Onlineradio:theUKbusinessmodel

Music4.5:SmartRadio 26September2012

GrantGoddard

Production: Awardwinning,innovativeradioproductionofmainstream andspecialistmusic,drama,documentaryandcomedy Consultancy: radioindustryexpertiseinstrategic,commercial,regulatory andoperationalissues,frombusinessplanstopioneeringformats Technology: creationandexecutionofcollaborativestrategiesand applicationsthatenhancethelistener'sabilitytoengagewithradio totallyradio.com launchedin2000astheUKsfirstmultichannelonline radiocontentaggregator,withsupportfromMicrosoft LeadpartnerinthreeTechnologyStrategyBoardfundedpartnership projects:RadioConnected andRadioDeck,enhancingonlineradio connectivity;totallyradiocentral.com,a musiclicensingwizardforradio

HowisonlineradioperformingintheUK? Audiences?

RAJAR:UKradioaudiencemetrics
Shareofadult(15+)radiolisteningbyplatform(%oftotal)
80%

70% 61.1% 60%

50%

40%

30% 20.1% 20%

4.6% of all radio listening is via internet

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

RAJAR:UKradioaudiencemetrics
80%

WhatdoesRAJARincludeininternet listening? liveonlinesimulcasts ofBBC&commercialradiostations

61.1%

70%

60%

50%

WhatdoesRAJARexclude frominternet listening? listenagain,catchup &ondemandcontentofBBC& commercialradiostations download&podcastcontentofBBC&commercialradiostations allonlineonlyradiocontent(internetradiostations,podcasts, Mixcloud,Last.fm,Soundcloud,Spotify,TheGuardianaudio,etc.)

4.7% 4.6% 20.1%

40%

30%

20%

10%

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

BBC:shareofear marketresearch
Shareoflisteningbyageandbysource(%shareofallaudiosources)
100 6 5 4 20 75 38 34 2 16 4 14 3 12 7 11

Almost half of 15-18 year olds consumption of audio is not live radio
82 85 82

50 76 25 55 60 81

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

HowisonlineradioperformingintheUK? Revenues?

RAB:UKradiorevenuemetrics
AnnualUKcommercialradiorevenues(mat2011prices)

900 800 700 600 500 400 300 200 100 0

UK radio revenues were 532.5m in 2011

Source: Radio Advertising Bureau, RPI

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

RAB:UKradiorevenuemetrics
900 800 700 600 500 400 300 200 100 0 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

Whatdoradiorevenuesdatainclude? commercialradiobroadcaststations

Whatdoradiorevenuesdataexclude? allonlineonlyradiobusinesses(internetradiostations,podcasts, Mixcloud,Last.fm,Soundcloud,Spotify,TheGuardianaudio,etc.)

Onlineradioneedsmetrics

UKonlineradioaudiences? RAJARdoesnotmeasure Comscore doesnotmeasure

UKonlineradiorevenues? RadioAdvertisingBureaudoesnotmeasure InternetAdvertisingBureaudoesnotmeasure

Businessmodels: Broadcastradio Onlineradio

Broadcastradio
Dominatedbyfixedcosts(70%): nonprogrammingstaff programmingstaff premises transmission marketing administration
Once fixed costs are covered, incremental revenues go mostly to bottom line

Variablecosts(30%): musiccopyright commissionsonadvertisingsales

Source: Ofcom. The Future Of Radio: Discussion Document, 16 November 2006, p.19, Figure 18.

Onlineradio
Dominatedbyvariablecosts: musiccopyright bandwidth servercapacity commissionsonadvertisingsales
Dominance of variable costs makes profitability challenging, particularly when usage grows

Fixedcosts: ITequipment&software ITdevelopment

Example:PandorainUS

Pandoraspent$136monmusicroyaltiespaymentsinthelastyear.Inthe sameperiod,Pandorahadrevenuesof$274m.Thatmeansroyaltypayments areeatingupabouthalfofPandora'scashflow.

Pandorahasproventhatitcanattractahugeaudience,butithasnotfigured outhowtokeepthemoneythatitmakes.Thisrevealsadeeplyflawed businessmodelthatthecompanyseemstohavenowaytofix.

Source: Pandora; Gaining Audience, Losing Value?, Seeking Alpha, 6 August 2012.

