challenging to sustain a business that is profitable.'' The radio
sites generate revenue by selling advertising.
Losing Money
Yahoo and AOL don't disclose the finances of their Web radio units. Oakland,
California-based Pandora Media Inc., the largest privately owned Internet
radio company, is losing money, founder Tim Westergren said in an interview.
The companies are hoping to wrest a reduction in the royalties in
discussions that have been held since July with SoundExchange, which has
offered lower fees to smaller Internet radio sites. The major Webcasters are
represented in the talks by the Washington-based Digital Media Association,
which also has asked the U.S. Court of Appeals in Washington to overturn the
royalty board.
Peter LoFrumento, a spokesman for Santa Monica, California- based Universal
Music Group, the world's largest record company, referred questions on the
royalties to SoundExchange. John McKay, a spokesman for New York-based Sony
BMG, the second-biggest music company, also declined to comment. The company
is owned by Sony Corp. and Bertelsmann AG.
``We want to make sure there's fair treatment of everybody,'' said Richard
Ades, a SoundExchange spokesman. ``That doesn't mean cutting what the
recording artists are paid.'' SoundExchange collects monthly fees for more
than 3,000 record labels and 20,000 artists.
Threat to Growth
The new rates are a fair increase from modest levels, Cathy Fink, a Grammy
Award-winning children's musician, told Congress in June. ``The royalty fees
that were ultimately set by the board reflected the value of the
recordings,'' Fink said in written testimony.
According to analyst Lindsay, the higher fees will ``kill the growth'' of
Yahoo's Launchcast. Revenue at Yahoo's music unit may rise 4.7 percent to
$45 million in 2008, compared with a 19 percent increase this year, he
estimated. Launchcast accounts for about a quarter of the division's sales,
Lindsay said.
Total sales at Yahoo reached $6.43 billion last year, while net income was
$751.4 million. AOL's 2006 operating profit amounted to $1.92 billion on
revenue of $7.87 billion.
Yahoo increased 61 cents to $26.20 at 4 p.m. New York time in Nasdaq Stock
Market trading. Time Warner advanced to $17.22 on the New York Stock
Exchange.
``We're really re-examining the radio model,'' AOL's Namerow said.
``Shutting down the business'' is a possibility if Webcasters and the music
industry don't come to an agreement.
Bills in Congress
Congress may be the last resort for the Webcasters. Bills introduced in the
House by Democratic Representative Jay Inslee of Washington and in the
Senate by Democratic Senator Ron Wyden of Oregon would repeal the royalty
increases. Democratic Representative Edward Markey of Massachusetts said in
July that Congress may act if a compromise isn't reached.
Failure to reduce royalties may mean shutting down Pandora, founder
Westergren said.
``At the new rates we're losing tons of money,'' he said. ``If we don't
think there's a real answer that's going to happen, it's our fiduciary
responsibility to stop.''
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