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Pandora, Apple, &
The State of Web Radio
Dr. Aram Sinnreich
Assistant Professor
Rutgers University SC&I
June 27, 2013
Introduction
Aram Sinnreich, Ph.D.
Currently:
• Assistant Professor, Rutgers University SC&I
• Analyst, GigaOM Pro
• Author of 2 books:
• Mashed Up (2010)
• The Piracy Crusade (2013)
Previously:
• Co-Founder, Managing Partner, Radar Research
• Director, OMD Ignition Factory
• Visiting Professor, NYU Media & Culture
• Journalist, Wired, MediaPost, Billboard, NY Times
• Senior Analyst, Jupiter Research
1.
Legal & Economic Foundations
Traditional Music and Copyright
Artists/Labels
“Masters Rights”
Composers &
Publishers
“Publishing Rights”
Retail Radio
• Retailers pay
wholesale to labels
• Labels pay royalties
to artists
• Retailers pay
wholesale to labels
• Labels pay “mechanical”
royalties to publishers
• Publishers pay
composers
• Broadcasters do NOT
pay performance
royalties on masters
• Promotion and “payola”
• Broadcasters pay
royalties to PROs
(e.g. BMI)
• PROs pay publishers and
composers
Traditional Radio: Value Chain
Traditional Radio:
Revenue Distribution
Traditional Retail: Value Chain
Traditional Retail:
Revenue Distribution
New Tech is Blurring the Lines
Programmed
(Radio)
On-Demand
(Retail)
Compulsory ?????????????????? Contractual
The DMCA: Radio Rules Online
Programmed Personalized
DiversityofContent
COMPULSORY
(Pub + Masters)
LICENSED
Webcasting Economics
ConsumersWebcasters
LabelsArtists
Publishers Composers
Ads ($5-10 CPM)
& subscriptions
($2/month)
PROs (e.g. ASCAP)
SoundExchange
GREATER OF
$0.0012 / stream*
OR
25% of income
($462M in 2012)
$219mm $243mm
Roughly 4% of revenues
*Pandora negotiated rate.
CRB Rates:
• Pure-play: $0.0021
• Cross-channel: $0.0022
• Subscription: $0.0035
Boilerplate Subscription Economics
Consumers
Retailers
(30%)
Labels
(60%)
Artists
Publishers
(10%)
Composers
10.5% of
revenues
Consumers generate
revenue both through
ads and subscriptions
($5-10/month)
Pro rata or
~$0.007
per stream
($571M to labels
in 2012)
1/10 – 1/2 cent
per stream
5% of
revenues
PROs
(e.g. ASCAP)
OR
Boilerplate MP3 Economics
Consumers
Retailers
(30%)
Labels
(60%)
Artists
Publishers
(10%)
Composers
$1 per song
$0.60 per song
($2.9B in 2012)
$0.08
per song
$0.10
per song
$0.05
per song
2.
Overview: Pandora, Apple &…
Pandora: Vital Statistics
FINANCIALS
• Revenues 2012: $427.1M
• Net loss: $38.1M
• High content costs (66% revs)
• Market Cap: $3B
• Ad revenue = 84%
• Sub revenue = 16%
• RPM: $48 (web), $25 (mobile)
CUSTOMERS
• 200M registered users
• 70M active users
• 2.5M paying subscribers
• +700k in last Q alone
• 70-75% of all US webcasting
• 7-8% of all US radio
• Mobile = 79% of usage
SERVICE
• 1M+ songs in library
• Proprietary “Music Genome”
• Free & ad-supported
• PandoraOne:
$36/year ad-free HQ
Source: Triton Digital/RAIN, March 2013
Webcaster Traffic
1,527
202
57
28
25
14
14
12
10
0 400 800 1,200 1,600
Pandora
Clear Channel
Slacker
CBS
Cumulus
NPR
Univision
Cox
ESPN
Total monthly session starts (millions), daypart 6am-12am.
Keys to Pandora’s Appeal
Enter iTunes Radio
Here Comes the Gorilla
SERVICE
• Fall 2013 launch in US
• Available on all Apple devices
and via iTunes on Windows
• 200 stations + personalization
• Siri integration
• Free, ad-supported
• Ad-free integration with
iTunes Match for $25/year
• Deep integration w. retail via
“buy” button & w. iAd
• Integrated label promotion?
BUSINESS
• Publisher licensing:
• 10% of revenues (2.5x Pandora)
“introductory rate”
• Major labels – greater of:
• 50% of net ad revs, OR
• $0.00125-$0.0016/stream
(not paying for skips?)
• “Substantial” advance
• Indie labels:
• 15-19% of net ad revs, AND (?!?)
