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Pandora's UK royalty math checks out, says expert

Posted on: 01/11/2008

From the blog of the BBC’s James Cridland: “A few days ago, I posted the news that Pandora is closing in the UK. Part of the reasons given were…

“Both the PPL (which represents the record labels) and the MCPS/PRS Alliance (which represents music publishers) have demanded per track performance minima rates which are far too high to allow ad supported radio to operate.

“Well, so Pandora say. But they’re just saying that, aren’t they… of course they’ll claim the figures are ‘far too high’. That’s part of standard negotiation. Right?

“Well, let’s do a little maths…

“Paidcontent.co.uk reports that MCPS/PRS was asking for 0.085p per song per listener. PPL, in a press release about the Pandora closure, says they would charge 0.0773p per song per listener (the interactive radio rate). Pandora plays around 15 songs per hour.

MCPS/PRS: 15 × 0.085p = 1.275p per listener, per hour
+ PPL: 15 × 0.0773p = 1.159p per listener, per hour
Total music rights payments: 2.434p per listener, per hour…

“The latest figures from the UK’s Radio Advertising Bureau says that the commercial radio sector as a whole brought in £593m in 2007. The latest RAJAR figures show that commercial radio is listened-to for 441m total hours every week, or alternatively 23,018m total hours a year.

“So… 23,018m total hours brings in £593m. Divide one by the other, and we find that, as a total industry average, commercial radio makes 2.57p per listener, per hour. And the revenue figures also include non-radio activity, like websites.

“Let’s reiterate: – The entire commercial radio industry in the UK, after 35 years experience and with 31 million weekly listeners, far outstripping even Google’s online reach, makes 2.57p per listener, per hour. – For online radio, the UK music industry want rates that are 2.434p per listener, per hour.

“Pandora would still have to pay their staff and their streaming costs; but once the music industry have taken 94% of their revenue, it’s a bit hard to understand where they’d find the money…

“So, in short, it would clearly appear that these rates really are ‘far too high to allow ad supported radio to operate’.”

Read the entire post at Cridland’s blog.

What Cridland alludes to but doesn’t emphasize in this analysis is that Internet radio properties are almost certainly bringing in far less in ad revenues than 2.57p per listener-hour, given that they don’t have a 31-year history of successful ad sales.

If webcasters are actually bringing in, let’s say, 1.30p/listener-hour, then the combined royalties comprise 184% of revenues!

By the way, the CRB decision in the U.S. is bad, but not this bad. The judges set a royalty rate (just for the labels/artists portion of the rights) at $.0014/performance in 2008. At 15 songs/hour, that’s about $.02 per listener-hour. Assuming that about 14% of 250 million Americans are listening to broadcast radio at any moment (6a-12m) and that broadcast radio has about $20 billion in revenues, broadcast radio brings in a little over $.08 per -listener hour.

However, webcasters here clearly aren’t yet able to monetize the listener-hours as well as broadcasters. Webcasters are perhaps lucky to bring in $.02 to $.03 per listener-hour, meaning that the CRB rate plus the ASCAP/BMI/SESAC payments could still approach (or exceed) 100% of revenues for many webcasters — KH

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  1. Some months back, in a press release defending the high CRB webcasting rates, and branding critics as playing “Chicken Little”, Barrie Kessler of SoundExchange claimed the UK as an example where high royalty rates didn’t prevent Internet radio from thriving.

    The conclusion was dubious then. Now, with Pandora’s experience and Cridwell’s numbers, Kessler’s claims should be buried for good.

    Fred Wilhelms · Jan 11, 07:45 AM · #

  2. It should be noted that commercial radio is charged 8-10% of income to use music – there’s a posting on the comments to my original post with all the gory details.

    Crucially, that price also includes unlimited simulcast streaming within the UK: there’s no extra for a commercial radio station to pay.

    I should also state that while Kurt’s correctly spotted that I work for the BBC, my blog does not reflect BBC policy. The Beeb has an enlightened (and entirely sensible) personal blogging policy.

    James Cridland · Jan 11, 10:13 AM · #

  3. Wow, given what James says above, Barrie Kessler is wrong two different ways — both on the terrestrial side and the Internet-only side! (In the former case, the royalties aren’t high; in the latter case, they would prevent the medium from even existing, much less thriving.)

    Kurt Hanson · Jan 14, 11:08 AM · #

  4. I am concerned as to whether or not Live 365 is going to survive. I have a program on live 365 and have a substantial listening audience. Do you have any insight on this.? My program is ay www.live365.com/stations/nancyann3839

    Nancianne · Feb 11, 09:25 AM · #

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