Short-sighted royalty structure dings music biz again

It’s no secret that the recording industry is increasingly looking to mobile to offset plummeting revenues from CDs and other physical goods. But sometimes its strategies seem horribly misguided.
Word came over the weekend that Pandora, a streaming-music Internet site that draws roughly 1 million listeners a day, may be crooning its swan song. The Internet radio service is making “a last stand for Webcasting,” founder Tim Westergren told the Washington Post, and will likely be forced to pull the plug if it can’t negotiate better terms with SoundExchange, an organization that represents artists and labels.
Pandora’s problems stem from a 2007 ruling that doubled royalties Internet stations must pay for every song they stream online. The fees contrasts starkly with traditional radio, which is exempt from royalties, and negotiations appear to be getting nowhere.
That news was followed by the shuttering – temporarily, at least – of Muxtape, an online music-sharing service that allows users to make and share mix tapes. “Muxtape will be unavailable for a brief period,” the site explained simply, “while we sort out a problem with the RIAA (Recording Industry Association of America).”
What does all this have to do with mobile? More than it appears. Muxtape earlier this year announced a version of the service for Apple’s mobile Safari browser, making the service compatible with the iPhone. And Pandora has made some impressive traction in wireless: Its iPhone app ranks among the 10 most popular downloads for the device, and the service has been available through AT&T Mobility and Sprint Nextel Corp. for more than a year. (For a glowing review of the application, click here.)
But here’s the worst part: services like Pandora and Muxtape are a natural fit for mobile – and vice versa.
Music companies have gorged at the trough of ringtones, and are beginning to see real revenues from ringback tones. But the traditional music business model – namely, selling songs and albums – continues to tread water in wireless. Instead, streaming services seem to be gaining traction as users begin to use mobile phones as latter-day transistor radios. A recent study from TNS Global Telecoms found that use of MP3 players on phones is up 78% globally over last year, and radio has seen a whopping 140% increase in uptake.
And streaming services are the perfect way to introduce users to new music – and get them to buy. Pandora, for instance, asks listeners to submit a favorite artist or song, then creates a channel based on those tastes. Users can approve each streamed song, allowing them to further personalize the “station,” and while the service is sometimes described as a virtual jukebox, it’s no on-demand service – users can’t choose which specific songs to listen to, and can’t listen to a tune over and over again. If you want unlimited access to a tune, you gotta buy it.
What’s more, streaming services can easily leverage the advertising dollars some believe will ultimately buoy mobile music.
Time and time again, carriers and their music-industry partners have failed to convince consumers to pay a premium to download songs directly to their phones. But introducing them to new music on the go at no charge – and then allowing them to pay to download the stuff at competitive prices at home – could finally help move the needle in full-track downloads.
Instead, the dinosaurs of the recording industry and onerous, short-sighted royalty structures will continue to try to conform mobile to antiquated business models – not the other way around. And consumers will continue to stay away in droves.