• $0.0013-$0.0014/stream
• Leveraging iTunes store to
compel participation
Pandora: Strategic Position
STRENGTHS
• Webcasting market leader
• Market-defining brand
• Proprietary technology
• Large x-platform install base
• Predictable cost base
• Enough cash for 5 years
WEAKNESSES
• Consistent red ink (content costs)
• Small library, non-interactive
• Over-reliance on advertising
• Near market saturation in US
• No cross-channel power (except
in S. Dakota)
OPPORTUNITIES
• Recently announced in 100 car
models, 2.5M+ activations
• Growing subscription service
• Increasing sales team; expand
mobile advertising model
• License Music Genome engine
• Develop partnerships with
existing cross-media brands
THREATS
• Increasing competition from all
three sides: Spotify, CC, Apple
• Tension w. artists leadings to bad
PR and possible defections
• Fickle consumers, rapidly evolving
mobile market
• Mobile bandwidth not priced for
heavy streaming
Apple: Strategic Position
STRENGTHS
• World’s largest music
retailer, with 75% digital & 31%
overall
• 575M iTunes users in 120+
countries, 600M iOS
devices, 300M iCloud users
• Competitive pricing
• More than enough cash to wait
out competition
• Gizmodo: “better than” Pandora
WEAKNESSES
• iOS market share < Android
• No access to Pandora’s 100M+
Android users
• More expensive pub licensing
• Revenue share could prove pricey
• Late entry in saturated market
• Limited success with streaming
and social media in the past
OPPORTUNITIES
• iAd netwk/exchange integration:
possible RTB play?
• iTunes Store integration
• In-app major label music
promotion (don’t say “payola”)
• Not bound to DMCA
THREATS
• Market power still contingent on
post-Steve Jobs device innovation
• Spotify & others undermining
Apple’s source of leverage
• Must demonstrate that service is
additive, not cannibalistic
• Shrinking revenue-per-user
Additional Pandora Competitors
Launched:
• Europe: February, 2009
• US: July, 2011
Users:
• 25-30M active
• 6-7M paid
• 28 countries
Strategic:
• Ford/Volvo deals
• #2 source of $ for labels after iTunes
• Released free streaming radio in
2012
• Expanding radio overseas in 2013
Launched:
• April, 2008
• Relaunched July, 2011
• Owned by Clear Channel
Users:
• 33M registered
• 60M monthly uniques
Strategic:
• Chrysler/GM/Toyota deals
• Broadcast/outdoor/event synergies
• “Perfect for” feature like Songza
• “Add-ins” provide local news, traffic
and weather from CC stations
• Revshare deals with Big
Machine, Glassnote, Fleetwood Mac
3.
Beyond Webcasting?
Emerging DigiMusic Categories
Digital Retail Webcasting Subscription Cloud Services Music Apps Social Music
Creation
Discovery
Digital Music Drivers and Inhibitors
Consumer
market
confusion
DRIVERS
INHIBITORS
Music
licensing
challenges
Wireless
data
limitations
Social
integration
Hardware
integration
(auto & IPTV)
Cloud
adoption
Global
market
maturation
Global
competition
Mobile
ad
growth
Q & A
Thank you.
Questions?
sinn@rutgers.edu
Twitter: @aram
http://aram.sinnreich.com

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The State of Webradio: Pandora vs. Apple

  • 1. Pandora, Apple, & The State of Web Radio Dr. Aram Sinnreich Assistant Professor Rutgers University SC&I June 27, 2013
  • 2. Introduction Aram Sinnreich, Ph.D. Currently: • Assistant Professor, Rutgers University SC&I • Analyst, GigaOM Pro • Author of 2 books: • Mashed Up (2010) • The Piracy Crusade (2013) Previously: • Co-Founder, Managing Partner, Radar Research • Director, OMD Ignition Factory • Visiting Professor, NYU Media & Culture • Journalist, Wired, MediaPost, Billboard, NY Times • Senior Analyst, Jupiter Research
  • 3. 1. Legal & Economic Foundations
  • 4. Traditional Music and Copyright Artists/Labels “Masters Rights” Composers & Publishers “Publishing Rights” Retail Radio • Retailers pay wholesale to labels • Labels pay royalties to artists • Retailers pay wholesale to labels • Labels pay “mechanical” royalties to publishers • Publishers pay composers • Broadcasters do NOT pay performance royalties on masters • Promotion and “payola” • Broadcasters pay royalties to PROs (e.g. BMI) • PROs pay publishers and composers
  • 9. New Tech is Blurring the Lines Programmed (Radio) On-Demand (Retail) Compulsory ?????????????????? Contractual
  • 10. The DMCA: Radio Rules Online Programmed Personalized DiversityofContent COMPULSORY (Pub + Masters) LICENSED
  • 11. Webcasting Economics ConsumersWebcasters LabelsArtists Publishers Composers Ads ($5-10 CPM) & subscriptions ($2/month) PROs (e.g. ASCAP) SoundExchange GREATER OF $0.0012 / stream* OR 25% of income ($462M in 2012) $219mm $243mm Roughly 4% of revenues *Pandora negotiated rate. CRB Rates: • Pure-play: $0.0021 • Cross-channel: $0.0022 • Subscription: $0.0035
