The document discusses the performance of online radio in the UK. Regarding audiences, it notes that while RAJAR tracks internet radio listening, it excludes many online-only services. BBC research also shows younger audiences listening less to live radio. On revenues, it notes that radio revenue data excludes all online-only businesses. It compares the business models of broadcast and online radio, noting online radio's higher variable costs from music royalties. It argues online radio requires a more level playing field around music copyright to develop viable business models.

1. Online radio: the UK business model
Music 4.5: Smart Radio
26 September 2012
Grant Goddard

2. • 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 listener's 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

3. How is online radio performing in the UK?
Audiences?

4. 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 radio
30% 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]

5. 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.)

6. 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 radio
Source: BBC, 2009

7. How is online radio performing in the UK?
Revenues?

8. 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
2011
Source: Radio Advertising Bureau, RPI

9. 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.)

10. 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

11. Business models:
Broadcast radio
Online radio

12. 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 sales
Source: Ofcom. The Future Of Radio: Discussion Document, 16 November 2006, p.19, Figure 18.

13. Online radio
Dominated by variable costs:
music copyright
bandwidth
server capacity
commissions on advertising sales
Dominance of variable
costs makes profitability
Fixed costs: challenging, particularly
when usage grows
IT equipment & software
IT development

14. 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 Pandora's 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.

15. Comparison of business models
BROADCAST RADIO ONLINE RADIO
Dominated by fixed costs Dominated by variable costs
Market limited to service area Market global
Agreed audience metrics No agreed audience metrics
Music copyright: Music copyright:
Statutory right to UK licence No statutory right to UK licence
Percentage of revenues Percentage of revenues plus
No minimum payments per song Minimum payments (£ per song)
Low royalties High royalties
Long-term agreed rates Short-term ‘experimental’ rates
Approx. 10% of revenues Variable % of revenues

16. Comparison of music copyright costs
(£ per 1000 hours listened in 2011)
BROADCAST RADIO ONLINE RADIO
Over-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

17. 2007 Copyright Tribunal set the online PRS rates
“the per play rates in [online] agreements for
pure webcasting are approximately six times
those … under the [commercial radio]
agreement.”
“the Tribunal was of the view that
independent commercial radio offered quite
a different service to a ‘music, music,
music’ service and that different terms were
necessary to reflect the increased use
of music.”
“Those disputing the terms of the Alliance’s
licences are most of the powerful
protagonists of the online music industry.”

18. 2007 Copyright Tribunal interviews a witness
THE CHAIRMAN: When you say radio station […] it does not actually mean a
radio 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 do
not need to have the DJ or the local news in the morning, because they get that
from other areas online when they are online. So we do have a lot of the
relevant content that DJs talk about, like the charts and reviews of the latest
albums 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 online
THE CHAIRMAN: Audio is music, music, music? radio is “music, music,
music”
YAHOO!: Correct.

19. Online radio companies in UK market
2007 COPYRIGHT TRIBUNAL NOW IN 2012
Yahoo! Spotify
AOL Last.fm
Real Networks We7
Napster UK Radioplayer
Sony Mixcloud
iTunes Soundcloud
Amazing
‘Music music music’
Mixture of ‘music music
music’, programmes &
curated music content

20. Online radio requires a more level playing field
around music copyright
Current 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

21. Action points for online radio sector
Metrics:
• Standardised, objective audience metrics
• Sector revenue tracking and analysis
Copyright:
• 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

22. Contact
Grant Goddard
http://kontactr.com/user/grantgoddard
www.totallyradiocentral.com