New radio royalty = 78% revshare?

21Feb08

A research report from AccuStream, published yesterday, found that total listening hours (“TLH”) for the internet radio sector in 2007 were 4,850,000,000 — a 26% increase over 2006. And I suspect this is only for the US so would exclude, for instance, a large part of the listening on Last.fm.

Internet radio revenues, however, were estimated at a mere $92,000,000 — not so impressive. A quick bit of math is revealing: $92m/4.85bn = $0.0190 per hour. That is to say, revenue/hour was just shy of 2 cents. Unfortunately, the rate for digital sound recording performance royalties (the thing I wrote about a lot last year) is $0.0011 per performance (per track, per listener). Based on an average of 14 tracks/hour, this equates to an hourly cost of $0.0154. In other words, the sound recording royalty by itself consumes 78% of advertising revenues.

Assuming these figures are accurate, the internet radio sector is paying the labels a 78% share of their revenues. By contrast, traditional (aka terrestrial) radio pays 0% of their revenues — nothing — to the labels. And satellite radio pays 6-8% of its revenues to the labels.

For internet radio services, the remaining 22% of their revenues must be divvied up between the musical composition royalty (probably 4-5%), bandwidth, employees (which is typically the most expensive component of cost), overhead, and, well, profit. Or not. The math doesn’t work.

Now, admittedly, there are a couple of problems with the above analysis. First, this study seems to cover the US only and the internet is, by definition, global, so both TLH and revenues are far too low. Second, oddly, AccuStream makes no mention of normal visual ad revenues (banners and the like, not video), which is a significant source of ad revenues.

One other point that’s worth noting: the average price (CPM) of ads placed in/around internet radio is clearly lower than it is for terrestrial radio, in the same way that the price for ads on the internet (in general) is still considerably lower than it is for ads placed in traditional media. This will change over time, but it’s too bad that many internet radio services won’t live to see this day, should current rates stand.

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7 Responses to “New radio royalty = 78% revshare?”

  1. 1 bypassing

    78% hah that’s nothing!

    I hear that IODA was negotiating for over 100% revshare from imeem.com and when they didn’t get it they kicked up a big stink and killed the deal.

    I see compete.com has new traffic numbers for Feb 2008 and projectplaylist has moved in front of imeem again, but over at quantcast imeem has done the get quantified thing and now shows up with over 100million users a month.
    http://www.quantcast.com/p-03Kgz0RV6Ztmc

  2. The terms for the on-demand side required by the Majors — basically $.01/stream — are far, far in excess of any potential level of ad revenues. I don’t think an ad-based on-demand model is economically tenable, at least for Major label content, and at least in the near term. Folks like IODA tend to be much more reasonable, however.

  3. 3 gobbagobba

    David, I think you are on to something. This why labels are playing hardball with last.fm:

    Terrestrial or Satellite Radio airplay = free promotion

    Non-interactive internet radio airplay = free promotion

    Interactive, on-demand streaming = substitution

    Allowing people to stream music on-demand brings the risk that a portion of potential customers will simply dial music up on last.fm instead of buying it from iTunes, etc. At the rate offered by last.fm to unsigned artists, it would take about 2000 plays to generate $1 in royalties. If just a tiny fraction of the population decides against buying a track because they can hear it for free on demand, it will result in lower royalties. It is unrealistic to expect the labels to agree to something like this.

  4. Yes, this is definitely why they want a higher royalty rate, and the labels are experimenting with imeem in this area (which they supposedly own ~50% of now).

    While non-interactive streaming is promotional and arguably not really substitutional (except to same extent any radio is substitutional), the new rates for such streaming are priced at 20% of the rate that’s intended to replace CD sales (the $.01 per on-demand play).

    OTOH, for a large webcaster, this non-interactive internet radio royalty rate works out to as much as 10X what satellite radio has to pay (and an even higher multiple for smaller webcasters). Hence the rate for internet radio is actually closer to the on-demand pricing than to the pricing required for the other forms of radio! Shockingly, this was an intentional choice, as the CRB followed the line of reasoning put forth by the RIAA attorneys.


  1. 1 Online radio licensing problems explained… « heute:pop:blog
  2. 2 netlabels and webcasting contrasted with on-demand « the Wordpress of Lucas Gonze
  3. 3 Is advertising-supported the magic potion? at MuSMo - Free Music

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