There is a crisis facing internet radio: new mandatory royalty rates are so high that they will force most or all independent internet radio stations off the air.

Rusty Hodge of SomaFM, which has been my favorite internet radio station for years, speaks out on the threats posed by the new webcasting royalties.

For SomaFM, this means our royalties for 2006 will be increased retroactively from about $20,000 to about $600,000. That's more than 3 times what we made in 2006. And our royalties for 2007, based on our current audience size, will be over $1 million dollars, and over $1.5 million by 2009. That's if our audience size stays the same.

For historical reference, all of the small webcasters were shut down due to a similar dispute from June until November, 2002. Congress didn't listen that time until it was too late. Near the end of the negotiations RIAA CEO Hillary Rosen said:

This is like trying to turn chicken shit into chicken salad.

There has been no moment in the history of the Internet that the total lack of understanding of the economics of new media on the part of the music industry was more clear. If you fools had built a participatory culture around music when you were busy trying to destroy it you wouldn't be watching your revenues drop hand over fist today. When will you get a clue?!

Rusty on Radio: The crisis facing internet radio