Kurt Hanson's blog

The following first appeared as a Billboard.biz Guest Post I wrote as founder/CEO of AccuRadio and a member of the Small Webcaster Alliance. It appeared on Tuesday, the eve of yesterday's subcommittee hearing.

As an Internet radio broadcaster and member of the Small Webcaster Alliance, I've been involved in the issue of copyright royalty rates for Internet radio for many years. And I've seen vividly that the current royalty rate system threatens to strangle the life out of an industry that is providing both choices for consumers and opportunities for musicians.

Both in 2002 and again in 2009, after the U.S. Copyright Office published rate-setting rulings that would have bankrupted all or most Internet radio providers, Congress had to intervene and ask record labels to negotiate a more-workable rate with webcasters.

The resulting rates are still wildly higher than those paid by other forms of digital radio (i.e., satellite radio and cable radio) and have been barely survivable for most webcasters - with many forced to exit the business entirely. Meanwhile, other companies who could spur innovation in Internet radio remain on the sidelines due to concerns over unsustainable royalty rates.

The problem with the current "willing buyer/willing seller" Internet radio standard for rate-setting is that while it is intended to lead to a market-based rate, the fact that the large record labels negotiate as a group means that a true market rate has never actually been determined.

The result has been a nightmare for our industry ever since. Copyright Office decisions have forced webcasters - the ones that were able to remain in business - to pay unreasonably high royalty rates, hindering innovation and growth.

Last year, for example, Pandora paid more than 50% of its revenue in royalty payments and as a result, as seen in their SEC filings, the company has yet to make a profit. And if the leading firm in an industry has trouble breaking even, you may reasonably (and correctly) assume that most other webcasters are struggling even more. (Note that if my Small Webcaster colleagues and I had to pay royalties at the rates determined by the Copyright Royalty Board, most of us would have to pay more than 100% of our revenues in royalties!)

That's why we support the Internet Radio Fairness Act (IRFA). It doesn't set or change royalty rates for Internet radio - it simply modernizes the rate-setting structure in a way that will help create a more viable digital music business for everyone.

To do so, the IRFA would move webcasting to the more-traditional "801(b)" rate-setting standard, which balances the interests of the copyright owners, the copyright users, and the general public. It has been used successfully for decades in most rate-setting determinations, including for other forms of digital radio like satellite radio, cable radio, and even by record labels in cases where they are the copyright users.

The "801(b)" standard is a set of four criteria that Congress typically tells the Copyright Office to use in determining a royalty rate: (1) Maximize the availability of creative works to the public. (2) Insure a fair return for copyright owners and a fair income for copyright users. (3) Reflect relative roles of capital investment, cost, and risk. (4) Minimize the disruptive impact on the industries involved.

The current confusing mix of royalty-rate setting standards for digital radio is result of piecemeal legislation enacted as each new technology was invented. The result is a system significantly out-of-sync with the realities of the 21st century marketplace. It substantially hinders the growth of Internet radio businesses and platforms - and thus hurts consumers, musicians, and innovators.

For the music industry particularly, I believe that a thriving Internet radio industry could be a godsend. Webcasters like Pandora, AccuRadio, and others are already giving significant and valuable amounts of airplay to dozens of genres of music (ranging from bluegrass to EDM), hundreds of independent record labels, and tens of thousands of artists that otherwise would be unable to use the power of radio exposure to build their fan bases.

Passage of the Internet Radio Fairness Act will foster innovation in the industry. It will create jobs, benefit artists by giving them more opportunities to be paid for their work, and benefit consumers by giving them more listening choices.

It's a piece of legislation that every innovator in the music industry should support.

You can see this Guest Post in Billboard.biz here:

http://www.billboard.biz/bbbiz/industry/digital-and-mobile/internet-radi...

Speaking on a panel at the Future of Music Summit in Washington D.C. earlier this week, I was surprised at the ambivalence (at best!) of musicians towards Internet radio and the opportunities it offers them to build their fan bases and advance their careers.

After all, if you're a bluegrass artist in St. Louis or a cabaret singer in San Diego or a folk-rock act in Boston, which form of radio is going to offer the most opportunities to you -- AM/FM radio, satellite radio, or Internet radio? Obviously, I think, the latter. AM/FM and satellite radio will almost certainly give you no airplay at this point in your career (or, actually, for those first two genres, ever), whereas if Pandora includes your CD into their Music Genome Project, you'll get airplay when their listeners are listening to a station based on an artist whose music has similar characteristics to your music, AccuRadio would be happy to give you airplay on our various region-specific and genre-specific channels, and if Bill Goldsmith at Radio Paradise likes your work he might give you a great backsell after he plays your work.

