Internet Radio is in Big Trouble

Internet radio is in big trouble. The Copyright Royalty Board judges just denied to hear an appeal from web broadcasters to reconsider the new rates for internet broadcast of music.

The business model in internet radio was dodgy to begin with, as incremental listeners incur incremental expenses in a linear fashion. In traditional radio, the entire listener base offsets a large capital expenditure for the infrastructure and the FCC license. But once you have the infrastructure, 1 listener costs the more or less the same as a million listeners. Once your advertising revenue covers servicing the capital expenditures everything else is gravy. The more listeners you have, the better your margins.

In internet radio each listener incurs additional fixed expense -- server overhead, bandwidth and licensing. So if your revenue per user is lower than those expenses per user, adding users just means losing more money. Under the new license rates I can't see how rev/user ever gets higher than expenses/user.

I didn't blog about this when it first happened, but there was no shortage of coverage. I think there is a larger question here of whether there is a business model for online music at all.

Many people suggest that the RIAA was driving this (the RIAA, justifiably, is a favorite whipping boy) but if you follow the money, the NAB has much more to gain by the new rates than the RIAA.

Edit: Replaced blocked image