Bob runs numbers on the webcasting deal

Over on the Pho list, Bob Bellin ran the numbers on the new webcasting deal announced today. Pandora and the big pubs are all saying that the new deal will save them, but Bob says that things are still terminal.

Here’s Bob:

The % option is just a smokescreen, because the per song calculation will always prove higher and the higher of the two calculations is what’s owed. No start up webcasting business can give up more than 25% of their revenue and make a profit. My quick math is as follows – the current new rates translate to about half of what the old numbers did. An webcaster with and AQH of 100,000 would, under the old numbers, owe about $27milliion. So the new numbers would translate to around $14mil, rising to roughly $20 mil. A terrestrial radio station with that size audience would bill between $20mil and $25mil and show a profit of about 255 of that. This assumes a complete local cluster sales staff and the economies of scale that a large cluster supported by an larger corporate structure with many shared costs brings. A webcaster’s cost would be higher and their revenue, (because it is most analogous to network radio as a national vehicle) would generate half the revenue that the terrestrial station would – and that’s with a fully developed sales effort. So they would owe more than their revenue. And even if I’m wrong by a considerable amount (which I doubt – I ran radio stations for a long time and am very fluent with their cost structure and revenue capability), after you add in operating costs, there’s no way to make it with these rates.

I predict that well over 75% will fold when the 2006 money is due. Few and any revenue to speak of in 2006 and fewer have the $ to pay the vig. Did anyone actually run the numbers and determine that there was anything like a path to profitability?

Personally I’m tired of doomsaying. Nothing’s going to be fixed until we all put our cards on the table. Let music radio and webcasting collapse as a whole, and the record business implode the minute that happens. Because the current way of doing things by lobbying rate courts in DC is ridiculous and the job isn’t getting done.