Friday, March 08, 2013

Music For Nothing - Well Almost

The expected new music streaming service from Apple appears to have been delayed, not due to technology, but due to the commercial terms demanded by them. The service is expected to be very similar to Pandora.

The music labels want to ensure that they get a respectable return from this new revenue stream and already it appears that the rates companies pay varies significantly.  Spotify, who are often cited as the bad boys, are paying some 35 cents per 100 songs, whilst iHeart pays around 22 cents and Pandora only 12 cents. So is it any surprise the talks hit stale mate when Apple wanted to only pay an initial royalty rate of 6 cents per 100 songs streamed. To confuse the situation even further the rate set by the Copyright Royalty Board, is around about 21 cents per 100 songs streamed. Again three times the rate proposed by Apple.

So we have a significant variance in the rates paid and a move to lower the bar even further by Apple. The result would be obviously less income for the artists and the Apple service would have to generate six times the volume of Spotify for it to generate the same return to the labels and artists. Any service that was paying more than Pandora today should seriously be comparing the streaming volumes and seeking a leveller playing field which in turn could reduce rates others are paying today and the net receipts of the labels.

Apple propose an iRadio services supported by its iAds advertising platform. This could bring in additional revenues to offset the low streaming rate but he music labels want a standard fee and a percentage of ad revenues and are cautious about a greater emphasis on somewhat variable and highly volatile advertising revenues which could evaporate as easily as it appears.

Although all the technology giants are looking at streamed music and no doubt global services, we have to be somewhat cautious, as the likes of Pandora with its 67 million regular listeners isn't exactly generating huge profits today. The service like its competitors is delivering significant growth with 4th quarter revenue up some 54% to $125 million and with mobile revenues accounting for almost 50% on the year and nearly double at $255.9 million. However, whilst the revenue results beat Wall Street forecasts, they remain unprofitable, reporting a net loss of $38.1 million, which is almost double the previous year’s loss.

Despite this uncertain backdrop and with their CEO, Joe Kennedy standing down, Pandora’s share rose some 20%. It is clear that the markets believe in the long term sustainability of streamed subscription and ad based music services and it is also rumoured that Google is now in discussion on its own planned service. 

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