RAIN: Radio And Internet Newsletter: Webcasters won't see 50% profit margins, but Pureplay deal is no "death march"

Webcasters won't see 50% profit margins, but Pureplay deal is no "death march"
·Jul 22, 01:34 PM
Posted by: Paul Maloney

The following is in response to industry expert Bob Bellin’s guest essay for Radio-Info.com titled “Webcasters – Don’t be fooled by the new deal for performance royalty,” excerpted in the July 22 issue of RAIN (here).

Bellin is wrong. He is mistakenly assuming that Internet radio has to use the exact same business model as broadcast radio’s.

Let’s take his example of a webcaster with $10 million in revenues: Their SoundExchange royalty rate is a function of their audience size, not their revenues. If they monetize their U.S. audience at about 4 cents per listener-hour (about half as well as broadcast radio does), we can work the calculation backwards to audience size and then forwards to their royalty obligation, which would be about $3.7 million in 2011.

That’s high, yes, but not, as Bellin argues, necessarily fatal: They could spend $600K on composer royalties, $1.5 million on operations, $2 million on salespeople, and $1 million on marketing, and they’d still have $1.2 million left over for “Other” expenses and profit.

Clearly, webcasters need to run lean operations — and under these royalty rates will never see the kind of 50% profit margins that broadcasters used to love — but “death march”? It’s an alarmist exaggeration.

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