Tim Westergren said at January 11th, 2008 at 1:49am

Great summary, James. I would add to this that when you translate this to online, you have to factor in that commercial broadcast radio benefits from a scarcity factor that allows them to charge far higher rates (ie. only a couple radio stations in local markets creates advantages of monopoly). Online radio has no such advantage.

There’s a bad thing being done here to artists - it’s like a kid taking his ball and going home, only that ball really belongs to a lot of other people (artists). Artists have the right to charge what they want… but does anyone believe this position reflects the interests of artists? My hope is that the artist community will really start to rise up and demand proper representation. This is a disaster for them, especially the 99% of musicians who aren’t getting played on the few radios that operate. We’re being inundated with emails from depressed listeners who’ve said that Pandora has re-ignited their passion for music and has driven them to discover lots of new artists and buy their music, and see them play live. I spent 10 years as a working musician - I’m the first one to insist on paying artists - but that needs to be done in a balanced way that allows these new, democratic, inclusive online services to grow. It’s a win-win.

Artists, are you out there?

Thanks for the post, James.

Cheers. Tim (Founder, Pandora)

Kevin Coy said at January 11th, 2008 at 7:12am

For a long time now, I’ve been racking my brains with a straight forward way to make this point, and you’ve cracked it James!

Indeed, it is insanely expensive in terms of what advertising revenue is available for online radio, and then the costs involved in running it. 82% [edit - it's now higher than that - JC] of revenues generated is an accurate reflection of what the music industry seems to think they are entitled to, but on the flip side, in what other sector of business would this be acceptable?? I feel none.

Here’s the bombshell…. I have on several occasions, as I’m sure others have, attempted to lobby MCPS/PRS alliance in particular, and they just aren’t even interested to listen, let alone do anything to change this pathetic, almost dictatorial approach to music online.

Kev

Paul Easton said at January 11th, 2008 at 8:27am

Just to make a full comparison, (UK) commercial radio stations pay a percentage to PRS - between 3%-5.25% based on their annual ‘net broadcast revenue’*. There is a similar payment to PPL - 2%-5%, with a minimum payment based on the platform(s) used. For MCPS, stations that are members of the RadioCentre are covered by a blanket agreement as part of their membership.

Therefore ‘traditional’ radio stations pay considerably less for the right to broadcast music - especially as they are not being charged on a ‘pay per play’ basis.

Net Broadcast Revenue is defined thus:

· taking 85% of the gross valuable consideration (before any deduction of agency commissions or any other deductions) whether in money or money’s worth, and where applicable taking the Notional Value of airtime in place of the actual consideration (including nil) for that airtime, derived and received by the Licensee (or any person, firm, company or entity which is a member, associate, subsidiary or agent of the Licensee) from Broadcasts transmitted, Cable Simulcast Services sent and/or Internet Simulcast Services sent pursuant to this Licence including without limitation and by way of example only advertising, donation, Sponsorship, Barter and Contra Deals and banner adverts on media players and pop up windows associated with media players (save where the content on the media player is not an Internet Simulcast Service); and then

· deducting external costs directly and reasonably incurred by the Licensee in producing sponsored Outside Broadcast events PROVIDED THAT if such costs of an Outside Broadcast event exceed the value of the Sponsorship revenue for that event the Sponsorship revenue shall be nil. The amount by which such costs exceed Sponsorship revenue may not be set off against Sponsorship revenue from any other Outside Broadcast event or other non-Sponsorship revenue.
For the avoidance of doubt where any third party derives and receives gross valuable consideration (as defined above) in respect of advertising or Sponsorship revenue from Broadcasts transmitted, Cable Simulcast Services sent and/or Internet Simulcast Services sent pursuant to this Licence it shall be deemed to be derived and received by the Licensee.

Michael Walsh said at January 11th, 2008 at 10:19am

Nice commentary by Mark Mulligan here:

“As we said back at the start of 2007, the current first generation of ad supported services will need to have more competitive licenses if they are to have long term economic viability. The irony here is that Pandora is facing licensing issues just as the major labels are becoming more open to next-gen offerings like Pandora. However they appear to remain cautious enough to either demand large fees or do things in a half hearted manner (see SonyBMG’s bizarre implementation of DRM-free). So does this mean that if you are a next-gen service your chances of success depend on the depth of your pockets and your willingness to implement non-sustainable operating margins? If so that skews the rates of success to:

• VC funded companies with the mid-term goal of acquisition
• Big companies with ulterior business aims which can subsidize costs (device manufacturers, telcos etc.).

If so that would be a shame and would be replicating some of the key mistakes that were made in the early phases of the digital music market.”

Paul Brown said at January 11th, 2008 at 1:08pm

James, echoing Tim’s thanks for the post and for actually getting the calculator out!

However, the PPL rate is actually higher than that and have been made public in PPL’s press release (check out their site www.ppluk.com - news: response to Pandora announcement).

The per track rate put to us and all internet radio businesses by PPL for what they describe as “interactive” internet radio/webcasting is NOT 0.0561p per track. It is 0.0773p per track.

