This thread argues, from someone knowledgeable about legal music royalties, that web app designers carelessly ignore the proper way to legally play music online (paying royalties to SoundExchange). Essentially, we’re all a bunch of cheap pirates.
But I don’t think that’s it. It’s much simpler than that: doing it legally is economically infeasible.
Even with today’s cheap bandwidth, the cost of serving a decent-sounding MP3s is already prohibitively expensive for nearly any startup. (And the royalties, if paid, add an additional 2-3 times the bandwidth cost.)
I’m not arguing that pirating music should be OK — but the royalty rates for web radio (and anything that’s treated as “web radio” for royalty purposes, such as Muxtape) are so ridiculous that nobody can stay alive doing it legally. And, knowing the music business, that’s probably intentional: they really don’t like losing control of any part of their precious vertical monopoly.
The choice that web app designers have isn’t whether to pay the royalties or not — it’s whether to have music functionality at all. If you argue for legal royalty payments, you have to accept the reality of that argument: no online music startups.