Internet radio: how regulation could impact online innovation

Today internet radio stations in the US are observing a day of silence to protest the Copyright Royalty Board (CRB)'s decision to hike royalty fees for internet radio stations - a hike of 3-12 times the fees currently being paid by stations. Small stations have complained that the fees would be more than their annual revenue, and many pundits argue that this could effectively 'kill' streaming internet radio in America. Even non-profit radio, such as NPR (National Public Radio) would be severely hit by the hike.

Roughly 1 in 5 Americans listened to internet radio regularly in 2006, so the potential impact shouldn't be underestimated. For reference, on this side of the pond, the picture is much the same: BBC's internet radio doubled its listenership in 5 months, and a year ago reported over 32million hours of net radio consumption (I'm sure it's doubled again by now).

To me, the tragic irony in this story is the fact that the proposed royalty fee model could never have existed without the online medium itself. The fees are per song, per listener - something which could never be accurately measured in the old broadcast model, but suddenly is possible for online stations due to the trackable nature of streaming media. Net radio campaigners say this is an unfair model, as it penalises online radio unjustly compared to satellite or standard broadcast radio fees.

Internet radio is the epitome of The Long Tail at work: thousands of small, non-commercial niche stations sprang up as an alternative to mainstream commercial stations littered with ads, churning out the same playlist over and over. A thriving new business model emerged based on broadband penetration, streaming media technology and consumer demand; a perfect example of innovation at work.

Looking at the bigger picture, this is a case in point of how something like regulation could seriously impact the growth of an innovative business model. What nascent markets like these need is not overbearing regulation, but forward-thinking. Of course I'm not saying they shouldn't pay (fair) fees, but this was a missed opportunity for the CRB to demonstrate leadership in the way intellectual property should be managed in the digital age. Instead, they opted for an approach that exploits the nature of the new medium to line the pockets of the record companies: none of the proposed fees would go to the recording artists.

Comments

[David Simoes-Brown]

I agree with your thrust here. What record companies (like many over-zealous protectors of IP) seem to be failing to recognise here is that the radio stations are advertising their wares. Free. Strange given the effort put in to plugging records. The more people that listen to a given band/song the more will buy a copy. This regulation could weel be a case eating the golden goose before it's had a change to lay any eggs.

[Miko Coffey]

It's always nice to have your opinions confirmed; The Economist have encapsulated my thoughts just a couple of days after this post:

http://www.economist.com/business/displaystory.cfm?story_id=9410606&CFID=7582790&CFTOKEN=28110738