Internet Radio’s Rise Called Dismal News for Stations, Satellite

SAN FRANCISCO -- A radio station executive offered a bleak outlook Monday for his industry against Internet radio, and the founder of webcaster Pandora said the arrival of online programming in car dashes threatens Sirius XM. To illustrate a point about how far behind the curve terrestrial radio is in technology, Joe Barham, music director of KSAN(FM) San Francisco, asked how many in the audience at the SF MusicTech Summit had heard of HD Radio, which he called the industry’s big advance in recent years. Hardly any at the music technology conference had, and even fewer had listened to it.

The proposed federal Performance Rights Act was talked up by Pandora founder Tim Westergren and by Bryan Calhoun, vice president of new media and external affairs of SoundExchange, a royalty-collecting society. The bill would make conventional radio pay performance royalties, as radio on other media must.

Pandora hesitated before coming out in favor of the bill, for fear of seeming to simply be attacking a competing medium, Westergren said. The company did in the end because “it’s right” to add the source of payments to musicians and because the bill would start “to address the parity issue” in royalties by medium, by moving to make rate-setting “more equivalent” across the board, he said. The bill has passed the Judiciary committees and is supported by the leaders of both houses of Congress, Calhoun said. He said its prospects of enactment this year look “pretty good” despite an election-year rush for legislators to go home and campaign.

Pandora paid $30 million in royalties from 2009 revenue of $50 million, Westergren said. He said Sirius XM pays 15 percent of revenue. Things are better than in the summer of 2007, when “Pandora came close to going out of business because performance fees tripled before being negotiated down, “and it really broke the business model,” Westergren said. Now the company is adding 85,000 mobile users a day, he said.

Westergren is disappointed that U.S. webcasting rates haven’t become a model internationally, he said. “International drives me … nuts,” he said. “We are being shut out of everything because of rates that are just too high. … If anything, some of them are going backwards.” That’s “unfortunate, but I think governments are going to have to play a role, because” the collecting “societies aren’t doing it,” he said.

Setting Sirius XM’s royalty payments against its price increases, the “numbers don’t add up,” Calhoun said. And it’s easy to put “personalized Web radio” in “your car,” where almost half of radio listening takes place, using an iPhone and an adapter, Westergren said. “That’s a big challenge for satellite radio.” Satellite’s big asset is sports broadcasts, Barham said. “Other than that, everything is just going toward having a hub for whatever you happen to have in your pocket.”

The royalties are starting to add up to real money to rights holders, speakers said. SoundExchange just had its “biggest distribution period ever,” sending checks totaling $51 million to artists and the holders of sound-recording copyrights in Q1, Calhoun said. Chris Smith of Om Records, a San Francisco label and publisher, said that after rising over the years to a few thousand dollars a quarter, his company’s royalties boomed to $18,000 in the last period: “So it’s the first meaningful amount from SoundExchange."

Broadcast radio’s catch-up efforts are “too little, too late” in most cases, said Barham. The industry has suffered from “a lack of creative leadership” the past 30 years or so, he said. “It’s very far from customization, which is where Internet radio is going,” Barham said. He didn’t spare his bosses at Cumulus, saying the company is “still behind,” as exemplified by its not having put out an iPhone application. The industry’s profit margins remain “decent,” but the stock prices are low, Barham said. “It’s a losing battle, I think, in most cases for terrestrial radio.”