Lots of people have been sending me B101's recent announcement that they would stop streaming their content to make a statement about dramatically higher royalty rates.
Let me first say that I, like everyone in the industry, have tremendous respect for Jerry Lee and the gang at B101. They are not the first broadcasters to make this decision, but they are the ones that garner all the attention, and it's because they are leaders in the industry.
And let me also say that this whole crazy high rate business is one I knew was coming. Back when the radio industry generally sat on the sidelines as streaming rates spiked for Internet broadcasters, I warned that if we didn't get into the game in support of those broadcasters our turn would be next. Our general lack of support at that time helped to create a precedent whose consequences we are paying for today and tomorrow.
But let's focus on the future. And I'll do it in 5 points:
1. From the perspective of the music industry, the way to maximize revenue in an era when consumers pay for music is to charge consumers more for music. The way to maximize revenue in an era when they don't is to charge licensees more for music. When more consumers steal their favorite songs, the labels rightly conclude that their market is the one that pays – and that means (among other markets) radio. While you can argue that there will be less streaming and less of the labels' content in distribution if the rates are too high, they will counter that their model is about maximizing profit, not maximizing distribution. And maximum profit will not necessarily come when everybody who wants to stream their content can afford to do so. This is unpleasant logic, folks, but it's real.
2. What B101 is doing is making a statement. They are not saying this is permanent. And indeed, it is very unlikely to be so. I wouldn't be surprised at all if streaming was live again within the next 30 days, and not accompanied by a news release.
3. B101 may discover that removing their stream actually gooses their PPM ratings. Indeed, that may be part of their motivation: To experiment by killing the stream. That's because of the nagging AFTRA issue which prevents stations from matching their stream to their broadcast and thus prevents Arbitron from counting these as one and the same. As I discussed in my book, Making Waves, if you swap a listener from your over-the-air station to your stream and that listener is carrying a meter, thanks to this AFTRA issue you will likely see your ratings go down. Now, in a world where ratings and only ratings matter, this is a problem. But in the world we're moving into – the world outside of Arbitron – it's merely a necessary transition. Still, some broadcasters will cling to Arbitron too tenaciously and B101's move will likely serve to encourage them.
4. It is very likely that B101 has not maximized the revenue potential that is lurking inside its online stream. The ad market for this content is still maturing, but the available metrics and opportunities for localizing or personalizing messages go well beyond anything that our over-the-air products are capable of. With this extra accountability and extra targeting precision will come value for the advertiser. And if you stop streaming now you'll never harvest that value. In the long run, broadcasters – like the labels – will follow the money.
5. Nobody ever said streaming was the only way for radio to "go digital." As I argued in my book, what radio really owns is the relationships with its audience and its advertisers. We can leverage those relationships through digital means in many ways, and streaming is just one. The notion that the digital manifestation of our over-the-air broadcast is limited to streaming is an unfortunate myth.
So, all in all, B101 has made its statement, and it has every right to make it. Even if the labels don't care if one or a hundred stations drop their streams. In fact, any time you raise your price you assume that consumption will decline. This is basic economics.
In the long run, the challenge for radio is to negotiate with the labels effectively and to monetize our content creatively, leveraging all the accumulated wisdom and technology and skill at our disposal to make our industry better off, even in the face of higher royalties.
In that long run, throwing in the towel is not the answer.