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 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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The State of Webradio: Pandora vs. Apple

  1. 1. Pandora, Apple, & The State of Web Radio Dr. Aram Sinnreich Assistant Professor Rutgers University SC&I June 27, 2013
  2. 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. 3. 1. Legal & Economic Foundations
  4. 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. 5. Traditional Radio: Value Chain
  6. 6. Traditional Radio: Revenue Distribution
  7. 7. Traditional Retail: Value Chain
  8. 8. Traditional Retail: Revenue Distribution
  9. 9. New Tech is Blurring the Lines Programmed (Radio) On-Demand (Retail) Compulsory ?????????????????? Contractual
  10. 10. The DMCA: Radio Rules Online Programmed Personalized DiversityofContent COMPULSORY (Pub + Masters) LICENSED
  11. 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. 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. 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. 14. 2. Overview: Pandora, Apple &…
  15. 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. 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. 17. Keys to Pandora’s Appeal
  18. 18. Enter iTunes Radio
  19. 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. 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. 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. 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. 23. 3. Beyond Webcasting?
  24. 24. Emerging DigiMusic Categories Digital Retail Webcasting Subscription Cloud Services Music Apps Social Music Creation Discovery
  25. 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. 26. Q & A
  27. 27. Thank you. Questions? sinn@rutgers.edu Twitter: @aram http://aram.sinnreich.com

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