Everybody knows who killed webcasting, the question is why?

Small Internet radio hit by new royalty rates - Yahoo! News

After a two-year proceeding, the Copyright Royalty Board (CRB) has set rates for commercial and noncommercial webcasts and Internet simulcasts, which some executives say will put them out of business.

Why did the record industry want royalty rates for webcasting to go up so high that it may force many webcasting outfits to go under? Because this may also cause on-demand licensing rates to go up.

Webcasters in the US are legally able to play music from the major labels because of a compulsory license. Most other online uses of music require one-to-one negotiations between a record company and the publishing site. These 1-1 negotiations include virtually all big-budget music distribution, such as at the Rhapsody, Napster and Yahoo! Music Unlimited subscription services and the iTunes pay-per-download store.

Rates paid under the webcasting compulsory are the floor under these negotiated rates. Rhapsody et al always have the choice of dropping back to webcasting. They negotiate only because they want to offer enhanced services such as on-demand downloads.

Rates for on-demand downloads are the point here. If the lowest price possible -- the webcasting compulsory -- rises, the prices for on-demand services should also. Or at least that is the plan.

To the major labels, revenues from webcasting royalties are not significant in comparison to revenues from the iTunes store and comparable online distributors. The iTunes store, mainly. If the webcasting industry disappears from the face of the internet, that is an acceptable level of collateral damage as long as revenues from premium services like iTunes rise enough.

I imagine the labels modeled this all out in great detail before going for it, since nuking the webcasters is a risky move, not to mention as hardball as it gets. But then again, getting to show that they have balls of steel was probably considered upside.

Two points that you'll have to accept as assumptions for this all to make sense:

1. The new royalty rates cannot be supported by the webcasting industry. The webcasters aren't just working the referee.
2. The CRB rate decision was controlled by the major labels.