Webcasting royalties: indies v. majors

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A bit of research released today by webcaster Live365 (download the news release here) adds meat to the argument that indie labels’ interests diverge from the major record companies’ when it comes to the looming increase in webcasting royalties. The company, which aggregates thousands of individual webcasters’ stations, found that more than 55% of the music played on its channels came from independent artists. That’s a hugely disproportionate share when compared to this year’s CD sales, where major labels have controlled about 87% of the market.

Webcasters have long argued that they offer a much different musical lineup than over-the-air stations, and the Live365 study backs that contention with numbers. The contrast between Live365’s 2006 playlists (see chart at left) and the music played on over-the-air stations (to the right) is stark. The over-the-air chart is based on a one-week sampling last year of Nielsen reports from 1,450 U.S. stations. The over-the-air numbers look remarkably like the CD market-share figures, which isn’t surprising; despite the burgeoning number of ways to discover music, local radio stations remain the most powerful force driving CD sales.

Live365 may not be a perfect reflection of the webcasting industry as a whole, but given the number of individual webcasters it aggregates, it’s a pretty good proxy. As the two charts indicate, independent labels and artists have a much greater interest in keeping webcasters in operation than the major labels do because the online stations give them the kind of exposure they can’t get from local broadcasters.

So far, though, indie and major labels have seemingly been joined at the hip on the issue of webcasting royalties. A board of copyright judges granted the music industry’s request for a significant rate hike, more than doubling the per-song fees by 2010. Webcasters with sizable audiences can probably afford the increase because they’re capable of selling a lot of ads. Those that can collect subscription fees are also likely to survive. And stations with small audiences can take advantage of discounts offered by SoundExchange, the royalty collection agency that represents labels and performers. That leaves mid-sized stations in a bind, with a number of them (such as Live365) saying they can’t absorb such a large increase in costs.

Although the new rates went into effect July 15, SoundExchange has promised not to enforce them against webcasters that are still negotiating deals. Should those talks break down, I wonder if indie labels will step out from under the SoundExchange umbrella and offer deals to webcasters to insure that indie-heavy playlists stay on the virtual air. Otherwise, they’ll be stuck following the major labels’ lead, despite the difference in their interests.