Future of Music 2012: A fight over Internet radio scraps

WASHINGTON, D.C. -- There were moments Tuesday during the annual Future of Music Summit where the conversation about revenue in the digital music industry sounded like a scrum over crumbs, a desperate fight over an increasingly shrinking pie.

"There is so much competition for so much music, and it's all so devalued," said one exasperated music entrepreneur, Rodney Whittenberg. He was one of hundreds of musicians, executives, attorneys, policy makers and journalists who attended the conference, presented by the advocacy group the Future of Music Coalition.

The post-Napster era is now more than a decade old, and the digital reinvention of the music industry continues with countless new tastemakers and middle men in positions of power and influence while jostling with (or in some cases stepping past) 20th Century gatekeepers: iTunes helped make Tower Records obsolete, Pandora on-line radio elbows in on the listenership once exclusively commanded by terrestrial conglomerates such as Clear Channel, and Pitchfork has surpassed the clout of Rolling Stone.

But as the Future of Music Summit demonstrated, some of the glitter and promise of the new guard may be wearing off, at least within the artist community. For many musicians, little has changed from an economic perspective. They not only remain bottom-feeders in the industry revenue pool, for some the future seems even more bleak as the pool grows more shallow. Less money is being made from recorded music, and payments from promising digital streaming services such as Spotify are doled out at a rate of fractions of pennies.

The latest hot-button debate in this increasingly contentious arena: The newly crafted Internet Radio Fairness Act. The legislation, introduced a few weeks ago in the U.S. House of Representatives, seeks to reduce the royalty rates imposed on Internet radio stations such as Pandora and bring them in line with the fees charged to its digital competition, including satellite and cable radio. The current rates, set in the '90s as part of the Digital Millennium Copyright Act, are outmoded, advocates say, and need to be updated to reflect the new digital reality, where sites such as Pandora (which dominates the Internet radio market) connect tens of millions of listeners to music made by tens of thousands of artists. If the rates were cut, artist revenue per stream would also drop. But Pandora cofounder Tim Westergren asserted at the Future of Music Summit that the shortfall would be more than balanced by an increase in users.

Though Pandora is perceived as one of the most successful of all the music-related digital start-ups -- formed in 2000, the company was valued at more than $2.5 billion when it made its Initial Public Offering last year -- Westergren said the company is profitable, but still struggling. "We're barely holding our head above water," he said.

Jesse von Doom, cofounder of the nonprofit, open-source music company CASH Music, countered that while he appreciates the obstacles facing new-technology companies in a still-changing musical landscape, upstart artists often find themselves well below the break-even line. They're being forced "to learn to breathe underwater."

The Internet-radio revenue debate dominated the summit, climaxing with a contentious panel aptly titled "Radio-Active."

Michael Petricone of the Consumer Electronics Association said "you'd have to be nuts" to get into the Internet radio business given its difficulties, and that the Fairness Act legislation could jump-start it and potentially "create a hundred Pandoras."

But artist and license-holder advocates, such as SoundExchange executive Colin Rushing, warned the legislation would sanction "below market" rates for artist payments, and Patricia Palach, attorney for the American Federation of Musicians, said the Fairness Act brims with "snake-pits" for the artist community.

David Lowery, the leader of the rock bands Camper Van Beethoven and Cracker and a respected producer, went a step further, citing passages in the Internet Radio Fairness Act that he asserted were an attack on free speech. "Anybody read Orwell?" he said of the bill's language. "This is an attack on the little guy."

It sounded eerily like rhetoric from the 20th Century music business, when a handful of record labels and radio conglomerates dominated the industry and created a deep divide between a handful of have's and a much larger percentage of have-not's in the artist ranks. For some performers, the digital music business is becoming just another version of the old boss disguised as an innovator.

As Canadian singer-songwriter Kathleen Edwards observed on Twitter, "Get rid of all the middle men. I mean, all the middle men."

U.S. Sen. Ron Wyden (D-Oregon), cosponsor of the Internet Radio Fairness Act, has a long history of advocating for artist rights and technological development. He shot down concerns that the bill was about anything more than giving Internet radio companies a fair shot at developing their business, one that would benefit artists and consumers alike if allowed to flourish.

"The future doesn't have a lobbyist," he said. Anything that disrupts the status quo is bound to bring out numerous detractors, especially from the entrenched businesses threatened by innovation. "The big record labels will say civilization will end" if the legislation passes. But "if the royalty rate is lower, the market will be larger" and offer consumers "more choices from a broader array of music."

History is on Wyden's side. Technological innovation and the creation of new music-related industries -- the invention of the phonograph, radio, the cassette, the compact disc -- have all expanded the audience for music. The senator, like Pandora's Westergren, said artists ultimately benefit. 

But no one could say how long it might take for Internet radio to take off, let alone when artists might feel the impact in their wallets. With income from recorded music shrinking for the last decade, music-makers are running out of patience.

As Whittenberg said, musicians are essentially all small businesses now, "and there are only so many jobs out there."

Copyright © 2015, RedEye
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