OK, so Digital Music News has a piece this morning entitled “Pandora Warns: We Will Not Be Profitable In 2012…“.
Hey, how come I keep hearing about how these music streaming outfits are losing money?
Take it away Mr. Resnikoff…
Pandora is one of the biggest streaming radio services on the planet, yet it’s struggling to pay its royalty bills…
…You can argue all day about what a content owner deserves to be paid. But what if it’s simply impossible to build a business around those rates?
Yeah, makes sense. In any business you have expenses, money going out. So, one way to enhance the bottom line is cut expenses. An internet outfit like Pandora presumably doesn’t have a whole bunch of employees and traditional brick and mortar overhead, I mean that’s the beauty of the digital business model right?
So, where do you cut? Obviously, your big expense is the money you pay for the music…the royalties…the money that goes to those pesky folks that provide the music.
Just makes good sense.
But, rather than just thinking about what you can cut how’s about thinking about growth…from Pandora’s statement…
Since our inception in 2000, we have incurred significant net operating losses and, as of January 31st, 2012, we had an accumulated deficit of $101.4 million. A key element of our strategy is to increase the number of listeners and listener hours to increase our market penetration. However, as our number of listener hours increases, the royalties we pay for content acquisition also increase.
Dang! The more people that use the product, the more Pandora has to pay out to those irksome content providers. That’s vexing, isn’t it.
Well, what about the money coming in then?
We have not in the past generated, and may not in the future generate, sufficient revenue from the sale of advertising and subscriptions to offset such royalty expenses.
So, the money comes from the sale of advertising and premium subscriptions.
And, the answer is (back to Resnikoff)…
On top of that, Pandora is dealing with SoundExchange royalty structures that seem to be killing – not facilitating – the online radio market. And this is just horrific math: streaming rates are increasing, not decreasing, and the more listeners Pandora acquires, the greater its royalty obligations become. Which means that if per-stream royalty rates aren’t reexamined or restructured, one of the greatest companies to enter this space may simply be unable to survive long-term.
Well…reexamine royalty rates…how can I do that?
Wait a minute! I’m a musician, a content provider if you will. I have an album out there in the cloud and surely I get royalties when some soul out there listens at one of these places that uses music as a way to to garner traffic and solicit the sale of advertising, right?
Yep, it turns out I do get paid for my songs being streamed. Here’s what I got paid for the last one…
Yep, 1/10th of a penny. Now, that was on Spotify not Pandora. I don’t even know if my stuff is available on Pandora. I don’t know if SoudExchange has ever administered a royalty on my behalf. But, looking at my statement there are a slew of plays from Spotify and other lesser streaming services so, I’m going to use that 1/10th of a penny as my own personal baseline here for the sake of this discussion.
Seems pretty tiny…I don’t really like the idea of restructuring a tenth of a penny to something smaller. But, I’m just an annoying content provider.
All in all though, it seems like there’s something missing from this whole picture.
Let’s “reexamine” the business structure.
First you have musicians who create the music, that’s the product here…music. The musicians create the product and “provide” the product.
Then, you have the distributor of the product, in this case internet radio.
Internet radio pulls in revenue for the product from subscribers and advertisers then, internet radio pays the musician who creates and provides the product.
It has pretty well been established that the consumer of the product, the listener, doesn’t wish to pay for the product.
If that’s the case, given that the other and more viable revenue stream is advertising revenue, then why isn’t anybody asking the advertiser to pay more!!??
Now, I’ve personally been hearing from advertisers for years and years that web advertising isn’t effective. And, you can find that notion well documented. However, internet adverting continues to grow. It’s a growth area. Advertisers are going to go where the traffic is. Where the eyeballs and ears are. That’s why traditional entertainment sources, TV, radio, print have been advertiser supported. And, it’s worked out pretty good for the advertisers.
While those traditional media outlets are withering away the web audience grows and the corporate conglomerates that benefit from the traffic thrive and no one seems to question the validity of the claim that the ads are ineffective.
There is no doubt that the major labels get the lion’s share of the streams but, in comparison to the big advertisers they are small potatoes. The rest of the content providers in the long tail have no organization so, the royalty rates are the easy target.
Personally, I’m not going to get bent out of shape if my 10th of a penny gets cut. And, if the labels and outfits like SoundExchange all fall and perish by the wayside I don’t really give a damn.
But, internet radio is really in the business of advertising sales same as terrestrial radio always has been. They are nothing more than salesmen. And, a primary rule for any salesman is this; You can’t be afraid to ask for the money. The advertiser is the customer, not the listener. If the customer can’t be convinced that the product is worth paying for then, the business doesn’t have a chance of survival.
Another great internet radio alternative, Hoss The Boss says…
The radio business and I never got along. So, I’ve been streaming cool, independent music right here since 2006. I’m not interested in giving advertisers control of this site, so we can’t afford a lot of flashy crap just yet. But — unlike a LOT of other internet stations — we DO pay extra every month for 128 kb/second, CD quality sound. Turn us up, dang it. Our stream sounds really good!
– Hoss (aka Don Cudd)
Reformed Corporate-Style DJ
(All I kept was the name — and that was probably a mistake)
I think you will like this one guys. While you are there, checking out the tunes, take the time to vote for my song “Salvation” in the Hossey Music Award April Contest. Mobilize!!!…
Our friend Gary, who is a fine musician and all around swell guy, has also been doing a weekly blues show on the radio. Gary has a real knowledge of the blues and he always picks some great cuts. Visit his site to see past playlists.
The show airs on Monday nights 7:00-9:00 (UK so, mid-afternoon stateside depending on your time zone) and the station, Bishop FM, offers a live stream. Bishop FM is a community station and has a wide variety of interesting content; another great internet radio alternative.
Hey Gary, I meant to do this plug a while ago, I really did, it’s not just because you gave me a spin but that’s much appreciated!