AOL, Yahoo Consider Shuttering Radio Sites

Yahoo and AOL stopped directing users to their radio sites after being clobbered with the 38 percent increase in royalties to air music; now, the two have said they may shut down their web radio services completely.

As a result of the lack of promotion since July, the number of people using Launchcast fell 11 percent to 5.1 million in October, according to comScore, while AOL Radio users declined 10 percent to 2.7 million, from 3 million, writes Bloomberg.

Internet radio increased listeners 39 percent in the past year, per comScore, but the royalties, collected by SoundExchange - the Washington-based group that represents artists and record labels - could stifle that growth.

Sound Exchange, which represents Sony BMG, Warner Music Group Corp., and Universal Music Group, sought the royalty increase amid a drop in industry revenue; when the two sides couldn’t agree on new rates in 2005, the group sought help from a panel of judges appointed by the U.S. Copyright Office.

The Copyright Royalty Board sided with the music companies, ordering in March that royalties be raised to 0.11 cent for each song listened to, up from 0.08 cent last year. The rate will increase again, to 0.19 cent, in 2010.

“We’re really re-examining the radio model,” said AOL. Shutting down the business is a possibility if webcasters and the music industry can’t find acceptable middle ground.

Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co. in New York, believes that the higher fees will kill Yahoo’s Launchcast growth, with revenue rising perhaps 4.7 percent in 2008, compared to a 19 percent increase this year.

Bills have been introduced in the House and the Senate which would repeal the royalty increases, if passed. Webcasters are schedule to begin their appeal starting in February, and the appeal process could carry over through much of the year, writes Wired News.