itunes radio

Analyst demonstrates how skipping songs quickly inflates Pandora's royalty past Apple's

Friday, July 12, 2013 - 7:00am

Since the contractual terms of use for sound recordings by Apple for its forthcoming iTunes Radio became public (our coverage is here, and you can read the actual contract here), there's been a rush to determine how Apple royalties compare to those of other webcasters, like Pandora. Will song plays on iTunes Radio be more lucrative for copyright owners (and performers) than on a competitor paying the statutory rate? How do Apple's obligations truly compare to Pandora's under its "pureplay" rate?

The University of Virginia's David Touve (we've covered his analysis in RAIN before here) points out in the Rockonomic blog that these discussions fail to take into account two very important factors, both of which can significantly alter a webcaster's effective royalty rate.

Touve points out that (1) the proportion of a service's listening that comes from paying customers compared to free, ad-supported listening; and (2) how many songs listeners typically skip per hour will both impact the royalties services end up paying.

Touve's math shows that while Pandora's effective royalty is lower than Apple's for a listener who doesn't skip songs, it only takes two song skips per hour to bring them nearly equal. At just three skips per hour, Pandora is paying a higher effective rate than Apple.

Here's how. First, the "pureplay" royalty rate -- $0.0012 this year -- only covers free, ad-supported listening. Pandora pays a royalty nearly twice that -- $0.0022 in 2013 -- for songs streamed to Pandora One subscribers.

However, Apple's contract grants it either a discount, or a waiver on royalties altogether for iTunes Match subscribers! [Touve concedes he may "have misread the contract," but believes, "Apple will not owe royalties for iRadio streams to iTunes Match subscribers — even if you don’t own the track being played." It seems more likely that Apple would get an unlimited waiver only on streaming songs the iTunes Match subscribers owns in their cloud. -- Ed.] Whichever the case, Apple's obligations certainly don't go up, as Pandora's do, with subscription listening.

Taking these terms of Apple's agreement into account, Touve determines Apple will pay the contractual minimum of $0.00142 for each streamed song, or $1.42 per one thousand streams (what he calls RPM).

By proportioning paid- and free-listening, Touve calculates for Pandora an effective overall royalty rate of $0.00124 (slightly higher than the "pureplay" rate because of Pandora One listening), or $1.24 RPM. That's significantly lower than Apple's $1.42 RPM. But that's before song-skipping!

For most webcasters, the more a listener skips songs (that is, doesn't hear them, though the webcaster pays royalties for them), the higher the effective royalty rate for the songs that are played.

[Listener A hears six songs and skips two, while Listener B hears six songs and skips none. Both heard six songs, but the webcaster would have to pay for eight songs (6 + 2) for the first listener, but just six songs for the second. Thus, the effective royalty to deliver those six songs to A was higher.]

Apple, however, also gets a break on skipped songs. According to their contract, Apple won't owe for up to six songs per hour that are skipped within the first twenty seconds. (Apple also gets passes for "Listener Matched Content," "Complete-My-Album" plays, and promotional plays -- again, see the links above for our coverage of the specific terms and the contract itself).

So again, the calculations indicate that Pandora's effective royalty is lower than Apple's for a listener who doesn't skip songs. But when the song-skipping begins, Pandora's effective rate begins to climb, while Apple's holds steady. Just two song skips per hour later, they're roughly equal. At just three skips per hour, Pandora's effective rate is higher than Apple's (which, you'll remember, doesn't pay for the first six skips).

We recommend you take a look at the details in the blog and see Touve's math. It's at Rockonomic.com here.

Author and professor Sinnreich illustrates Pandora and iTunes Radio "strategic positions"

Monday, July 1, 2013 - 1:40pm

Last week author, GigaOm Pro analyst, and Rutgers University SC&I assistant professor Aram Sinnreich gave a webinar on webcasting and digital music -- with a focus on Pandora and the coming emergence of Apple iTunes Radio.

Included in his slides, which are now available online, are "Strategic Position" breakdowns for both Pandora and iTunes Radio. He also included a visual depiction of how money flows from consumers through services to owners and creators (similar to the Future of Music Coalition's graphics here).