Comparisonofbusinessmodels
BROADCASTRADIO Dominatedbyfixedcosts Marketlimitedtoservicearea Agreedaudiencemetrics ONLINERADIO Dominatedbyvariablecosts Marketglobal Noagreedaudiencemetrics

Musiccopyright: StatutoryrighttoUKlicence Percentageofrevenues Nominimumpaymentspersong Lowroyalties Longtermagreedrates Approx.10%ofrevenues

Musiccopyright: NostatutoryrighttoUKlicence Percentageofrevenuesplus Minimumpayments( persong) Highroyalties Shorttermexperimental rates Variable%ofrevenues

Comparisonofmusiccopyrightcosts ( per1000hourslistenedin2011)
BROADCASTRADIO ONLINERADIO

Overtheair: 2.25sectoraverage

Smallwebcaster: 23.34(15songs/hr) 15.56(10songs/hr) Standardwebcaster: 17.51(15songs/hr) 11.67(10songs/hr)

Internetsimulcast: 2.25sectoraverage

Broadcasters stream online at this broadcast royalty rate (simulcasting)

Broadcast radios average revenues were 22.46 per 1000 hours listened in 2011

2007CopyrightTribunalsettheonlinePRSrates
theperplayratesin[online]agreementsfor purewebcastingareapproximatelysixtimes those underthe[commercialradio] agreement. theTribunalwasoftheviewthat independentcommercialradioofferedquite adifferentservicetoamusic,music, music serviceandthatdifferenttermswere necessarytoreflecttheincreaseduse ofmusic. ThosedisputingthetermsoftheAlliances licencesaremostofthepowerful protagonistsoftheonlinemusicindustry.

2007CopyrightTribunalinterviewsawitness
THECHAIRMAN: Whenyousayradiostation []itdoesnotactuallymeana radioassuch? YAHOO!: Mmhm. Yes,itdoes. THECHAIRMAN: Itdoes? YAHOO!: []ItdoesnothaveDJs. Itdoesnothaveweatherornews. []Well, wearetryingtocompetewithofflineradio. Youknow,wewantapieceofthat 600millionthattheygenerateinadvertisingrevenueintheUK. []Theydo notneedtohavetheDJorthelocalnewsinthemorning,becausetheygetthat fromotherareasonlinewhentheyareonline. Sowedohavealotofthe relevantcontentthatDJstalkabout,likethechartsandreviewsofthelatest albumsinthetextcontentonthesite. THECHAIRMAN: Butnotaudio? YAHOO!: Butnotinaudio,thatisright. THECHAIRMAN: Audioismusic,music,music? YAHOO!: Correct.
Copyright Tribunal assumed that all online radio is music, music, music

OnlineradiocompaniesinUKmarket
2007COPYRIGHTTRIBUNAL Yahoo! AOL RealNetworks Napster Sony iTunes NOWIN2012 Spotify Last.fm We7 UKRadioplayer Mixcloud Soundcloud Amazing

Music music music Mixture of music music music, programmes & curated music content

Onlineradiorequiresamorelevelplayingfield aroundmusiccopyright
Currentissues: Nostatutoryrighttoabroadcast musiccopyrightlicence Discretionaryissueofblanketlicences(boardapproval) Minimumpersongusagepayments(evenwhenrevenues=0) Highroyaltyonrevenues(i.e.PRS6.5%,upfromTribunals5.75%) Licencesareexperimental andsubjecttochange Separatelicencesforwebcasting,ondemandandpodcasts Microinterestinbusinessplansofpotentiallicensee Licenseesgivingmusicawayfreeconsideredanew businessmodel Onlineusagenotresultinginpaymentstorelevantcopyrightowners

Actionpointsforonlineradiosector
Metrics: Standardised,objectiveaudiencemetrics Sectorrevenuetrackingandanalysis

Copyright: Statutoryrighttolicenceforonlinebroadcast purposes Economicallyrealisticmusiccopyrightschemaforonlineradio Defaultshouldbetolicense ratherthannottolicense Automatethelicensingprocessasmuchaspossible Ensurefundsflowbacktocopyrightowners

Contact

GrantGoddard
http://kontactr.com/user/grantgoddard

www.totallyradiocentral.com