In the news today, legendary radio station owner Jerry Lee has pulled down the stream of his top-rated soft-rock radio station, B101/Philadelphia, in protest of SoundExchange royalty rates.

A message to listeners posted on the B101radio.com website explains, “A new SoundExchange music licensing agreement has jeopardized your ability to listen to all kinds of music on the internet. Excessive music royalty rates, which have nearly doubled in the last three years and continue to increase to unprecedented levels, no longer make streaming a viable option.”

Lee continues, “The excessive SoundExchange rates don’t work for artists, for local radio stations, or for listeners. Many stations, including mine, won’t be able to afford to stream music.

“Less streaming means fewer revenue opportunities for stations and ultimately less money for the artists who receive royalties. It’s puzzling why SoundExchange would want to destroy a potential growth business opportunity for the artists it purports to represent.”

Lee estimates that by 2015, nearly half of all the revenue that WBEB would be able to generate from streaming music online would go to SoundExchange in the form of royalty fees. At those levels, streaming is not a viable business option, according to Lee.

But who’s the audience?

Is it SoundExchange? They spent millions of dollars in legal fees on the 2006-10 Copyright Royalty Board hearing, are currently spending at least hundreds of thousands of dollars more defending against a judicial appeal, and just concluded a fractuous (I assume) negotiation with the NAB over rates through 2015.

When Jerry points out that the rates negotiated by the NAB will end up being over 50% of potential revenues, I believe that SoundExchange’s response is going to be that of Tommy Lee Jones’s character in “The Fuguitive” (when, at the top of the dam, Harrison Ford’s character tells the U.S. Marshal that he didn’t kill his wife): “I don’t care.”

In other words, take it to Congress, take it to the courts, or participate in voluntary negotiations with your trade association, but, just like the top of the dam in the movie, this isn’t the appropriate venue for the discussion.

Is it Congress?

(Of course, the U.S. also has historically had the world’s most successful and profitable record industry, so there might be something to our solution. But still.)

That’s the real end game for SoundExchange: Even if they only get Congress and the Copyright Office to give them a 5% royalty rate, that would be almost a $1 billion annual transfer in profits from the radio industry to the music industry. So I would think it would be dangerous for Jerry to raise that spectre.

Is it other broadcasters?

But does this make sense?

There are tens of thousands of Philadelphians who want to listen to B101 on the PC at work. This week, some will grudgingly go back to an FM receiver to get their B101 fix, but I believe the vast majority will simply find another radio station online that wants their listenership.

B101 may save $20,000 in royalty payments each month (with some of that mitigated by the revenues they would earn from spots in their streams). But they risk losing a significant number of loyal listeners forever.

But what do YOU think? Add your comments below.

Comment

1. I think Jerry is right. There is no good outcome to streaming when it will always cost more than it brings in. If the listeners he abandons will always be money losers, what’s the point?

   Radio is in serious denial about its terrestrial future and at anything like the current streaming royalty structure, it has no future on the net. It’s about time someone embraced the situation and reacted accordingly. Unless the royalty structure changes drastically, every radio station in America will be forced to make the same decision as soon as the payments have to actually be made.

   Props to Jerry for acting on the inevitable.

   — Bob Bellin · Mar 16, 01:05 PM · #

2. The issue again is that the NAB has negotiated a deal with-out regard to the smaller broadcasters.
   KRDE dropped its stream when it was clear that the rates were out-of-control. Selling the stream is very difficult in small markets (WEB site too). Now, with the depression in full swing, ad dollars are evaporating like rain here in Arizona. Our congress people just don’t care either. We must develop an organization that defends all our industry, large and small operators or we will be another footnote in the history books.

   — Richard Potyka KRDE · Mar 16, 01:27 PM · #

3. Jerry sure got everyones attention in radio. With most ownership/management dealing with radio revenue in free fall, this just hasn’t gotten much attention. Secretly, I think some welcome it. Assuming it’s as financially unsupportable as it seems to be, it removes both an expense and an additional management headache from a GM’s plate.

   — Jackson Dell Weaver · Mar 18, 03:59 PM · #

4. Just another case of “let’s get God-awful rich” without any regard for the facts…kinda like killing the goose…

   — Jack Davison · Mar 19, 03:37 PM · #

5. The way I look at it when it comes to terrestrial radio is they are like glorified promoters. They play the music. Well in business you have to pay promoters. They shouldn’t have to pay; if anyone should get paid it should be the Am/Fm radio stations themselves.

   — Lisa · Mar 23, 04:48 PM · #

6. The other issue is the AFTRA fees that cause advertisers to tell Radio stations they cannot be 100% simulcast. In compressed markets the few hundred extra streaming listeners would make a financial difference right now. As it exists it is costly to stream and there is little revenue to pay for it. Both issues negotiated and determined by people other than Radio Stations. But stations pay the expense for those people’s decisions.
   Jerry will increase his sellable audience if only a third got to his terrestrial signal.

   — Bill Conway · Mar 27, 12:24 PM · #

7. Those of us in Philly know already that Jerry can say, “I don’t care” as well. Jerry already has an “installed base” of at-work listeners. He made sure of that when he spent all that moola a few years ago distributing high-quality, GRATIS single-frequency radios to almost every business in the Delaware Valley. Most of these radios are still out there—I see them in places all the time. Therefore, Jerry doesn’t need the streaming. From the time he and Dave Swartz but the station on the air as B/EZ WDVR, that station has never fallen from the Top 5 in the city. He doesn’t need the streaming component. People in the city tune to B101 out of habit. And when it looks like he’s slipping, even just a little bit, he starts writing checks for increased promotion and advertising and the station is back where it should be. Jerry’s probably the only one who can afford to do this, and we know that rarely, if ever, is he wrong. He’s also probably the only one who could send the message through the industry as effectively.

   — Jay Pea · Apr 2, 02:01 PM · #

8. Agreed – the medium is NOT the message – and I suspect that as more and more station owners do the math – or get their first bills under the new rates – more and more streams will get pulled… and the non-broadcast streamers will be shutting down even quicker due to the excessive SoundExchange rates. So, better drag that FM radio back out… because Internet “Radio” is going away – unless someone steps in to bring some sense into the whole “performance royalty” issue. What’s going to be next? Receiver licenses? With digital radio looming, an enforceable receiver license is actually possible now…..

   — RadioTom · Apr 2, 06:13 PM · #

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