Internet radio

The aftershocks of Friday's bombshell (in RAIN here) -- Apple's rumored entry into Internet radio -- continue today, as several industry experts chime in on the possible implications of such an event. For one, Wall Street had its say, as Pandora's stock fell 17% on Friday.

But does an Apple Net radio service mean certain death to Pandora (and other webcasters, including broadcast radio's Internet plays)? Actually, "Some analysts say Apple’s entry into the web radio business also validates Pandora’s business model — something most radio executives have cast doubt on," Inside Radio suggests. Another one of those experts is former Cox Radio/Cox Media digital chief Gregg Lindahl, who thinks Apple's entry would legitimize Internet radio, especially to advertisers. "It says that this is for real and it is going to be bigger than AM or FM. The only argument that we can have now is how long it will take for that happen. It makes radio that much more exciting," he told Inside Radio.

An ArsTechnica op-ed (here) makes the point that the general public is beginning to adopt music services (i.e. free streaming) beyond iTunes, and that "Pandora, iHeartRadio, Last.fm, and the others aren't feeding money through Apple... it's most likely because Apple simply wants a slice of the streaming pie." BTIG analyst Richard Greenfield agrees (as reported in Inside Radio). He told CNBC that he’s not surprised by Apple's rumored move. "They’re not doing this to kill Pandora purposefully. This is a natural extension of their business that, unfortunately, Pandora and other companies are going to get caught on the short end of the stick."

Some feel Pandora would actually come out smelling better in a head-to-head with an Apple Internet radio service. TheStreet.com thinks an Apple Radio would just be a cheap, uninspired knock-off of Pandora. "Pandora is the only company properly positioned to disrupt traditional radio and its $16 billion annual advertising market. And nobody else has or can come even close to duplicating the Music Genome Project," they write (here). "If Apple competes against Pandora, Apple is likely to lose," Jerry del Colliano wrote in Inside Music Media today. "Apple won't use Pandora's music genome system that makes it so unique and so beloved by users. Going after them may be the biggest mistake Apple ever made unless they buy Pandora" (but not until Apple negotiates better royalty rates than what Pandora has).

TheStreet.com wrote, "If Apple is going to do this the only credible way forward is to buy Pandora. I'm not sure why Apple would enter the streaming business in the first place, but it could seamlessly integrate Pandora with iTunes. If you're going to do personalized radio, do it right for goodness sake." Forbes writer Mark Rogowsky contends (here) that Pandora has little hope of being profitable on its own, given what it pays in royalties, and how he sees the profitability of ads playing out. Thus, Pandora is ripe for acquisition by a larger company that can make its profits elsewhere, like Apple!

So, what would an Apple Internet radio service mean for broadcast radio? Fred Jacobs (from whom we stole the Apple with antenna image), wrote in his blog here, "For radio, nothing really changes. It’s just another indication that the world of audio entertainment has become more crowded." He does suggest broadcasters consider "how radio brands can provide a unique and welcome service that is different from what they get from pure-plays." For starters, radio should "clean up and improve" its streams (concerning ad-insertion, buffering, bit-rates, programming, etc.).

We'll undoubtedly be talking about the prospect of an Apple Internet radio service at RAIN Summit Dallas on September 18th (just a week from tomorrow).

"Apple would need to build its Internet radio service sooner or later," suggests Billboard.biz. Given Pandora's explosion in usage and strides in generating advertising revenue, on-demand services like Spotify have been stepping up their non-interactive radio features -- so perhaps it's time for Apple to do the same. Watch to see how Google, Amazon, Microsoft, and Facebook respond.

Billboard also suggests that direct deals between Apple and sound recording copyright owners (i.e. record labels) would allow Apple's service to stream anywhere around the world (the DMCA statutory license, which makes it unnecessary for webcasters to license directly from labels, applies only to the U.S.). This would be an obvious advantage over Pandora.

What's more, Apple obviously already has its iAd advertising platform, and a huge hardware customer base and the biggest download store in the world. They're uniquely positioned to leverage those tools to gain dominance in the Internet radio field.

"No Apple foray into music is a slum dunk. But given the company's track record in music and its commanding market position in mobile handsets and technology, Apple could become a major player - it could even dominate or reinvent Internet radio," writes Billboard.

Would Apple acquire an existing webcaster? "No acquisitions have been made public - Apple's purchase of SoundJam in 2000 preceded iTunes, and its purchase of Lala.com in 2009 preceded iTunes Match - so don't expect Apple to build from scratch any time soon."

Read more from Billboard.biz here.

Editor's note: RAIN will return Thursday, July 5. Happy 4th of July!

Actually, it's Forbes contributor John Villasenor who this week makes the case that not only should radio pay artists (and labels) for the music they play -- but that by maintaining an unlevel royalty playing field between broadcast, satellite, and Net radio, Congress is impeding innovation.

