SoundExchange

Labels made $1B+ from streaming last year, 45% from sources like Pandora and SiriusXM

Tuesday, April 2, 2013 - 12:40pm

Yesterday (in this article) we alluded to RIAA financial statements that revealed streaming revenue from sources like Pandora, Spotify, and YouTube (known as "access models") amounted to $1.0328 billion in 2012, accounting for 15% of total industry revenue.

$462 million, or about 45% of the digital total, came from non-interactive digital services operating under statutory licenses (Internet, satellite, and cable radio) via SoundExchange.

Physical retail sales (CDs/vinyl) amounted to about $2.584 billion, down 18.5% in a year. Downloads amounted to $3.02 billion.

See the RIAA revenue summary sheet here.

Columnists see matter of Pandora viability through very different lenses

Monday, April 1, 2013 - 1:00pm

The Verge columnist Greg Sandoval cites an RIAA report and statements made by SoundExchange (which collects sound recording royalties from licensed webcast services and satellite radio) to report "Pandora contributes about 25% of all the money the labels receive from the access models. (Incidentally, SoundExchange's revenue was up 58% last year.)" ("Access models" is label terminology for licensed streaming services.)

And this, according to Greg Sandoval in The Verge, is precisely why the labels need to play hardball with Pandora and Internet radio.

"Access models" "are our present and our future," RIAA CEO Cary Sherman told The Verge. "[This] underscores how vital it is to protect these increasingly important revenue streams."

In other words, the labels need to avoid destroying these revenue sources -- yet maintain the upwards pressure on royalties because they also need to maximize profit (and these services are labels' only bright spot right now). Rocco Pendola, columnist for TheStreet, says this shows "the music industry needs Pandora just as bad as -- or, dare I say, worse than -- Pandora needs them. Same goes for the rest of Internet radio."

"If access models fail," Sandoval writes, "the labels risk ending up back in a world where a single player like Apple holds all the power." Industry sources told The Verge that Apple and labels are increasingly close to a deals that would pave the way for an Apple "iRadio" streaming service.

In fact, should the record label give Apple royalty rates that are actually more affordable than the statutory streaming rates, Pandora would have "plenty of ammunition to argue on Capitol Hill that web radio is getting screwed."

Despite this, The Motely Fool is warning investors against Pandora. In a posted video, Motley Fool CTO Jeremy Phillips says Pandora is open to competitive disruption because it doesn't own the content it streams, and any deep-pocketed competitor can easily enter the business. In fact, companies like Google, Amazon, or Apple could operate streaming services at a loss to widen the market for their other businesses.

TheStreet's Pendola strongly disagrees, saying Pandora's Music Genome (its proprietary database of human collected characteristics about each song it plays that drives its algorithmic music programming) is a great example of intellectual property that can't easily be duplicated by a competitor. He also points to the fact that Pandora has been assembling both national and local sales forces to compete with broadcast radio, another accomplishment that won't be easy for a competitor to duplicate.

He writes, "Competitor after competitor has come in and done absolutely nothing to slow Pandora's growth. In fact, the growth has never stalled. In terms of listener hours and revenue, particularly on mobile, the company is as healthy as it has ever been. Don't expect that trend to reverse, even if Apple hits the market with an iRadio product."

Read Sandoval in The Verge here, see video from The Motely Fool here, and read Pendola in TheStreet here.

TAG's Cohen, SomaFM's Hodge, SoundExchange's Prendergast join RAIN Summit West legal/royalties panel

Monday, March 11, 2013 - 12:10pm

We recently announced that the webcasting industry's foremost expert on legal and royalty issues David Oxenford would moderate the RAIN Summit West panel "The Song Plays On" (in RAIN here). Oxenford and his panel will discuss current issues regarding Internet radio royalties -- from the viewpoints of services, copyright owners, and creators alike.

Joining David will be Ted Cohen (top right), Managing Partner, TAG Strategic, a digital consulting firm for the entertainment, technology, and mobile industries whose clients include the UK's Amazing Radio and Canadian Music Week. Cohen helped craft the licensing agreements that made the Rhapsody subscription service and the iTunes Music Store possible. He formerly served as SVP/Digital Development & Distribution for EMI Music and EVP of Digital Music Network Inc.

Like Ted, SomaFM GM & Program Director Rusty Hodge (left) is familiar to many RAIN readers and RAIN Summit attendees. Rusty first worked in radio in the Los Angeles area, but was soon developing software for broadcasters, multimedia, and founding Hodge Interactive to put radio and TV stations on the web. He first experimented with online radio in 1995, then officially launched SomaFM.com in February, 2000. The listener-supported service boasts over 20 expertly-curated channels of music, and streams over 5.8 million listener-hours a month. SomaFM also offers podcasts -- one recent podcast that may be of industry interest is a discussion on the new financial realities of the digital streaming music business and how to improve indie artists' situation (in two segments, here and here).

Also joining the discussion will be Brad Prendergast (bottom right), who is Senior Counsel for Licensing & Enforcement with SoundExchange. SoundExchange is the recording industry body that collects and distributes most royalties webcasters (and others that make digital performances of copyright sound recordings) pay. Prendergast works to ensure licensees are in compliance with the terms of their licenses. He's a gradutate of the University of Virginia School of Law and Notre Dame.

RAIN Summit West is Sunday, April 7 in Las Vegas. The annual full-day Internet radio conference is a co-located education program of the NAB Show. Now in its 12th year, the Summit focuses on the intersection of radio and the Internet. Keynoting the even will be RAB president and CEO Erica Farber (more in RAIN here) and Rhapsody International president Jon Irwin (more here). Register today, while flights and hotels are still readily available, via the RAIN Summit West page.