See Sinnreich's slides here.

Apple to reportedly pay indie labels 0.13 cents per-performance, share of 15% of ad revenue

Thursday, June 27, 2013 - 1:00pm

As Apple prepared to unveil its upcoming webcast service iTunes Radio, it negotiated "direct deals" with the major labels to license the copyright sound recordings they own. Apple has reportedly now circulated "similar though not identical" licensing terms to independent record labels.

The Wall Street Journal reports that Apple is offering to pay sound recording copyright owners a combination of a "per-performance" royalty and a share of advertising revenue (a "performance" means a single listeners hearing a single song). For the first year of iTunes Radio, Apple will reportedly pay indie labels 0.13 cents (or $0.0013) per-performance, plus 15% of its net advertising revenue (proportionate to the music's play on the service). For the second year, those numbers increase to 0.14 cents and 19%.

There's some special conditions involved here too, to which other webcasters that pay through SoundExchange are not afforded. The Journal reports, "Apple won’t have to pay royalties for some performances of songs that are already in listeners' iTunes libraries," which makes sense -- or, interestingly (though perhaps confusingly too) "songs that might be on an album that a listener owns just part of." Further, Apple will get to select what it calls "Heat Seeker" songs to promote, which are also exempt from royalties, as will be songs listeners skip after 20 seconds or less. However, in either case, Apple only gets to avoid paying for two songs per hour per listener. [The publication Hypebot has more explanation and analysis on this here.]

As mentioned, the major labels' terms are similar to those Apple is offering indies, though the majors reportedly get cash advances on royalties.

The offer of terms document, the paper reports, also refers to the possible use of music as background or "bumpers" for talk, weather, sports, and news programming. Apple won't pay for such use of indies' music.

For reference, Pandora pays the "Pureplay" rate, offered by SoundExchange to firms whose primary business is webcasting. For 2013, Pandora pays 0.12 cents per-performance, which will increase to 0.13 cents next year, and 0.14 cents in 2015. Rates for 2016 and beyond have not yet been determined.

"'Pureplay' webcasters, like Pandora, pay significantly lower per performance royalties than either broadcasters or those paying under the statutory rate," points out industry expert David Oxenford, "but are required to pay a minimum fee of 25% of the gross revenue of their entire business." (In other words, Pandora pays the greater of the per-performance rate or 25% of gross revenue. Details of the pureplay agreement are here.)

The statutory rate Oxenford refers to is what was determined by the Copyright Royalty Board to be a "fair market rate" for webcast royalties. Those not party to one of SoundExchange's alternative licenses (under the Webcaster Settlement Act) would pay the statutory, which amounts to 0.21 cents per-performance this year, rising to 0.23 cents for 2014-2015. Read more from Oxenford here.

One further, and important note, especially in light of the criticism directed at Pandora from the recording artist community: The law requires royalties paid by webcasters like Pandora to be divied by SoundExchange, with 50% going to the actual owner of the sound recording copyright (in the majority of cases, this is a record label), 45% to the "featured" performing artist, and the remaining 5% to unions that represent background vocalists and musicians. When sound recording copyright owners make direct deals with operators, as they have with Apple, they are under no obligation to share the royalty revenue with performers. (The paper's reporting of Apple's deals is very general, and we're not suggesting we know performers won't get directly paid in them. We're just pointing out that the law does not mandate a share for performers in direct deals.)

Though no specific terms were reported by the paper in regards to music composition licensing, the Journal writes "Apple is also offering music publishers more than twice as much in royalties than Pandora does."

The Wall Street Journal article is here. You can also read more in Crain's New York here.

iTunes Radio review: "First truly modern take on what terrestrial radio wishes it could be"

Friday, June 21, 2013 - 12:50pm

Fast Company's FastCoLabs has reviewed Apple's upcoming iTunes Radio (it's available to developers through the iOS 7 beta, which you can get here) -- and seems really enthused by the way Apple links song plays to purchase opportunities via iTunes.

