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.
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.
I’ll buy that newspapers in their historical form are going away, but not that publishing as a function distinct from writing is going away.
Writers can’t take it on. It’s a different set of skills, talents, and resources, and it’s time-consuming. It controls the money, and money controls the writers.
And how is this argument different for labels?
If we stopped trying to standardize audio and video file formats and instead standardized APIs for dynamic audio and video, we’d break through the bottleneck.
This wouldn’t require Apple and Microsoft to give up their patent wars, which they will never do. This would allow Wikipedia to use free formats like Theora, which it does for reasons that also won’t change.
It never works to try to compete on freeness alone; that’s why Ogg hasn’t taken off yet. To get adoption of a new data format you have to compete on features. That’s exactly what dynamic media APIs would do. It would not be possible to create an AJAX remixing tool with AAC or WMA, but it would with dynamic media APIs. It would be possible to leave voice comments. It would be possible to give guitar lessons. Users and sites would adopt the new technology because they wanted the new features.
This came to mind because of these related posts out there:
Ryan Paul at Ars Technica
Sull on Tumblr
See also my Oct 4 2008 post pure AJAX audio formats now a reality
Bruce Warila sez:
Unchecked, a song that’s repeatedly covered, shared and played by everyone gets used up; the resource does deplete.
As the song becomes more widely known, it loses some of its initial value. So you could make a case that filesharing damages songs by making them more popular.
Neilsen Business Media:
Web Music Category Tunes to Audio, Visual Ad Models
“The behavior of listening to music, at the end of the day, is almost entirely audio driven,” said Eric Ronning, co-president, sales of the Internet Radio firm TargetSpot. But many music playlist sites have been hesitant to push audio ads, instead building their ad business around display advertising and sponsorships. Ronning predicts that may change as these businesses evolve. “You can argue that playlists are highly engaging, but they are also an iPod like. I don’t expect an ad so much in that experience…and almost none of that is visual.” Yet many Web music purveyors see visual ads as better suited for such an interactive medium. For example, when users listen to free CDs on AOL Music, “they may be focused on other things, but there’s lots of natural engagement moments that bring you back to the site,” said Mike Rich, AOL’s senior VP, AOL Entertainment. “For us, context and curation are key to keeping users engaged.” (AOL Music’s audience surged by 24 percent to 28 million uniques this past May, per comScore). That’s true even for a seemingly background-relegated music product like the popular Web radio platform Pandora. Its users actively rate songs 7 million times a day in aggregate. “That’s seven million times people come in contact with your ad,” said chief revenue officer John Trimble. Still, Pandora has introduced audio ads in the past year.
It’s not just that copies of a song aren’t rivalrous. It’s that the more copies there are, the more the song is worth.
That’s because one of the functions of music is to be cultural currency. Michael Jackon’s “Thriller” is a good conversational topic. Beethoven’s Ninth Symphony is a landmark that we’d use to describe similar, but less known, works. Thriller and Beethoven’s Ninth wouldn’t be useful in those ways if they weren’t so well known.
Shared references are the power source for mashups like Girl Talk. Because everybody in the crowd recognizes the source samples, the audience can understand they music. The better known the song is, the more people get the reference. And the more copies, the better known.
To get venture capital you need to be pitching a business which can get very big. To make a music company which does that much volume you need to pursue mainstream listeners. To capture mainstream listeners you need content in the short head.
Ergo, eMusic did a deal for music from Sony’s catalog, like Bob Dylan. To do it they needed to raise prices substantially.
But eMusic’s longtime subscribers were evidentally able to get by without Sony’s catalog, and were customers on the basis of lower prices.
The new prices are about double the old ones. The new catalog is shallower, not deeper, so it doesn’t serve the needs of this user base. Higher prices, lower quality.
You see where I’m going with this. Good luck and god speed to you, eMusic. May the road rise with you and the wind be at your back. See ya wouldn’t wanna be ya. Git along little dogie.
But here’s what I’m wondering: who’s going to serve us niche buyers? Is there really no business here? Because I personally wanted more hopelessly obscure electronica, comedy proto-funk, and barely audible wax cylinders, and I can’t be the only one. So whose customer are we now?
And I don’t mean which baby business is willing to take our money until it grows up. Our money’s green as anybody’s — who want it?
There’s a tension between profitability and scale. With niche customers you can earn more per customer but less overall, because there are fewer customers… So don’t talk to me about long tail music, because it’s really a different kind of business than short head music. It’s not selling more of less. It’s a different kind of product with higher margins but lower volume.
Here’s the (Flemish) web site for the band Flat Earth Society:
It’s nice looking.
If you click around for a page that lets you buy something, here’s what you get:
It looks like a scuzzy back hall that nobody goes to, doesn’t it?
Hit one of those Add To Cart buttons and here’s what you get:
It’s like shopping at Prada and finding the checkout counter is in the bathroom. But nothing unusual there — the purchasing experience is often the weakest part of music on the web.
P.S.: That Pay Pal screenshot is a data URI embedded via data URI kitchen. It’s more convenient to do that than to upload a file to my web server. If it doesn’t work for you, can you leave a comment saying what browser you use? I wouldn’t do this on a commercial site, but this is a blog…