But I believe there are opportunities for Internet radio to give even MORE support to developing artists than we do today (or than AM/FM or satellite radio ever will).

For example, it might benefit all parties involved if airplay for music from developing acts could be geo-targeted to the regions in which those acts are operating: If there's a bluegrass band like, say, Henhouse Prowlers that only tours in the Midwest, perhaps Internet radio stations should focus airplay of their tracks to listeners in the Midwest. (For East Coast listeners, that same slot in the hour could be given to a bluegrass brand that tours up and down the East Coast. And so forth; you get the principle.)

However, here's my idea of the day:

How about offering an "Artist Support Button" on our media players? As I envision it, this might be a 100x100-pixel button that resides near our "Play," "Pause," and "Skip" buttons or adjacent to the artist name in the "Now playing" section of our media player. (This could of course vary by webcaster.) Based on the desires of the artist being played at the moment, it could say either "Visit my website" or "Like me on Facebook" or "Catch me on tour" or "Buy this CD" or "Join my e-mail list" or "Tip the artist" and would link to the appropriate destination (And I'm envisioning that the button could be changed regularly -- e.g., "Catch me on tour" only when the artist is actually on tour.)

At the Future of Music Summit, musician Ben Weinman of the Dillinger Escape Plan said that the average fan of his band spends $100/year (including spending on concert tickets, CDs, vinyl, commemorative t-shirts for each song (!), house concerts, etc.). If we could help bands like his add new fans, the revenue potential for them could HUGE -- and it would be a win/win for everyone.

What do you think? (Have I got the germ of a good idea here?)

If you're a webcaster struggling with issues involving ad insertion, you can be comforted by the fact that at least you're not alone -- the multi-billion dollar corporation NBC (owned by the multi-multi-billion corporation Comcast) is having issues too.

Just as my grandmother had what she called "her shows" (e.g., the noontime soap opera "The Edge of Night"), I have my shows too. In my case, they're primarily the Thursday-night comedies on NBC (e.g., "30 Rock," "Parks and Recreation," and "The Office").

And because I'm trying to be cutting-edge, I'm trying to "cut the cord" in terms of paying for monthly cable TV service by trying to watch these shows on my iPad via NBC.com.

However, at least for me personally, NBC is doing a very poor job of ad sales and/or insertion. Basically, the only spots they're delivering to me are promos -- either for "The Voice," which is a show currently being ridiculed on "30 Rock" (so probably "30 Rock" fans are not ideal prospects for it) or "Chicago Fire," which they're currently telling me is "Debuting October 8th!" even though we're now into almost mid-November.

So, take comfort: You may not be doing it perfectly, but given your relative corporate resources, you're not doing THAT badly.

After dinner last night (at Bandera on N. Michigan Ave., by the way, which is a sister brand of Houston's, at which I've probably eaten 200+ times in my lifetime and had a near-perfect meal every time, which is the subject of another column entirely), I had the opportunity to stop by an Apple Store and take a look at the new iPad mini.

My two-word review: It's amazing.

To expand on that review slightly: It's like holding in your hand the most perfect electronic device ever. It's almost unbelievably compact and lightweight, yet because the screen takes up a bigger percentage of the surface area than ever before, it seems fully functional as a full-sized tablet. (And, of course, thanks to the Internet, the content available on it is almost all of the world's information and entertainment, but that's true on other devices too.)

Not to belabor a point, but it is just astonishingly thin and lightweight and gorgeous.

As a person who grew up watching the high-tech "futuristic" devices used on "Star Trek: The Original Series" and "The Man from U.N.C.L.E.," I'm amazed that such a futuristic device has come to exist in my lifetime -- and at a price that is, on an inflation-adjusted basis, about the same price as a mere reel-to-reel tape deck or cotton-candy machine.

Now, of course, I'm pretty sure that in 2017 we'll look back at the iPad mini 1.0 and laugh at its clunkiness ("What, no holographic display? Lame!"), but at this point in history, it's really something.

If you get a chance, go take a look at one yourself and see if you agree.

