New radio royalty = 78% revshare?
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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