Broadcasters are exempt from paying royalties for sound recordings, it's argued, because their play drives record sales. And new forms of radio pay royalties because the content attracts audience and drives those businesses. But, of course, as Villasenor writes, "if airtime on traditional AM and FM stations drives sales, so, too, can exposure through cable, satellite, and Internet radio. And... playing artists who people want to hear, broadcasters of all stripes attract more listeners, and can therefore charge higher fees to their advertisers or subscribers."

Villasenor calls on Congress to end terrestrial radio's performance exemption, but, "and in some respects more importantly in the long run given the inevitable transition to digital," he wants rates to be "harmonized" across platforms. He concludes, "The government should not be stacking the deck against the newest, most compelling technologies. Saddling Internet radio with high royalty rates while giving terrestrial AM and FM stations a free pass impedes the growth of a promising new way to distribute content. And, it sends a message to would-be-entrepreneurs with ideas about how to revolutionize an industry that the playing field is far from level."

Read Forbes here (and more here).

"Leykis holds up an Android smartphone he'd been twirling in his hand. 'This,' he said, 'is a radio.' A few finger swipes, and he's turned on an application streaming radio stations and programs from around the world, with presets for his favorites — like a car radio with a global reach. He presses an on-screen button, and the current episode of 'The Tom Leykis Show' starts playing. Plug that into a dashboard, and it's as if he never left the airwaves."

That's from the L.A. Times' story on the return of Tom Leykis, not to the terrestrial airwaves but with his daily Internet radio show (see RAIN's coverage here).

Not a podcast, that is, but a live Net radio show. "Leykis' streaming model," writes The Times, "better simulates the live radio experience for the audience, with the interaction of callers, host and subsequent callers reacting to earlier comments."

Leykis told the paper it's cost him about $1 million to get the show up and running, and that he is expecting to profit by year's end (he's offering $100/year subscriptions to his show, which include on-demand access to his archives, and he sells merchandise and on-air advertising.)

Read The L.A. Times piece on Leykis here.

Boston's alternative rock station WFNX will change formats next month, following its sale to Clear Channel. But regional web portal Boston.com plans to keep the modern rock flag flying. It's announced plans to launch its own online-only alt-rock station, and it has enlisted former WFNX personalities and former WFNX PD Paul Driscoll.

Boston.com offers news and other local content, and is part of New York Times Digital.

In 2009 Boston's legendary heritage rocker WBCN left the on-air dial and soon reappeared as two HD Radio channels, and online simulcasts (here). Chicago alternative Q101 went online-only (RAIN coverage here) after the sale of its frequency; legendary Cincinnati station WOXY and Los Angeles rocker KNAC are well-known for doing the same.

Lisa DeSisto is GM of Boston.com and chief advertising officer for The Boston Globe. She commented, "Boston.com has been at the forefront of multimedia for some time now, producing award-winning videos, live video programming, interactive content, and more. We’ve long thought radio would be a natural extension for us, and we’re fortunate to launch with such an incredible team."

Phoenix Media/Communications sold the station to Clear Channel, and most of the staff was let go immediately when the sale was announced last month. The station will reportedly change format July 23.

Read The Boston Globe's coverage here.

Representatives of the music industry (labels and publishers) announced yesterday the settlement of a Copyright Royalty Board proceeding for "Section 115," or "mechanical" royalties digital music services pay to reproduce a musical work (read more in The Wall Street Journal here).

It is important to note that these are not the "public performance" royalties webcasters pay SoundExchange for the use of copyright sound recordings. Also known as "Section 114" royalties, those rates will be set with a proceeding beginning in 2014 (to settle by late in 2015) for the period from 2016-2020," explains industry attorney David Oxenford in Broadcast Law Blog.

Yesterday's settlement involves digital music services's use of music outside of "non-interactive" webcasting: sales of digital downloads, ringtones, on-demand streaming, "cloud" services, and "conditional" downloads (e.g. listening to Spotify offline).

Moreover, "mechanical royalties" are "payments made to the composers of songs -- those who write the words and music of the songs -- usually represented by a publishing company," Oxenford (pictured) explains.

By the way, satellite radio provider SiriusXM, like Internet radio, also pays Section 114 royalties. They're currently in a rate-setting proceeding for the 2013-2017 term. Oxenford predicts a decision in that case by the end of this year, "which could give some preview of what webcasters can expect in their upcoming case." Read more from Oxenford in Broadcast Law Blog here.

David Oxenford is a Washington, D.C.-based partner at Davis Wright Tremaine, and an expert on broadcast and Internet radio law and royalty matters. He'll sit down for a one-on-one discussion with U.S. Copyright Office general counsel David Carson on Sunday at RAIN Summit West in Las Vegas. More information, and the registration link, is here.