So, on your calculation:
MCPS/PRS @ 0.085p per track x 15 tracks per hour = 1.275p per hour of music played
PPL @ 0.0773p per track x 15 tracks per hour = 1.159p per hour of music.

The figure payable for every hour of music played = 2.434pence.

On your commercial radio rate of 2.57p per hour per listener that is 94% of gross revenue!

You have worked in radio (both broadcast and online areas) so you know the numbers as well as anyone. Even if internet radio were to push this a little higher, lets say as high as 3p per listener hour, after serious investment and hard working ad sales teams/agencies doing their thing…these rates would equate to 81% of Pandora’s and any other webcasters gross revenues.

No business out there, if it actually wants to make revenues and return any value to shareholders can make it work on those numbers in the near, mid or long term.

There is no subtext or catch here…if we could do it we would not be turning off.

Thanks and hope that is clear enough!

Paul
(Pandora, MD International)

Chris Thornett said at January 11th, 2008 at 3:40pm

Thanks James. I have to admit I’ve struggled to get my head around the Ts&Cs of internet radio licensing, but from my own meagre calculations I knew there was something patently unfair happening and that I felt I had to do something about it.

FYI Pandora users have set up a petition at No.10 to draw more media attention to this issue.

Here’s the link:

http://petitions.pm.gov.uk/SaveNetRadioUK/

Thanks again!

Paul Brown said at January 11th, 2008 at 5:10pm

James, thanks for correcting the post.

Paul

Andy Watt said at January 11th, 2008 at 8:46pm

I’m an artist!

I’d echo some of the comments made by the great and good. The music industry’s inability to pull its’ head out of its’ rear end with regard to new forms of distribution only echoes times past - like charging artists mechanical royalties for CDs based on cassette duplication costs (like it costs the same to make a CD…). Ultimately they’ll pull themselves down like dinosaurs in an ice age, and hopefully something more flexible will gradually spring up in its place.

I’ll be the one playing some danceable stuff on bass down the pub.

Thanks again

Andy W

mike allen said at January 12th, 2008 at 12:15pm

These figures i belive also apply to the hobby stations using say icecast which makes internet absolutely unviable for anyone but the over the air broadcasters that do not pay these rates surely this can by no means be called a level playing field.

Paul said at January 14th, 2008 at 2:10pm

Excellent post, James. The best I’ve read in an age.

You still owe me £5, however.

P

Richard Acton said at January 14th, 2008 at 3:11pm

Could Pandora not just adapt their price model for UK residents to cover the increased license costs?

Pandora charge a flat $9 per 3 months subscription. That’s only £1.50 per month with the current exchange rate.

I would be content with paying $9 per month to continue using the Pandora service, or maybe even a pay-as-you-listen scheme would be more appropriate.

Nic Garnett said at January 14th, 2008 at 5:59pm

It’s not just about the upfront numbers. I’m assuming Pandora would have to shoulder the cost of reporting every item delivered using different systems for PPL and MCPS and even though, by it’own admission, MCPS will not attempt to distribute the royalties earned beyond a certain point in the long tail.

links for 2008-01-15 « PK said at January 15th, 2008 at 12:40am

[...] Checking Pandora’s claims against the record industry - blog - James Cridland Nice summary of why Pandora can’t make a business out of ad supported radio in the UK. (tags: pandora PPL MCPS net radio PRS) [...]

TechCrunch UK » Blog Archive » Pandora’s shut-down made pointless by GlobalPandora said at January 15th, 2008 at 9:54am

[...] international access. As online radio expert James Cridland (who also happens to be at the BBC) explains in detail, running costs for radio are crippling enough for traditional radio stations - for online they can [...]

David Touve said at January 23rd, 2008 at 10:39pm

Are you sure you have your listener hour numbers right for the commercial stations in the UK?

According to RAJAR, all commercial stations had 441,457 total listener hours per week, not 441million (441,457,000)

Which I fear may make your calculations off by a factor of 10. Meaning, revenue of 25.7 pence per listener hour, rather than 2.57

James Cridland said at January 24th, 2008 at 1:10am

David - not the case; though I agree, the RAJAR site is unclear, and this had me scratching my head a little.

Total reach for commercial radio per week is: 31,230,000.
Average hours per listener (per week): 14.10
The two multiply together to be 440,343,000.

That’s where the 441,457,000 figure comes from (the difference is caused by rounding-down the figures we see in the spreadsheet).

Alternatively, you can work backwards from your figures; if the weekly reach is correct (31,230,000) and the total hours are 441,457 per week, then commercial radio manages to get 0.014 hours per listener a week. That means that people listen to commercial radio for an average of 50 seconds a week. Even I know that’s not true!

At the Radio Festival - DAB, music rights, and more - blog - James Cridland said at July 1st, 2008 at 1:54pm

[...] they fail to explain how they police the internet, but Pandora didn’t go to court, and indeed was priced out of the game in the UK. Some mealy-mouthed excuses later, and vague threats of “wanting to re-examine how [...]