8tracks: Muxtape, Without the Legal Muckiness

Missing Muxtape? A small service called 8tracks is trying to fill the void while avoiding the pitfalls.

Playing off the same concept, 8tracks lets you upload up to 30 minutes of music into a custom playlist, which can then be publicly shared with other users. You can search for music using artists, genres, or usernames.

So how is this legal while Muxtape ran into trouble? Muxtape was hosting the files without any type of license agreement or royalty plan, according to the Recording Industry Association of America. 8tracks, in contrast, says it has licenses with ASCAP, BMI and SESAC for the “public performance of musical works.” As such, it does pay a set per-play royalty rate — about one-seventh of a cent per track streamed, according to its owners.

8tracks is very transparent about the whole thing, providing a detailed explanation of the cost and how it can afford it:

“At current royalty rates, the hourly cost per user is just over $0.02 per listener per hour in 2008, increasing to nearly $0.03 per listener per hour in 2010. This means that 8tracks must earn a net CPM from advertising of at least $20 in 2008 (i.e., $20 per 1000 ad impressions = $0.02) and nearly $30 in 2010 (i.e., $30 per 1000 ad impressions = $0.03) to cover the cost of streaming sound recordings. In addition, 8tracks pays musical works royalties to ASCAP, BMI and SESAC, which generally comprises 3%-5% of revenues.

8tracks is taking 2 steps to reduce its royalty liability so can sustain itself as a business. First, it is opting into a Small Webcaster license offered by SoundExchange (at the request of Congress). This license provides for royalty payment on the greater of a percentage-of-revenue or percentage-of-expense basis, subject to a minimum fee, which will allow us to grow our user base – and our potential for advertising – before having to pay the more onerous compulsory rates owed on a per song, per listener basis.

Second, 8tracks is seeking direct licenses with independent record labels and artists who generally see greater promotional value in internet radio – given relatively few alternative channels for exposure – and are thus more willing to consider the percentage-of-revenue terms common to all other forms of radio (traditional, satellite, cable).”

8tracks has apparently been around since 2006 — who knew? David Porter, who used to head up online radio network Live365, formed it with six other people. It’s based in both New York City and San Francisco.

Our vote: What a great service. 8tracks strikes us as well-thought out company with a strong strategic plan — and, most important to you, a strong end-user benefit. We hope its model will survive what’s sure to be an incoming rush of users, and thus an upcoming increase in royalties. The guys behind it seem to know what they’re doing, though, so we’ll hope their vision is as solid as it sounds. I, for one, will definitely be returning to use this service again.