The iPhone has brought some mighty interesting streaming applications to the fore. However, as David Oxenford of the Broadcast Law Blog points out, every additional listener costs the webcaster more money, not only in bandwidth but in license fees to SoundExchange. My calculations show that - with traditional monetization through ads, streaming can be made profitable, with reasonable gross margins. However, without advertising support, it would be difficult to become profitable. Here's David's article:
The new iPhone, connecting as it does to ATT's high speed wireless network, has allowed Internet radio to go wireless. While this has been possible on many platforms in the past, it has never been as easy, seamless, ubiquitous and as promoted as with the new iPhone. The CBS radio stations on AOL Radio, Pandora and Soma FM are all available, as are add-on applications that open the door to streaming many other Internet radio stations. Tim Westergrin of Pandora was quoted as stating that the iPhone would change people's expectations of Internet radio, making it "a 360-degree solution - in the car, in the home, on the go." But, as with any application that increases the audience of Internet radio, it comes with a cost, as the delivery of Internet radio by a mobile device, like a wireless phone, is subject to the same royalties established by the Copyright Royalty Board last year and currently in effect while on appeal - rates that are computed by the "performance," i.e. one song streamed to one listener (see our reminder on the per performance payment, here).
In the requests for reconsideration of last year's CRB decision, SoundExchange had asked that the Board make clear that its decision applied to noninteractive streams (i.e. Internet radio) delivered to wireless devices like mobile phones. In one of the few actions taken on reconsideration, the Board granted that request (see our summary of the reconsideration, here, and the CRB decision here). Thus, services making their streams available to the iPhone (except for those covered under the special percentage of revenue offer that SoundExchange made to a limited class of small webcasters, and noncommercial webcasters under 159,140 aggregate tuning hours a month), must count performances and pay the per-performance royalties due to SoundExchange.
As you may remember, in the CRB proceeding itself, SoundExchange had proposed that there actually be a higher fee for performances that take place over wireless networks, alleging that these performances were somehow more valuable. The Board rejected that argument, finding that insufficient evidence had been provided to reach that conclusion. But, with the increase in wireless access to Internet radio that we are bound to see through the iPhone and competing devices, that argument will no doubt be raised again in the CRB proceeding to set the rates for 2011-2015, which will actually begin next year. When one thinks about the nature of the wireless experience, one must wonder whether that experience is in fact more valuable than the experience of listening to Internet radio when sitting in front of your computer. Certainly, the wireless service reaches people where they have not been reached before, making Internet radio more of a competitor to traditional radio, and more like traditional radio. But one of the arguments that Internet radio might actually be more valuable than traditional radio - its interactivity - actually suffers from mobility. When you are in front of a computer and an ad comes over the Internet radio stream, you can immediately act on that ad, especially when it's linked to a banner on the website. When you are in a mobile environment, driving or jogging or otherwise on the move, it seems to me that you are less likely to react to any commercial message that you may receive. Thus, the value of the advertising is more for purposes of reinforcing brand recollection, like over-the-air radio, rather than for driving immediate action, like on-line advertising.
Certainly, this issue will be debated in the future. But, once again, it raises the question of whether music has an independent value that can be quantified on a per song, per listener basis, or if the value of music depends more on the situation in which it is experienced and whether compensation for the use of that music is not more appropriately tied to a percentage of revenue of the user, as we've discussed in previous posts. In a percentage of revenue scheme, the music user benefits when the service does well, and does not receive as much when the service is not a success. But, as there is no penalty for the use of more music, more services are attempted, so more successful applications are likely to be discovered, benefiting both the creator and the user of the music. When there is a per use fee, there is a cost for using each and every piece of music, seemingly discouraging new services and new innovations. These are no doubt issues that will be debated endlessly into the future, but something to consider as Internet radio becomes untethered from the computer.