Low publishing fees, royalties on "skipped" songs could be sticking points for Apple to get iRadio out the door

Tuesday, May 21, 2013 - 1:45pm

Greg Sandoval at The Verge and Paul Sloan at CNet both report that negotiation snags are delaying Apple's roll-out of its much-anticipated "iRadio" streaming service (Apple reportedly wants to debut this summer at the latest, and possibly by next month's Worldwide Developers Conference).

Part of the problem is apparently that Apple's service will be more like Pandora, and less like Spotify. Sandoval writes, "The record companies and music publishers don't want another web radio service that satisfies a lot of music consumption but doesn't pay them much... The widely held belief by industry leaders is that to stop the slide in music sales, consumers have to be offered unlimited access to deep pools of songs that are supported by either small, monthly subscription fees, or advertising sales."

According to The Verge, it's Sony/ATV -- that's a music publisher, not a label group (and administers copyright song compositions, not recordings) -- that's holding up the negotiations. BMG Rights Management, the fourth largest music publisher, is another hold-out.

But CNet says it's Sony Music (the label group) holding things up for Apple, "over how much Apple would pay for songs that people listen to a fraction of and then skip." Sloan writes, "That skipping has become an issue is frustrating executives at the other labels because they see Apple's free radio service as a potential boon for the music industry overall and are eager to help the company get it launched... While it's unclear what Sony is asking for... if Apple bends for Sony on this issue, it would cause problems with its deals with Warner and Universal."

Read The Verge's coverage here and CNet's coverage here.

More ads, lower music costs make Slacker "gross margin profitable" on every listener, it claims

Monday, May 13, 2013 - 10:55am

Webcaster and on-demand subscription service Slacker last week revealed it's reaping the fruits of its February relaunch in the form of surging audience growth. The company also claims it's attracting Pandora users shut out by that company's recent 40-hour/month listening cap on free mobile streams.

What's more, CEO Jim Cady says his company is "gross margin profitable" on every listener in part because "direct" royalty deals have made it less expensive for Slacker to license music than for its competitors.

In a press release, Slacker says since its February relaunch (including a redesign of its web site and mobile apps), more than six million new listeners have registered, including over 100-thousand paid subscribers. And the amount of time the average user listens has jumped 25%. Among new listeners, 3.5 million listen via mobile devices. Its user penetration on Apple devices has more than tripled.

Slacker partners for content with ABC Radio. Its general manager Steve Jones told USA Today, "Our audience has grown 3% to 4% every week since February. We're thrilled."

And they're ready to bring on even more users. According to paidContent, Slacker is close to sealing a deal with "a major telco provider" -- a move Cady predicts could be worth "millions of paid subscribers" to his service. Last week we covered news (here) that Slacker had entered a partnership with Vodaphone which would enable them to enter the UK market, but it's not clear if this is the deal of which paidContent wrote.

Early in March, leading webcaster Pandora announced, as an effort to reduce music royalties, it would limit mobile listeners to 40 hours per month of free, ad-supported listening (paid listening by subscribers is not limited, nor is listening on While services make significantly less on advertising to mobile listeners, music licensing costs remain the same -- meaning heavy users of free ad-supported mobile streams are hardest to monetize for webcasters.

Cady says his service has gained listening partly due to Pandora's move. Adding to that, he tells numerous sources (like VentureBeat), Slacker's "proven business model" enables Slacker (unlike Pandora) "to monetize users with free accounts" -- even mobile users.

First, Slacker simply runs more ads than Pandora. Wedbush Securities analyst Michael Pachter explained this to USA Today: "Slacker is one-sixth the size of Pandora, and both run ads. Slacker does three minutes per hour, Pandora one per hour. It's that simple."

But perhaps even more interesting is that Cady (pictured) says his "direct deals" with record labels and publishers save the company big money. Slacker told it doesn't pay SoundExchange -- the music industry body that collects and distributes royalties for those services that operate under statutory licenses. Slacker claims their direct deals enable them to pay a lower royalty than do SoundExchange customers (like Pandora).

