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NetRadio Gives Up The Ghost, Liquidates Assets

You won’t have NetRadio to click around anymore… not that it’s a surprise; the Minneapolis-based Internet radio pioneer announced Oct. 17 that it would halt operations and fire most of its employees. But this week, NetRadio notified the Securities and Exchange Commission that its shareholders had overwhelmingly voted to liquidate its assets and dissolve the corporation.

The vote, recorded April 2, shows 1,172,314 shares voting to liquidate, with only 3,440 shares voting against the plan. Another 442 share votes abstained.

That same day, the company filed notice with the Minnesota Secretary of State announcing its intent to dissolve the 7-year-old corporation.

NetRadio was among the first online-only radio stations, and at one time it was among the most popular. The company reported more than 2.5 million unique listeners had accessed music and information through its 125 separate online radio stations during March 2000.

Jupiter Media Metrix entertainment analyst Aram Sinnreich said the company never failed to deliver the goods to its audience. It folded, he said, because its revenue plans – based on a combination of advertising and CD sales on the site – never panned out.

Expenses at the free site were high, Sinnreich said, especially in the company’s earliest years when costs for bandwidth were the largest line item in the company’s budget.

“Each incremental user represented an incremental bandwidth cost, so there was no volume efficiency or benefit of scale from the business, unlike a traditional broadcaster,” Sinnreich said.

Another factor ultimately leading to the company’s demise, Sinnreich said, was the royalty rate system set by the U.S. Copyright Office’s Copyright Arbitration Royalty Panel (CARP), which set royalties for Net-only Webcasters at $.0014 per song streamed.

Terrestrial radio stations simulcasting signals over the Internet pay only half that amount, or $.007 per stream.

Though the company told federal regulators it planned to liquidate assets, it waited until early March to call a shareholders meeting for a vote on the dissolution – timing that Sinnreich doesn’t consider coincidental.

“NetRadio, like a lot of other businesses, had been setting aside a portion of its revenue since October 1998 against the day when the CARP would be decided,” Sinnreich said. “But I don’t think any Webcaster was anticipating that the fees levied against them would so heavy.”

Sinnreich said that, unless they charge customers for access, similar fates probably await any independent Webcasters attempting to operate strictly online, given the high royalties rates they must pay.

“The CARP ruling just places this kind of immovable kernel of cost into the budget that makes it very difficult to arrange a business model,” Sinnreich said.

“It’s very difficult for any business to operate entirely online,” Sinnreich added. “And if you’ve got the one-two punch of the costs associated with rich media – meaning bandwidth – and an absurdly expensive licensing landscape, the number of successful players is going to be very small at best.”

As goes NetRadio, Sinnreich said, so, probably, go most Webcasters. “I think we’ll probably see an attrition of the large majority of online Webcasters over the next year or two,” he said.

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