Fueled by Pandora's, SiriusXM's growth, SoundEx payouts up 58% from 2011

Thursday, January 17, 2013 - 12:45pm

SoundExchange -- the record industry body that collects and distributes royalties for the digital use of copyright sound recordings -- passed along $462 million to labels and performers last year. That's 58% higher than 2011 ($292 million).

When Internet radio, satellite radio, or cable television radio in the U.S. plays copyright sound recordings, they pay a royalty for the use of that music. Not only to the songwriters and publishers (as broadcasters do), but also to the recording copyright owners (labels) and performers on the recordings. SoundExchange is the group that administers the latter.

Billboard explains, "The growth of this revenue stream underscores the importance of services such as Pandora -- and other webcasters -- and Sirius XM Satellite Radio in today's digital marketplace. Pandora, which supported the Internet Radio Fairness Act that could have led to a change in webcasters' statutory royalty rates, finished 2012 with 67.1 million active listeners, up 41% from 2011. Sirius XM added 2 million subscribers to finish the year with 23.9 million."

Pandora and SiriusXM pay the lion's share of SoundExchange royalties (some say as much as 90%).

Read more in Billboard here.

Lane says website shows "RIAA and NARM are bad business partners for Internet radio"

Wednesday, January 9, 2013 - 1:45pm

Jennifer Lane, in her Audio4Cast blog, takes the record industry to task for its treatment of webcasters on its WhyMusicMatters.com website.

The music industry site serves as a directory for consumers to find legitimate, licensed music services. Lane describes the site's presentation of various services offering "downloads/mp3s," "streaming," and more.

But while on-demand and music subscription services (as well as services in a category called "Premium Internet Radio") are given bold-face "headline" names, brief text descriptions, and thumbnail images, most webcasters are relegated to a "statutory services" page "where the listener has to click through hundreds of alphabetized radio stations (no logos, no descriptions, no links) to find one," according to Lane.

"I’m disappointed in the site," she writes. "Unfortunately, this site is a glaring in-your-face example of a bad business partnership. Internet radio services, Pandora in particular, are paying a lot of money in royalties to SoundExchange, the royalty collection arm of the RIAA, and in return they get a listing buried deep in the site with no logo or link."

She continues: "Is there any other business you can think of where the vendors treat their retailers so badly? Because that’s what this is, it’s streaming services buying the rights to content and offering it to consumers. And clearly the RIAA and NARM are bad business partners for Internet radio."

Read her blog here

Oxenford reports CRB gave some consideration to SiriusXM marketplace deals in determining rates

Monday, January 7, 2013 - 11:15am

The recent CRB royalty decision for satellite and cable radio "for the first time, gives at least some weight to direct licensing deals," and "seems to reject some premises that had long been used to justify royalty rates in other proceedings – and thus may give some insights on approaches to be used in the webcasting royalty proceeding."

We're quoting industry legal expert David Oxenford, who has published some preliminary analysis of the Copyright Royalty Board's full determination of royalty rates to be paid to SoundExchange by Sirius XM and Music Choice from 2013 through 2017.

Last week the CRB released its full decision (actually, two separate decisions, resulting in the same determination, here and here). We reported the actual rates last month in RAIN (here).

We also reported (here) that in the proceedings, satellite radio provider SiriusXM revealed more than 60 direct licensing deals it had secured with record labels, which it argued should be used as benchmarks as the market value of digital sound recordings for noninteractive performance. The service says its direct deals are for 5%-7% of revenues.

Logically, the CRB agreed that directly-licensed sound recordings should be excluded from SiriusXM's royalty obligation to SoundExchange (services need pay SoundExchange only for copyright music for which they have not secured direct deals), Oxenford reports.

And while the CRB rejected SiriusXM's proposal to lower rates from 8% of revenue to 5%, it also rejected SoundExchange's proposal to raise rates -- starting at 12% of revenue in 2013 and ending at 20% in 2017. The Board decision -- 10% of revenue this year, rising to 11% next year, and 12% for each of the next three years -- might indeed indicate it took SiriusXM's market deals into consideration, as Oxenford suggests.

This is important to note as we approach CRB proceedings on Internet radio royalties. Broadcasters like Clear Channel and Entercom have struck streaming royalty deals with certain copyright owners. If the CRB is willing to consider marketplace deals in royalty determinations for satellite and cable radio, they may also be willing to do so in the upcoming webcasting proceedings.

The fact that webcasting royalty proceedings are governed by the controversial "willing buyer willing seller" standard, which by design attempts to replicate an "open market" value for copyright material, may be even more reason for royalty judges to consider these direct deals as benchmarks.

[Satellite radio and cable radio royalty proceedings are governed by the more traditional 801(b) standard. The main goal of the Internet Radio Fairness Act is to have Internet radio royalties to be moved to this same standard.]

The next royalty proceeding for noninteractive webcasting services begins in 2014 and should conclude in 2015.

Oxenford also reports that "the Board also explicitly agreed, for the first time in any decision of which we are aware, that pre-1972 sound recordings also are not to be included in the revenue base, as the Federal sound recording copyright only applies to songs created in 1972 and after (with certain exceptions...)." It will be interesting to see if webcasters are given a similar "pre-1972 carve-out."

Oxenford plans to follow up with more detailed analysis. Read his initial thoughts here.

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