Slacker, which launched its digital music service in 2010, has raised $50 million in investment. The company also recently expanded its operations, opening offices in Palo Alto, CA and New York.

Read more in coverage from paidContent here, USA Today here, VentureBeat here, and here.

High-cost licensing may have kept investors and entrepreneurs from launching music services this year

Thursday, December 20, 2012 - 12:45pm

Some industry observers and investment experts have said the high cost of sound recording royalties is an obstacle to investment in startups that need to license music from major labels (see RAIN here).

Tech VC David Pakman (a New York Venrock partner) testified before the House Judiciary Subcommittee on Intellectual Property, Competition and the Internet regarding the state of Internet radio licensing and the Internet Radio Fairness Act. Although he co-created Apple's Music Group and was CEO of eMusic, he's vowed not to return to nor invest in digital music until the licensing climate changes. As he testified, "Although we have met many great entrepreneurs with great product ideas, we have resisted investing in digital music largely for one reason — the complications and conditions of the state of music licensing." (Read his full testimony here).

So, what might it say that Billboard's Ten Most Internesting Startups of 2012 "doesn't have a single service on the list that requires licenses from record labels to operate?"

Note that it's not likely that poor ad revenue is keeping services from launching. The IAB says (here) Q3 2012 online ad revenue is the most ever for a single quarter. And eMarketer just revised their U.S. mobile ad spend projections, saying it will grow 180% this year (see our coverage in today's issue here).

Whatever the reason, 2012's startup roster lacks some of the bang of years past (Rdio, Spotify, iHeartRadio in recent years). Billboard's list does include a couple of firms that make apps for Spotify and are "radio-related":

Sounddrop: adds a social media element to Spotify radio listening
Tunewiki: synchronizes lyrics with music.

Musically's list was more extensive (40 startups), so it included more companies that are doing things along the lines of Internet radio. Musically's list includes:

Senzari: (which we've covered) Customized radio streams for European markets 
Audiogalaxy: "radio-style mixes," now owned by Dropbox
MPme: iPad app suggests radio stations based on user's listening habits and music collection
Piki: app which builds radio-style playlists based on friends' song recommendations
SpotOn Radio: Spotify app which makes Spotify radio listening more like Pandora.

See Billboard's "Ten Most Interesting" here. See Musically's "40 Music Startups and services to watch" here.

Free online radio to be limited to U.S., UK, and Germany - and only on its website

Thursday, December 13, 2012 - 3:15pm

CBS Interactive-owned music service has announced it will shut down its online radio service in all but eight countries, "due to licensing restrictions."

While U.S., UK, and German listeners will still be able to use the radio service free via the website, radio via the desktop application in those nations will become solely a subscription-based service (ad-supported free radio via apps had been available to users in those countries). Mobile access to radio (since April 2011) has been subscription-only, and will remain so.

Elsewhere in the world,'s radio service has been subscription-only since 2009. It will remain so for Canada, Australia, New Zealand, Ireland, and Brazil. But elsewhere, online radio will entirely cease on January 15.

The cost of licensing copyright sound recordings has always been, and continues to be, inhibitive to online music companies in the U.S. and elsewhere.

2012 marked the tenth anniversary of's founding. It was purchased by CBS in 2007, and remains based in England. also announced an upcoming revamped desktop client. features a music recommender system called "Audioscrobbler," which compiles details of users' music habits ("scrobbling") -- on Internet radio stations, local files, or portable devices -- and builds a detailed profile of each user's musical tastes. It's this database that powers's music recommendation capability.

Read the announcement here.

Music licensing may very well be keeping innovators away

Friday, December 7, 2012 - 12:10pm

All Things D's Peter Kakfa wrote last week, "Question to the people putting money into streaming music start-ups in 2012: What are you thinking?"

