Monday, September 8, 2008

Can Payola can save Internet Radio?

Doug Perlson writing in Silicon Alley Insider thinks that Payola can save Internet Radio from the high royalties that we currently face.

From strictly a financial-gain perspective, he may be right.

But for broadcasters looking for a long-term sustainable business, and not a short term financial gain (such as getting bought out by a larger company), this approach will not have success.

First off, "Payola" is not illegal in the net-radio space. In fact, it's already happening lots of places. The big labels have equity positions in several of the largest webcasters. You don't think those labels are influencing what gets played? Of course they do.

SoundExchange (the agency that collects the royalties for internet radio) is even encouraging this behavior, suggesting that stations work with labels to play the music that labels will let them use without royalties... except those deals are always more complex than that. (Basically, they give the labels control over what gets played. "You can use this particular music for free, only if you give x number of plays to these other tracks.")

I'm happy that some of the larger guys, like Pandora, have demonstrated their opposition to this. But many others, who are proponents of "direct licensing deals" are already playing the Payola game.

Music should be chosen on its artistic merit, not because of a opportunistic financial decision.

Payola, while technically illegal, has still been happening at AM/FM radio stations (under the guise of "independent promotion"). Many FM radio stations were so reliant on "promo money" that it was a significant part of their annual operating budgets- especially in mid and smaller markets. And while this practice has come under fire and largely discontinued just recently, many variations on the game sill exist, and you're fooling yourself if you think that labels have stopped using money to influence program and music directors.

Many people (including myself) believe that this is what has caused consumers to turn away from commercial radio: programmers were playing what they were paid to play rather than choosing the best material to play. So commercial FM became the land of the safe, proven hits of the past and the crap that the labels were paying to get played.

The people who say this would work for net radio have never been on the receiving end of the music promotion industry. There are tons of crappy records that labels (big and small) would happily pay to get played on the radio. But listeners are smart, and have plenty of options to choose what they want to listen to. They'll just start "tuning out" if this happens.

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