The State of Webradio: Pandora vs. Apple

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Slides for a webinar I gave on June 27, 2013 covering the state of webcasting, digital music, and online marketing, with a focus on Pandora and the potential threats presented by Apple's iTunes Radio …

Slides for a webinar I gave on June 27, 2013 covering the state of webcasting, digital music, and online marketing, with a focus on Pandora and the potential threats presented by Apple's iTunes Radio service. Featuring a significant amount of digital music industry economic data, and mapping out the value chains for digital music distribution.

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  • 1. Pandora, Apple, & The State of Web Radio Dr. Aram Sinnreich Assistant Professor Rutgers University SC&I June 27, 2013
  • 2. Introduction Aram Sinnreich, Ph.D. Currently: • Assistant Professor, Rutgers University SC&I • Analyst, GigaOM Pro • Author of 2 books: • Mashed Up (2010) • The Piracy Crusade (2013) Previously: • Co-Founder, Managing Partner, Radar Research • Director, OMD Ignition Factory • Visiting Professor, NYU Media & Culture • Journalist, Wired, MediaPost, Billboard, NY Times • Senior Analyst, Jupiter Research
  • 3. 1. Legal & Economic Foundations
  • 4. Traditional Music and Copyright Artists/Labels “Masters Rights” Composers & Publishers “Publishing Rights” Retail Radio • Retailers pay wholesale to labels • Labels pay royalties to artists • Retailers pay wholesale to labels • Labels pay “mechanical” royalties to publishers • Publishers pay composers • Broadcasters do NOT pay performance royalties on masters • Promotion and “payola” • Broadcasters pay royalties to PROs (e.g. BMI) • PROs pay publishers and composers
  • 5. Traditional Radio: Value Chain
  • 6. Traditional Radio: Revenue Distribution
  • 7. Traditional Retail: Value Chain
  • 8. Traditional Retail: Revenue Distribution
  • 9. New Tech is Blurring the Lines Programmed (Radio) On-Demand (Retail) Compulsory ?????????????????? Contractual
  • 10. The DMCA: Radio Rules Online Programmed Personalized DiversityofContent COMPULSORY (Pub + Masters) LICENSED
  • 11. Webcasting Economics ConsumersWebcasters LabelsArtists Publishers Composers Ads ($5-10 CPM) & subscriptions ($2/month) PROs (e.g. ASCAP) SoundExchange GREATER OF $0.0012 / stream* OR 25% of income ($462M in 2012) $219mm $243mm Roughly 4% of revenues *Pandora negotiated rate. CRB Rates: • Pure-play: $0.0021 • Cross-channel: $0.0022 • Subscription: $0.0035
  • 12. Boilerplate Subscription Economics Consumers Retailers (30%) Labels (60%) Artists Publishers (10%) Composers 10.5% of revenues Consumers generate revenue both through ads and subscriptions ($5-10/month) Pro rata or ~$0.007 per stream ($571M to labels in 2012) 1/10 – 1/2 cent per stream 5% of revenues PROs (e.g. ASCAP) OR
  • 13. Boilerplate MP3 Economics Consumers Retailers (30%) Labels (60%) Artists Publishers (10%) Composers $1 per song $0.60 per song ($2.9B in 2012) $0.08 per song $0.10 per song $0.05 per song
  • 14. 2. Overview: Pandora, Apple &…
  • 15. Pandora: Vital Statistics FINANCIALS • Revenues 2012: $427.1M • Net loss: $38.1M • High content costs (66% revs) • Market Cap: $3B • Ad revenue = 84% • Sub revenue = 16% • RPM: $48 (web), $25 (mobile) CUSTOMERS • 200M registered users • 70M active users • 2.5M paying subscribers • +700k in last Q alone • 70-75% of all US webcasting • 7-8% of all US radio • Mobile = 79% of usage SERVICE • 1M+ songs in library • Proprietary “Music Genome” • Free & ad-supported • PandoraOne: $36/year ad-free HQ
  • 16. Source: Triton Digital/RAIN, March 2013 Webcaster Traffic 1,527 202 57 28 25 14 14 12 10 0 400 800 1,200 1,600 Pandora Clear Channel Slacker CBS Cumulus NPR Univision Cox ESPN Total monthly session starts (millions), daypart 6am-12am.
