Is Internet Radio and SoundExchange Deal Enough?

By Richard Menta 7/15/07

The best thing that happened to SoundExchange is that they came to some form of compromise with Internet radio stations before today's deadline. That's because many would close - only to either re-open overseas or be replaced by overseas stations. As the US tries to figure out what the final royalty rates should be, most other nations stand waiting as safe harbors of lower or no royalties.

As Michael Geist pointed out in his April 9th article "Internet Radio May Stream North to Canada"

Given the concern about the future viability of Internet radio in the U.S., there has been mounting speculation that some webcasters may consider setting up shop in Canada, where the U.S. rates do not apply. For example, Mercora, a service that allows individuals to launch their own webcasts, has established a Canadian site that falls outside U.S. regulatory and royalty rules.

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As Geist points out holding Canada back from becoming the home of American Internet Radio is not the cost, but the complexity of its existing laws, which if steamlined will allow the country to profit generously from faulty US regulatory foresight. That foresight seems to have missed the fact that the Internet is not a regional medium, but a global one.

Apple makes its $300 iPods in China where workers are paid $40 a month. Many US corporations outsouce parts of their IT to India to reduce costs. Canada is a hell of a lot closer that China or India and a lot closer culturally too. If Canadian laws improve to favor Webcasters commercial Internet radio would be foolish to stay, especially since leaving may mean no more than incorporating in Canada, placing all of its servers there, but still running the business out of the American "satellite" office.

Let's also not forget the millions of foreign workers who spent several years in the states and now are back in their native country. These individuals spent enough time here to become intimate with American life and now are more than happy to export our own culture back to us, their new Net radio company armed with a huge competitive advantage with regards to royalties.

Then there's Wall Street. If I were a stockholder in Yahoo, a company that can afford to pay the new rates even if their Internet radio endeavors lose money, I would demand they stop handing over most of the profits to SoundExchange and shift all of the stations to any of Yahoo's overseas properties. Wall Street wants to see growth and all Yahoo has to do to achieve it for their Net radio operations is to move it.

In the short term this latest deal is a reprieve for Webcasters. In the long term Webcasters have every reason to shift location, something which an economist would say is inevitable under today's existing International trade practices.

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