"Radio was always meant to be a promotion tool, a way to sell more music," blogger Tyler Hayes wrote (he blogs at Liisten.com and contributes to Hypebot). "Now a 'buy' button lives next to every song, or a wish list one for those hesitant, and it feels like this is how modern radio should function."

Now, we've always felt that most professional webcast services make it plenty easy to buy the music you hear. But, arguably, already being "in" iTunes (and, more importantly, having those purchases affect the music you hear on your personal stations) seems pretty advantageous.

Another cool feature Hayes brings up is the "Song History," where you can go back and see what you've already heard, get a short audio sample to remind you which track it was that caught your ear 20 minutes ago, and buy it. Hayes calls it the "crown feature." He says, "iTunes Radio feels like the first truly modern take on what terrestrial radio wishes it could be."

Read the review here.

A veteran of 'strategic competition,' Apple needn't hit a home run to beat Pandora, says blogger

Friday, June 14, 2013 - 12:15pm

A Forbes.com contributor says webcaster Pandora is caught in a "seemingly intractable slugfest with no end," and is "vulnerable to a knockout" -- following both Apple's iTunes Radio announcement and new legal conflict with ASCAP and BMI.

BMI has announced it is ceasing rights negotiations and will file suit against Pandora after the company bought a small market radio station with the intent to qualify for broadaster licensing terms. ASCAP (which is being sued by Pandora) and the National Music Publishers' Association didn't care much for the move either. There's more here.

CNet (here) and Lifehacker (here) both point out what they see as some big advantages Apple has over Pandora.

Apple's more likely than Pandora to roll its new service out globally, says CNet, and this is huge. And while Pandora has made great strides towards dashboard integration, Apple's advantage in this area will be the voice-activated Siri technology.

Lifehacker points out Apple has the iTunes store and its massive mountain of listener-preference and purchase data. It also helps that iTunes has a tremendous "install base" across Apple devices and PCs (Mashable, here, says one analyst has determined Apple adds half a million new iTunes accounts every day!).

But the Forbes.com piece suggests Apple's service needn't at all be perfect to make life untenable for Pandora.

"Whether the iPhone maker’s service really improves on Pandora’s offering is almost beside the point," writes Mark Rogowsky on the site. "Apple will market it relentlessly and it doesn’t need iTunes Radio to be profitable on its own. That kind of 'strategic competition' has made life miserable for... competitors and its going to be a harsh one for Pandora."

He thinks Apple should buy Pandora. Read the piece at Forbes.com piece is here.

Analysts, and even competitors, expect Apple's iTunes Radio will be good for the industry

Tuesday, June 11, 2013 - 12:30pm

We're certainly seeing lots of coverage and reaction to yesterday's unveiling of Apple's new iTunes Radio. You've probably come across a bunch yourself, but we wanted to steer you towards a few interesting pieces:

  • Forbes' take is iTunes Radio will usher in positive expansion and growth for the record industry and Internet radio alike: Increased industry revenue; "mass acceptance" of music streaming; enhanced music discovery; and increased artist/songwriter royalties. Read the details in Forbes here.
     
  • Music Industry Blog says while it's true Apple has probably taken the "conservative me-too strategic option rather than bringing new transformative innovation," the new service should be seen (mostly) as a way to sell iPads and iPhones. Once all our data is in the cloud, the blog argues, device storage capability isn't as important, and device prices will fall, thus Apple's slow approach. Read more here.
     
  • A New Music Seminar panel in New York on Monday (which featured RAIN publisher Kurt Hanson, see more in today's issue here) featured several execs from companies who now find themselves in direct competition with Apple. Representatives of Pandora, Clear Channel, Spotify, and others welcomed Apple's entry as a validation of their own businesses, according to Billboard. Read more here.
     
  • Similarly, Pandora issued a statement yesterday about iTunes Radio, saying it brings Apple "on par with other streaming music services that have added radio into their feature sets." Pandora pointed to its 13-year history with Internet radio as a focus, not a feature. Slacker CEO Jim Cady pointed out Apple's closed ecosystem, saying "Walled gardens don’t benefit listeners and Slacker believes in the importance of giving users true freedom to access their content." Read more in Hypebot here and here.
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