'Online Radio: The UK Business Model' by Grant Goddard
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Presentation outlining the contrasting business models and cost structures of commercial radio broadcasters and internet / online radio in the UK, particularly music copyright costs, written by Grant Goddard in September 2012 for the 'Music 4.5: Smart Radio' conference in London.
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'Online Radio: The UK Business Model' by 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
- 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 listening is via internet 30% 20.1% 20% 10% 4.7% 4.6% 0% 2007 Q2 2010 Q2 [source: RAJAR] all analogue 2007 Q3 2007 Q4 2010 Q3 2010 Q4 2008 Q1 2011 Q1 DAB 2008 Q2 2011 Q2 2008 Q3 2011 Q3 digital TV 2008 Q4 2009 Q1 2011 Q4 2012 Q1 2009 Q2 2012 Q2 internet 2009 Q3 2009 Q4 2010 Q1
- 5. RAJAR: UK radio audience metrics 80% 70% What does RAJAR include in ‘internet’ listening? • live online ‘simulcasts’ of BBC & commercial radio stations 61.1% 60% 50% What does RAJAR exclude from ‘internet’ listening? 40% • ‘listen again’, ‘catch up’ & on‐demand content of BBC & commercial radio stations 30% • download & podcast content of BBC & commercial radio stations 20.1% 20% • all online‐only radio content (internet radio stations, podcasts, Mixcloud, Last.fm, Soundcloud, Spotify, The Guardian audio, etc.) 10% 4.7% 4.6% 0% 2007 Q2 2010 Q2 all analogue 2007 Q3 2007 Q4 2010 Q3 2010 Q4 2008 Q1 2011 Q1 DAB 2008 Q2 2011 Q2 2008 Q3 2011 Q3 digital TV 2008 Q4 2009 Q1 2011 Q4 2012 Q1 2009 Q2 2012 Q2 internet 2009 Q3 2009 Q4 2010 Q1
- 6. BBC: ‘share of ear’ market research Share of listening by age and by source (% share of all audio sources) 100 6 5 4 20 75 38 2 4 16 14 81 82 3 12 7 11 34 Almost half of 15-18 year olds’ consumption of audio is not live radio 50 76 55 25 85 82 60 0 15-18 live radio Source: BBC, 2009 15-24 non-radio 25-34 35-44 catch-up radio 45-54 podcasts 55-64 65+ unclassified radio
- 8. RAB: UK radio revenue metrics Annual UK commercial radio revenues (£m at 2011 prices) 900 UK radio revenues were £532.5m in 2011 800 700 600 500 400 300 200 100 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 0 Source: Radio Advertising Bureau, RPI
- 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
- 12. Broadcast radio Dominated by fixed costs (70%): non‐programming staff programming staff premises transmission marketing administration Variable costs (30%): music copyright commissions on advertising sales Source: Ofcom. The Future Of Radio: Discussion Document, 16 November 2006, p.19, Figure 18. Once fixed costs are covered, incremental revenues go mostly to bottom line
- 13. Online radio Dominated by variable costs: music copyright bandwidth server capacity commissions on advertising sales Fixed costs: IT equipment & software IT development Dominance of variable costs makes profitability challenging, particularly when usage grows
- 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.
- 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) £ 15.56 (10 songs/hr) £ 2.25 sector average Internet simulcast: £ 2.25 sector average Broadcasters stream online at this ‘broadcast’ royalty rate (simulcasting) Standard webcaster: £ 17.51 (15 songs/hr) £ 11.67 (10 songs/hr) Broadcast radio’s average revenues were £22.46 per 1000 hours listened in 2011
- 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. THE CHAIRMAN: Audio is music, music, music? YAHOO!: Correct. Copyright Tribunal assumed that all online radio is “music, music, music”
- 19. Online radio companies in UK market 2007 COPYRIGHT TRIBUNAL NOW IN 2012 Yahoo! AOL Real Networks Napster Sony iTunes Spotify Last.fm We7 UK Radioplayer Mixcloud 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