Given today's top story in RAIN, this seemed like a good time to circle back around to this story, a tech VC's recent testimony on Capitol Hill, and an rebuttal from former exec Matthew Hawn in GigaOm.

Kafka, like Fred Wilson, points out the problem with "market caps" and real royalty costs:

"Yes, public investors value Pandora at something like $1.4 billion. And private investors think Spotify is worth at least $3 billion... But even those guys are in a precarious position, because they’ve yet to demonstrate that they can afford the cost of music they’re either selling or giving away. And they’re competing with the likes of Apple and Microsoft, which can afford to lose money on this stuff because they think it can help their real businesses."

He then points back to tech VC David Pakman's testimony from the recent House Judiciary subcommitte hearing on the Internet Radio Fairness Act. "Pakman used to run a digital music company himself and, like nearly every single person who leaves digital music, he has vowed to never go back until the licensing climate changes.

'Although we have met many great entrepreneurs with great product ideas, we have resisted investing in digital music largely for one reason — the complications and conditions of the state of music licensing.'"

Hawn (the former guy) says Kafka and Pakman are focusing too much on companies that rely on publishing/performance rights for streaming and downloading. He argues there's lots of room for innovative music start-ups that focus on other areas, like live music, promotion and discovery, and B2B services.

He suggests start-ups reinvent spaces like creating a better marketplace for licensing of music to TV, games, advertising and film; or becoming the Threadless or Etsy of band merchandising.

Interestingly, he writes: "The accounting system that underlies the publishing and performance rights is one of the most rotten and complicated things about the industry. It’s only getting worse as are more digital products and services are created... A music start-up built on transparency, great analytics and paying artists faster and more fairly would be the most disruptive music business ever."

So, where they all seem to agree is: don't start or invest in a company that relies on licensing recorded music at a reasonable rate.

Read Kafka here, Pakman here, and Hawn here.

Satellite radio operator complaint accuses record industry groups of anti-competitive behavior

Wednesday, March 28, 2012 - 12:45pm

U.S. satellite radio provider Sirius XM has filed a lawsuit against SoundExchange and the American Association of Independent Music (A2IM), accusing the record industry organziations of interfering with its efforts to directly license the sound recordings. The complaint accuses SoundExchange and A2IM of being in violation of federal antitrust law, and New York state law.

The satellite radio firm, like webcasters, pays the owners of recording copyrights (that is, record labels) royalties to play music. Sirius XM reportedly pays SoundExchange 8% of its gross revenues for all the music it uses on its over-the-air programming, which SoundExchange distributes to the labels.

But this agreement ends this year, and the record industry will likely be pushing for significantly higher rates beginning in 2013. Moreover, Sirius XM says it wants a single license covering all its platforms (satellite, Internet, and mobile). So, "instead of relying exclusively on licenses either negotiated with SoundExchange acting as the record industry's collective or on the outcome of regulatory rate-making proceedings," Sirius XM felt it could get more competitive royalty rates by licensing music directly from the labels themselves, cutting SoundExchange out of the equation. In 2010, it began what it calls its Direct Licensing Initiative, offering labels rates of 5%-7% of "defined" revenues (see more RAIN here and here). Though they met with some success (Sirius XM says it has managed to secure almost 80 direct licenses with copyright owners), the company insists it would have been able to get many more if not for the alleged interference.

Sirius XM now contends that SoundExchange and A2IM, "along with major music industry organizations, have organized a boycott to prevent independent record companies from negotiating direct licenses with SiriusXM," alleging an "orchestrated effort" to prevent potential licensing partners from negotiating directly with Sirius XM.  

Sirius XM published a press release on the suit, which you can read here. There's coverage from The Wall Street Journal here, and Reuters here, Radio-Info here, and more here.

Industry legal expert David Oxenford examines the implications of this news for webcast licensing, in today's B story.

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