Small Radio and the CRB: Live365

The Copyright Royalty Board ruled recently on the per stream rate that Pandora, and similar non-interactive online radio services, are to pay SoundExchange. As was expected, the ruling made the rate more expensive. Sound recording owners had agreed to license their copyrighted music at a lower rate to encourage new business, and new higher terms for non-interactive streaming rates were now inevitable. The CRB tried to be fair, and Pandora, and SoundExchange, accepted the ruling and moved on (Editor’s note: we cover the topic elsewhere in the issue).

However, press coverage, including that of this Journal, has been mostly about Pandora and whether or not Pandora will be able to sustain its business model under the new CRB rate. This is understandable: the company’s pioneering efforts in online radio, its iconic status as the first technology company to launch an IPO after the Big Recession of 2008, and, last but not least, its vast audience of about 80 million active users, sucks the air out of all the other stories.

Here, however, we pay attention to Live365, a service that flew under the radar of the streaming world and closed its doors immediately after the CRB ruling. It is a case study on small business and the openings that such businesses can exploit while the big players, i.e. the owners of copyrighted sound recordings and the online services that use their work, are coming to terms with a compensation model that works for them.

Case Study

Live365, which launched in 1999, provided Internet broadcasting for small-scale and community broadcasters based in the United States. Users were able to create their own online radio stations, or choose to listen to thousands of human curated stations as well. The service also had many well-established AM and FM radio stations that utilized the online broadcasting platform to simulcast their terrestrial radio streams via the Live365 network.

On December 16, the CRB released webcast rates for 2016-2020, which was significantly higher than previous years. Their ruling also simplified the structure of non-interactive digital streaming by erasing the difference between pure play webcasters like Pandora and other online radio station. This decision forces smaller radio station webcasters to pay a per-stream rate of 17 cents per hundred streams, identical to pure play Pandora.

Around the same time of the CRB ruling, the Webcaster Settlement Act of 2009 expired, discarding legislation which allowed smaller online radio stations, Live365 among them, to pay lower royalties to labels than those paid by larger brands. The Webcaster Settlement Act’s renewal is now uncertain, as Congress must sanction it before negotiation between industry groups and smaller webcasters can begin in earnest. In the meantime, smaller webcasters face worrying times.

Live365 managed the licensing fees for webcasters using the company’s Pro plan, allowing webcasters to run their own ads and blanket, i.e. switch off, any advertisements from Live365 and their sponsors. As limited by BMI, the webcasters could make up to $1,200 per month in revenue related to their station, or station’s website, while Live365 covered their royalties. If a webcaster or station exceeded the limits placed on the Pro plan, they would have to get licensed directly through BMI and pay the higher costs associated with these licenses.

The CRB December ruling left Live365 pondering how to afford higher rate obligations for people on the Pro plan, and whether the platform could retain non-Pro webcasters who were now facing dramatically higher costs. Ironically, it would be the more popular stations that experienced and delivered the most financial hardship to Live365. More successful stations with a higher number of listening hours and more listeners than the company’s Pro plan threshold could not afford the CRB’s increased per stream rates, and therefore many went out of business, removing large blocks of revenue for Live365.

The rest is history. Live365 investors took fright and started withdrawing. By late December 2015, Live365 had laid off most of its employees and vacated its office, ceasing operations on January 31, 2016. The shutdown of Live365 also affected many terrestrial AM and FM stations using Live365 for they now had to find an alternative Internet radio broadcasting service.

Conclusions

The market of online radio is growing. There were 160 million monthly digital radio listeners in the U.S. in 2014, and that audience is expected to grow to over 180 million by 2018; time spent on the medium is expected to rise by about a third. Listeners were spending on average only six hours a week in 2008 compared to today’s thirteen.

Still, much of the data probably comes from top sites like Pandora, Spotify Radio, and iTunes Radio, and smaller radio can only find pockets of listeners in compliance with current practices for such online stations.  Moreover, the story of Live365 shows that the new expenses associated with online streaming make smaller Internet broadcasting networks harder to operate. What Pandora can accommodate in royalties is not what smaller broadcasters can bear to pay. The demise of smaller scale Internet broadcasting, in short, is now likelier.

To survive, smaller webcasters will have to take measures both to limit listenership and reduce costs. Converting into 501C non-profit could be a solution, and there is the possibility of seeking better direct licensing deals, uncomfortable and cumbersome as this may be. It is a pity that the influence of smaller webcasters on the Copyright Royalty Board was not enough to change its ruling. Legislators may have to work harder too to review the terms of the Webcaster Settlement Act.

With the end in sight, Live365 ‘s website epitomized the drama of small radio. It talked about the ‘revolution’ it had instigated. Anyone that had something to say or play could use Live365’s network tools. They saw themselves as talent aggregators, one of the first but certainly not the last, and claimed they had ultimately served over a hundred thousand webcasters and a hundred million dedicated listeners. But the company’s parting advice for clients and competitors was simple: stay anonymous to avoid getting listeners that are financially unsustainable.

By Alexander Stewart

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