This is a good point. The “large webcaster” rate for radio-style streaming of a sound recording (which covers Pandora, Last.fm, Live365, Finetune, AOL, Yahoo and eventually 8tracks, among others) is onerous, nearly double the already-expensive rate of $0.00762 from a couple of years ago, and is slated to increase even further next year.

Given an average track length of 4 min, the current rate of $0.0014 translates to 2.1 cents per hour, thus requiring a $21 CPM from some combination of text, display, audio and video ads during the course of that hour just to cover the sound recording royalty. However, this doesn’t even consider royalties paid for musical composition, bandwidth, overhead and, well, profit.

What’s really needed is some reasonable %-of-revenue rate (subject to a minimum, perhaps on an annual basis); this is common to all other forms of radio (i.e. satellite, cable and terrestrial outside of the US) and the other basic type of royalties paid for radio (musical composition).

In contrast, however, the sound recording royalty rates paid for on-demand services like Rhapsody, Napster, imeem, Lala, Myspace Music and Last.fm’s new service are rumored to be between $0.0050 and $0.0100 – that is, some 3.5X to 7X what Pandora and other webcasters currently have to pay.

I think that promotional, radio-style services will be viable (and beneficial for all parties) under a primarily ad-based model if there’s a change in the basic rate structure to a %-of-revenue calculation, even if not cheap on that basis by historical standards or comps. I’m skeptical that substitutional, on-demand services have much hope of profitability under a primarily ad-based model.

David Porter

http://tinycomb...able-playlists/