Grant Goddard, Totally Radio, Music 4.5 Smart Radio
Online radio: the UK business modelMusic 4.5: Smart Radio26 September 2012Grant Goddard
• Production: Award-winning, innovative radio production of mainstream and specialist music, drama, documentary and comedy• Consultancy: radio industry expertise in strategic, commercial, regulatory and operational issues, from business plans to pioneering formats• Technology: creation and execution of collaborative strategies and applications that enhance the listeners ability to engage with radio• totallyradio.com launched in 2000 as the UK’s first multi-channel online radio content aggregator, with support from Microsoft• Lead partner in three Technology Strategy Board-funded partnership projects: Radio Connected and RadioDeck, enhancing online radio connectivity; totallyradiocentral.com, a music licensing wizard for radio
How is online radio performing in the UK? Audiences?
RAJAR: UK radio audience metrics Share of adult (15+) radio listening by platform (% of total)80%70% 61.1%60%50%40% 4.6% of all radio30% listening is via internet 20.1%20%10% 4.7% 4.6% 0% all analogue DAB digital TV internet 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2[source: RAJAR]
RAJAR: UK radio audience metrics What does RAJAR include in ‘internet’ listening? • live online ‘simulcasts’ of BBC & commercial radio stations What does RAJAR exclude from ‘internet’ listening? • ‘listen again’, ‘catch up’ & on-demand content of BBC & commercial radio stations • download & podcast content of BBC & commercial radio stations • all online-only radio content (internet radio stations, podcasts, Mixcloud, Last.fm, Soundcloud, Spotify, The Guardian audio, etc.)
BBC: ‘share of ear’ market research Share of listening by age and by source (% share of all audio sources) 100 4 2 4 3 6 5 7 12 16 14 11 20 34 75 38 Almost half of 15-18 year olds’ consumption of audio is not live radio 50 81 82 85 82 76 60 55 25 0 15-18 15-24 25-34 35-44 45-54 55-64 65+ live radio non-radio catch-up radio podcasts unclassified radioSource: BBC, 2009
How is online radio performing in the UK? Revenues?
RAB: UK radio revenue metrics Annual UK commercial radio revenues (£m at 2011 prices) 900 UK radio revenues were 800 £532.5m in 2011 700 600 500 400 300 200 100 0 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: Radio Advertising Bureau, RPI
RAB: UK radio revenue metrics What do radio revenues data include? • commercial radio broadcast stations What do radio revenues data exclude? • all online-only radio businesses (internet radio stations, podcasts, Mixcloud, Last.fm, Soundcloud, Spotify, The Guardian audio, etc.)
Online radio needs metrics UK online radio audiences? • RAJAR does not measure • Comscore does not measure UK online radio revenues? • Radio Advertising Bureau does not measure • Internet Advertising Bureau does not measure
Broadcast radio Dominated by fixed costs (70%): non-programming staff programming staff premises transmission marketing Once fixed costs are administration covered, incremental revenues go mostly to bottom line Variable costs (30%): music copyright commissions on advertising salesSource: Ofcom. The Future Of Radio: Discussion Document, 16 November 2006, p.19, Figure 18.
Online radioDominated by variable costs: music copyright bandwidth server capacity commissions on advertising sales Dominance of variable costs makes profitabilityFixed costs: challenging, particularly when usage grows IT equipment & software IT development
Example: Pandora in US “Pandora spent $136m on music royalties payments in the last year. In the same period, Pandora had revenues of $274m. That means royalty payments are eating up about half of Pandoras cash flow. Pandora has proven that it can attract a huge audience, but it has not figured out how to keep the money that it makes. This reveals a deeply flawed business model that the company seems to have no way to fix.”Source: ‘Pandora; Gaining Audience, Losing Value?’, Seeking Alpha, 6 August 2012.
Comparison of business modelsBROADCAST RADIO ONLINE RADIODominated by fixed costs Dominated by variable costsMarket limited to service area Market globalAgreed audience metrics No agreed audience metricsMusic copyright: Music copyright:Statutory right to UK licence No statutory right to UK licencePercentage of revenues Percentage of revenues plusNo minimum payments per song Minimum payments (£ per song)Low royalties High royaltiesLong-term agreed rates Short-term ‘experimental’ ratesApprox. 10% of revenues Variable % of revenues
Comparison of music copyright costs(£ per 1000 hours listened in 2011)BROADCAST RADIO ONLINE RADIOOver-the-air: Small webcaster: £ 23.34 (15 songs/hr)£ 2.25 sector average £ 15.56 (10 songs/hr) Standard webcaster:Internet simulcast: £ 17.51 (15 songs/hr)£ 2.25 sector average £ 11.67 (10 songs/hr) Broadcast radio’s average Broadcasters stream online revenues were £22.46 per at this ‘broadcast’ royalty 1000 hours listened in rate (simulcasting) 2011
2007 Copyright Tribunal set the online PRS rates“the per play rates in [online] agreements forpure webcasting are approximately six timesthose … under the [commercial radio]agreement.”“the Tribunal was of the view thatindependent commercial radio offered quitea different service to a ‘music, music,music’ service and that different terms werenecessary to reflect the increased useof music.”“Those disputing the terms of the Alliance’slicences are most of the powerfulprotagonists of the online music industry.”
2007 Copyright Tribunal interviews a witnessTHE CHAIRMAN: When you say radio station […] it does not actually mean aradio as such?YAHOO!: Mm-hm. Yes, it does.THE CHAIRMAN: It does?YAHOO!: […] It does not have DJs. It does not have weather or news. […] Well,we are trying to compete with off-line radio. You know, we want a piece of that£600 million that they generate in advertising revenue in the UK. […] They donot need to have the DJ or the local news in the morning, because they get thatfrom other areas online when they are online. So we do have a lot of therelevant content that DJs talk about, like the charts and reviews of the latestalbums in the text content on the site.THE CHAIRMAN: But not audio?YAHOO!: But not in audio, that is right. Copyright Tribunal assumed that all onlineTHE CHAIRMAN: Audio is music, music, music? radio is “music, music, music”YAHOO!: Correct.
Online radio companies in UK market2007 COPYRIGHT TRIBUNAL NOW IN 2012Yahoo! SpotifyAOL Last.fmReal Networks We7Napster UK RadioplayerSony MixcloudiTunes Soundcloud Amazing ‘Music music music’ Mixture of ‘music music music’, programmes & curated music content
Online radio requires a more level playing fieldaround music copyrightCurrent issues:• No statutory right to a ‘broadcast’ music copyright licence• Discretionary issue of blanket licences (board approval)• Minimum per song usage payments (even when revenues = 0)• High royalty on revenues (i.e. PRS 6.5%, up from Tribunal’s 5.75%)• Licences are ‘experimental’ and subject to change• Separate licences for webcasting, on-demand and podcasts• Micro-interest in business plans of potential licensee• Licensees giving music away free considered a ‘new’ business model• Online usage not resulting in payments to relevant copyright owners
Action points for online radio sectorMetrics:• Standardised, objective audience metrics• Sector revenue tracking and analysisCopyright:• Statutory right to licence for online ‘broadcast’ purposes• Economically realistic music copyright schema for online radio• Default should be ‘to license’ rather than ‘not to license’• Automate the licensing process as much as possible• Ensure funds flow back to copyright owners