  • 17. Keys to Pandora’s Appeal
  • 18. Enter iTunes Radio
  • 19. Here Comes the Gorilla SERVICE • Fall 2013 launch in US • Available on all Apple devices and via iTunes on Windows • 200 stations + personalization • Siri integration • Free, ad-supported • Ad-free integration with iTunes Match for $25/year • Deep integration w. retail via “buy” button & w. iAd • Integrated label promotion? BUSINESS • Publisher licensing: • 10% of revenues (2.5x Pandora) “introductory rate” • Major labels – greater of: • 50% of net ad revs, OR • $0.00125-$0.0016/stream (not paying for skips?) • “Substantial” advance • Indie labels: • 15-19% of net ad revs, AND (?!?) • $0.0013-$0.0014/stream • Leveraging iTunes store to compel participation
  • 20. Pandora: Strategic Position STRENGTHS • Webcasting market leader • Market-defining brand • Proprietary technology • Large x-platform install base • Predictable cost base • Enough cash for 5 years WEAKNESSES • Consistent red ink (content costs) • Small library, non-interactive • Over-reliance on advertising • Near market saturation in US • No cross-channel power (except in S. Dakota) OPPORTUNITIES • Recently announced in 100 car models, 2.5M+ activations • Growing subscription service • Increasing sales team; expand mobile advertising model • License Music Genome engine • Develop partnerships with existing cross-media brands THREATS • Increasing competition from all three sides: Spotify, CC, Apple • Tension w. artists leadings to bad PR and possible defections • Fickle consumers, rapidly evolving mobile market • Mobile bandwidth not priced for heavy streaming
  • 21. Apple: Strategic Position STRENGTHS • World’s largest music retailer, with 75% digital & 31% overall • 575M iTunes users in 120+ countries, 600M iOS devices, 300M iCloud users • Competitive pricing • More than enough cash to wait out competition • Gizmodo: “better than” Pandora WEAKNESSES • iOS market share < Android • No access to Pandora’s 100M+ Android users • More expensive pub licensing • Revenue share could prove pricey • Late entry in saturated market • Limited success with streaming and social media in the past OPPORTUNITIES • iAd netwk/exchange integration: possible RTB play? • iTunes Store integration • In-app major label music promotion (don’t say “payola”) • Not bound to DMCA THREATS • Market power still contingent on post-Steve Jobs device innovation • Spotify & others undermining Apple’s source of leverage • Must demonstrate that service is additive, not cannibalistic • Shrinking revenue-per-user
  • 22. Additional Pandora Competitors Launched: • Europe: February, 2009 • US: July, 2011 Users: • 25-30M active • 6-7M paid • 28 countries Strategic: • Ford/Volvo deals • #2 source of $ for labels after iTunes • Released free streaming radio in 2012 • Expanding radio overseas in 2013 Launched: • April, 2008 • Relaunched July, 2011 • Owned by Clear Channel Users: • 33M registered • 60M monthly uniques Strategic: • Chrysler/GM/Toyota deals • Broadcast/outdoor/event synergies • “Perfect for” feature like Songza • “Add-ins” provide local news, traffic and weather from CC stations • Revshare deals with Big Machine, Glassnote, Fleetwood Mac
  • 23. 3. Beyond Webcasting?
  • 24. Emerging DigiMusic Categories Digital Retail Webcasting Subscription Cloud Services Music Apps Social Music Creation Discovery
  • 25. Digital Music Drivers and Inhibitors Consumer market confusion DRIVERS INHIBITORS Music licensing challenges Wireless data limitations Social integration Hardware integration (auto & IPTV) Cloud adoption Global market maturation Global competition Mobile ad growth
  • 26. Q & A
  • 27. Thank you. Questions? sinn@rutgers.edu Twitter: @aram http://aram.sinnreich.com