Yahoo! and Time Warner AOL may shut down their web radio services after being hit with a 38 percent increase in royalties to air music.

‘We’re not going to stay in the business if cost is more than we make long term,’ Ian Rogers, general manager at Yahoo’s music unit.

SoundExchange who represents artists and record labels began collecting higher fees and Yahoo and AOL stopped directing users to their radio sites. The spike in royalties may stifle the growth of internet radio, which increased listeners 39 percent in the past year.

The Copyright Royalty Board ordered that royalties be raised to 0.11 cent for each song listened to from 0.08 cent last year. The rate is scheduled to reach 0.19 cent in 2010. According to AOL it would be near impossible to sustain a business that is profitable because radio sites generate revenue by selling advertising. (Meg Tirell, Bloomberg)

The bottom line: One side claims the royalty rate was to low and needed to be raised. Also, many sites have made millions like YouTube and Myspace that have built up value by using a content for a relatively cheap price. Artists and labels build up value for these sites and don’t participate in the BIG PAY DAY, so soundexchange who reps artists and labels want a royalty rate that reflects reality. This is a simple case of ‘we don’t benefit when you benefit’. I do not believe that AOL and Yahoo! will shut down internet radio.

A interview with Universal CEO Doug Morris that comes out in the December issue of Wired Magazine is a hot topic and has stirred up a storm of opinions. Doug Morris touches on several topics effecting the record industry including the iPod, iTunes, technology allowing new configuration, and file sharing. He says Universal Records will eventually transition from running a product-based business to running a service-based one.

Morris seems to be grappling with his emotions in the interview especially when it comes to downloading free music.

Morris Says:

An album that someone worked on for two years — is that worth only $9, $10, when people pay two bucks for coffee in Starbucks?” Morris sighs. “People never really understand what’s happening to the artists. All the sharing of the music, right? Is it correct that people share their music, fill up these devices with music they haven’t paid for? If you had Coca-Cola coming through the faucet in your kitchen, how much would you be willing to pay for Coca-Cola? There you go,” he says. “That’s what happened to the record business.”

“This business had been the same for 25 years,” he says. “The hardest thing was to get something that somebody wanted to buy — to make a product that anybody liked.”

This quote from Morris is spreading through the internet and is getting hammered by critics.

“There’s no one in the record industry that’s a technologist,” Morris explains. “That’s a misconception writers make all the time, that the record industry missed this. They didn’t. They just didn’t know what to do. It’s like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?”  “We didn’t know who to hire,” he says, becoming more agitated. “I wouldn’t be able to recognize a good technology person — anyone with a good bullshit story would have gotten past me.”

Morris attempts to answer his critics by claiming that the record industry is a business of nurturing and breaking artists, not keeping up with the technological movement. Instead, Morris opened himself to more criticism. The record industry was well aware that the internet opened the flood gates and file sharing was becoming rampant. Rather than jumping head first into the digital age, the record industry is living  between two worlds (physical and digital) and trying to capitalize on both. Most industries like the record industry are grappling with the same problem.  I believe this quote  sums it up, “Today, we are living in a chaotic transition period to a new age defined by global competition, rampant change, faster flow of information and communication, increasing business complexity, and pervasive globalization”.

The Drama Club who hails from Scranton, PA will be performing at Don Hills (NYC) on November 29th at 7:30pm. Several labels will be attending. The EP was produced by Rob Caggiano (Jesse Malin/Anthrax) and mixed by Jay Baumgardner (Evanescence/Papa Roach/Godsmack) and also features Ben Burnley (Breaking Benjamin) on their song “Brand New Day”. The track “Brand New Day” was added to XM’s “Squizz” & AOL Radio “New Rock First” channel (POWER rotation) and the band has shared the stage numerous times with Breaking Benjamin, as well as with Flyleaf, Velvet Revolver, Sound The Alarm, Silvertide, Warped Tour (PA date) and headline shows around the N.E. region. For more information contact Robert Dippold  or legal David Chidekel 

Passings: Casey Calvert, guitarist for emo band Hawthorne Heights was discovered “unconscious on the band’s tour bus” outside Washington’s 9:30 Club and “pronounced dead at the scene” by police. The band is in the midst with legal troubles with former label Victory Records. Quiet Riot frontman Kevin Dubrow has also passed away at the age of 52.

Yahoo! To Compete with YouTube: Yahoo struck a deal with Sony BMG that will allow users to incorporate music from Sony’s artists into their own video creations as well as embedding them in blogs and other personal pages. AOL is about to do the same. Yahoo! and AOL are trying to compete with YouTube and Myspace that allow viral clips and user made content.

A Bum Deal: Word is out that Terra Firma Chief Guy Hands is in a wild panic about his impulsive acquisition of EMI and how he’ll manage to make a return on the record company he bought on the back. Read why here. One doesn’t need to be a prophet to see that Terra Firma/EMI is sitting on a fault line. Just look at the recent press release where Guy Hands said he would fire artists who weren’t working hard enough.  This approach is reactive no proactive.

As CD sales continue to slide, the record industry is hoping that Christmas Season (biggest sales period of the year) will reverse the trend.

Insiders and analysts believe that if the trend gets any worse major retailers will reduce floorspace dedicated to CD’s in 2008. Greenfield forecasts that retail floor space devoted to CD’s will be cut by at least 20% and possibly 30% in the next year. Retailers will scale back on profitable catalog albums and focus on high profile new releases that will be sold at a discount price.

The record industry core physical goods business (CD’s) is down more than 18% year to date. Tower Records and Musicland collapsed and Trans World (FYE and Wherehouse), the largest music focused retailer said music sales are declined 21% and comprised just 40% of its total business, down from 48% in 2006.

According the NY Post, the record industry needs to sell 150 million albums in 6 weeks to keep pace with 2006’s full year total of 588.2 million albums. Upcoming big releases include Mary J. Blige and Nelly but not enough new releases to reach the goal.

Internet users in France who download music and films illegally could have their web access shut down by a government body, under a ground-breaking industry agreement backed by Nicolas Sarkozy, the president and reported by The Financial Times.

In a landmark speech Nicolas Sarkozy said: “The rights of authors, the preservation of creativity, the recognition of the rights of each artist, of each performer… was an important commitment of my presidential campaign.

Sarkozy said he feared the internet was becoming a “lawless zone where outlaws can pillage works with abandon or, worse, trade in them in total impunity. And on whose backs? On artists’ backs.”

Three-strikes-and-you-are-out policy means repeat offenders will get a warning threatening to cut off or suspend internet access if they do not stop illegal file-sharing.

This is a step forward in creating a formalized business. It’s about time someone is playing hard ball by removing access to the Internet for the ones being discovered as illegal downloaders. Hopefully China and Russia will follow Sarkozy’s lead and create similar laws that holds their citizens to the highest morals and ethics. According to a report released by IPI, rampant global piracy of recorded music has cost the U.S. $12.5 billion in economic output and 71,060 jobs annually.