Pandora's stock has taken a big hit in recent weeks due to rumors that Apple is considering entering the Internet radio space. Similar concerns have been raised about Microsoft recently "reentering" the space of Internet radio (actually, it's already in and has been for years -- it's simply rebranding its less-than-stellarly-successful "Zune Music Pass" as "Xbox Music Pass"), about the fact that Spotify is offering radio channels, and about the possibility of Google competing in the music space.

In all of these cases, I think the alarm is over-exaggerated.

Here's why: Each of those companies is competing in a different product category: Pandora is focused on offering a brand of personalized Internet radio to consumers. Apple, by contrast, is focused on selling hardware (iMacs, iPads, iPhones, iPads) and, secondarily, selling MP3 music files via its iTunes Music Store. Microsoft is trying to sell hardware (Xboxes and Windows 8 devices) and, secondarily, a music subscription service. Spotify is trying primarily to sell a music subscription service.

In all the cases except Pandora, each company may offer "radio" as a feature, but there's no indication it will be a stand-alone brand or a major company focus in the same way that Pandora is a company that's 100% dedicated to offering a BRAND of personalized radio to consumers.

Here's a good parallel: McCormick & Schmick's, the seafood chain, offers a couple of steaks on its menu -- but that doesn't mean it's a steakhouse. People who are in the mood for a steak tend to go to a specialist (e.g., Morton's The Steakhouse, Ruth's Chris, Del Frisco's). The steak on the McCormick & Schmick's menu is to satisfy the odd-person-out at a table who got dragged along by others.

Similarly, Morton's has a sashimi appetizer on its menu -- but that doesn't make it a sushi restaurant. Their decision to offer a sashimi appetizer is smart, it's trendy, it's an indication that sushi is getting more and more mainstream, but consumers who are in the mood for sushi would never in a million years decide to make a reservation at Morton's.

Consumers prefer specialists.

How did the largest restaurant chain in the country in the 1960s and 1970s end up virtually defunct today (with only two locations, in Lake Placid NY, and Bangor, ME, both alive mainly for historical reasons)?

I'm talking of course about Howard Johnson's, which I think was the first restaurant my parents took me to as a small child -- famous for 28 flavors of ice cream, clam strips, Indian pudding, and more.

There are a plethora of reasons, but here are a few:

DIVERSIFICATION: Since the name was already famous for hospitality among America's highways and turnpikes, it made logical sense to expand into building Howard Johnson's Motor Lodges adjacent to the restaurants. Plus which, the son of the founder, once he was named CEO, started experimenting with new restaurant concepts -- e.g., a failed steakhouse chain called Red Coach Grills and the more successful upscale burgers-and-more chain Ground Round.

LOSS OF DISTINCTIVENESS: One great thing that helped establish the chain in the 1930s and 1940s was its "28 flavors" of ice cream -- seemingly (at the time) every flavor in the world (including Banana, Black Raspberry, Coconut, Coffee, and even lost flavors like Frozen Pudding and Fruit Salad). About the only distinctive element of the motor lodges was the architecture of the lobby -- a small double-A-frame building with an orange roof.

RUNNING IT FROM CORPORATE: According to the popular reference source Wikipedia, "In 1961, Johnson hired famed New York chefs Pierre Franey and Jacques Pépin to oversee food development at the company's main commissary in Brockton, Massachusetts. Franey and Pépin developed recipes for the company's signature dishes that could be flash frozen and delivered across the country, guaranteeing a consistent product."

COMPETITION FROM A DISRUPTIVE INNOVATION: Almost at the same time, unfortunately, McDonald's and other firms were introducing the "fast food" concept for a family restaurant, which started peeling off customers due to its speed, convenience, and lower prices. By comparison, "the Howard Johnson's model of serving pre-made food with high-quality ingredients in traditional dining rooms was costly."

CHEAPENING THE PRODUCT: So the company "attempted to streamline company operations and cut costs, such as serving cheaper food and having fewer employees." (Sound like any industries you know?)

Bottom line: Here yesterday, gone today.

(But what I would give for a scoop of Frozen Pudding right now... (BTW, apparently it's a New England thing. Kind of like lobster rolls. If I ever take up ice cream making again (as I did for a brief period in the 1980s), I'm going to try Frozen Indian Pudding. (Sound genius? Yes!)))