Yahoo punts its webcasts to CBS

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After a copyright royalty board decided last year to more than double the royalties that webcasters owed to record labels and performers, numerous Internet broadcasters and their allies warned that their business wouldn’t survive. Among the most vocal of these were top music executives at Yahoo and AOL, two of the country’s largest webcasters. Today, Yahoo offloaded its online radio stations to CBS, joining AOL on the sidelines of a market it once dominated.

But contrary to their dire warnings, these moves aren’t likely to hurt labels or performers. Instead, this kind of consolidation is exactly what the RIAA was hoping for as it campaigned for higher royalties.

The labels say they’re not trying to kill webcasting, they just want to be paid when online broadcasters use their music to generate revenue. And for the major labels that make up the RIAA’s membership, the way to maximize revenue is to push audiences toward the webcasters that are best equipped to sell ads. Smaller labels and independent musicians, whose songs typically don’t get aired on commercial radio stations, would have a different priority -- maximizing exposure online, which means preserving small webcasters that can’t generate much in the way of ad revenue.

Although they haven’t ignored the musical niches, Yahoo and AOL aim for mass audiences. And they were very good at attracting listeners to their webcasts. But neither one is equipped to serve the kinds of local advertisers that have been the backbone of over-the-air radio. As Michael Spiegelman, general manager of Yahoo Music, said in an interview today, Yahoo’s strength is with the national advertisers who buy display ads -- the Pepsis and Verizons of the world. But those folks aren’t spending the kind of money on radio advertising that car dealerships and other local businesses have been.

CBS’ radio division, on the other hand, is built to cater to local marketing. It has about 1,600 sales people around the country selling advertisements, and it has the technology to tailor the commercials in webcasts to the listener’s location. So while Yahoo will continue to program the stations and offer other music-related content -- music videos, exclusive live recordings and the like -- it will outsource to CBS the job of streaming its Launchcast stations. CBS will pay the royalties and collect the ad dollars, a portion of which will flow back to Yahoo, a spokeswoman for Yahoo said.

For listeners, this doesn’t strike me as a bad result (and certainly not as bad as if Pandora folded its highly personalized online stations). My guess is that CBS will insert more audio commercials into the Launchcast streams than Yahoo did, but the amount will be limited -- the audience’s tolerance for ads in webcasts is far less than that for ads in over-the-air radio. Because Yahoo will continue programming the stations, the move probably won’t reduce the diversity of content available online. Beyond that, there are so many sources of free music online, Launchcast listeners would have little problem finding a substitute even if Yahoo simply turned its channels off. That seems heretical, yet the online music scene has changed enormously in the past year and a half, largely because of the labels’ increasing willingness to support models built around free distribution (think Lala.com and MySpace Music). Maybe webcasting isn’t the 21st century version of radio, but just an interim step on the way there. What do you think?

-- Jon Healey

Healey writes editorials for The Times’ Opinion Manufacturing Division.