  • 12. Boilerplate Subscription Economics Consumers Retailers (30%) Labels (60%) Artists Publishers (10%) Composers 10.5% of revenues Consumers generate revenue both through ads and subscriptions ($5-10/month) Pro rata or ~$0.007 per stream ($571M to labels in 2012) 1/10 – 1/2 cent per stream 5% of revenues PROs (e.g. ASCAP) OR
  • 13. Boilerplate MP3 Economics Consumers Retailers (30%) Labels (60%) Artists Publishers (10%) Composers $1 per song $0.60 per song ($2.9B in 2012) $0.08 per song $0.10 per song $0.05 per song
  • 15. Pandora: Vital Statistics FINANCIALS • Revenues 2012: $427.1M • Net loss: $38.1M • High content costs (66% revs) • Market Cap: $3B • Ad revenue = 84% • Sub revenue = 16% • RPM: $48 (web), $25 (mobile) CUSTOMERS • 200M registered users • 70M active users • 2.5M paying subscribers • +700k in last Q alone • 70-75% of all US webcasting • 7-8% of all US radio • Mobile = 79% of usage SERVICE • 1M+ songs in library • Proprietary “Music Genome” • Free & ad-supported • PandoraOne: $36/year ad-free HQ
  • 16. Source: Triton Digital/RAIN, March 2013 Webcaster Traffic 1,527 202 57 28 25 14 14 12 10 0 400 800 1,200 1,600 Pandora Clear Channel Slacker CBS Cumulus NPR Univision Cox ESPN Total monthly session starts (millions), daypart 6am-12am.
  • 19. Here Comes the Gorilla SERVICE • Fall 2013 launch in US • Available on all Apple devices and via iTunes on Windows • 200 stations + personalization • Siri integration • Free, ad-supported • Ad-free integration with iTunes Match for $25/year • Deep integration w. retail via “buy” button & w. iAd • Integrated label promotion? BUSINESS • Publisher licensing: • 10% of revenues (2.5x Pandora) “introductory rate” • Major labels – greater of: • 50% of net ad revs, OR • $0.00125-$0.0016/stream (not paying for skips?) • “Substantial” advance • Indie labels: • 15-19% of net ad revs, AND (?!?) • $0.0013-$0.0014/stream • Leveraging iTunes store to compel participation
  • 20. Pandora: Strategic Position STRENGTHS • Webcasting market leader • Market-defining brand • Proprietary technology • Large x-platform install base • Predictable cost base • Enough cash for 5 years WEAKNESSES • Consistent red ink (content costs) • Small library, non-interactive • Over-reliance on advertising • Near market saturation in US • No cross-channel power (except in S. Dakota) OPPORTUNITIES • Recently announced in 100 car models, 2.5M+ activations • Growing subscription service • Increasing sales team; expand mobile advertising model • License Music Genome engine • Develop partnerships with existing cross-media brands THREATS • Increasing competition from all three sides: Spotify, CC, Apple • Tension w. artists leadings to bad PR and possible defections • Fickle consumers, rapidly evolving mobile market • Mobile bandwidth not priced for heavy streaming
  • 21. Apple: Strategic Position STRENGTHS • World’s largest music retailer, with 75% digital & 31% overall • 575M iTunes users in 120+ countries, 600M iOS devices, 300M iCloud users • Competitive pricing • More than enough cash to wait out competition • Gizmodo: “better than” Pandora WEAKNESSES • iOS market share < Android • No access to Pandora’s 100M+ Android users • More expensive pub licensing • Revenue share could prove pricey • Late entry in saturated market • Limited success with streaming and social media in the past OPPORTUNITIES • iAd netwk/exchange integration: possible RTB play? • iTunes Store integration • In-app major label music promotion (don’t say “payola”) • Not bound to DMCA THREATS • Market power still contingent on post-Steve Jobs device innovation • Spotify & others undermining Apple’s source of leverage • Must demonstrate that service is additive, not cannibalistic • Shrinking revenue-per-user
  • 22. Additional Pandora Competitors Launched: • Europe: February, 2009 • US: July, 2011 Users: • 25-30M active • 6-7M paid • 28 countries Strategic: • Ford/Volvo deals • #2 source of $ for labels after iTunes • Released free streaming radio in 2012 • Expanding radio overseas in 2013 Launched: • April, 2008 • Relaunched July, 2011 • Owned by Clear Channel Users: • 33M registered • 60M monthly uniques Strategic: • Chrysler/GM/Toyota deals • Broadcast/outdoor/event synergies • “Perfect for” feature like Songza • “Add-ins” provide local news, traffic and weather from CC stations • Revshare deals with Big Machine, Glassnote, Fleetwood Mac
  • 24. Emerging DigiMusic Categories Digital Retail Webcasting Subscription Cloud Services Music Apps Social Music Creation Discovery
  • 25. Digital Music Drivers and Inhibitors Consumer market confusion DRIVERS INHIBITORS Music licensing challenges Wireless data limitations Social integration Hardware integration (auto & IPTV) Cloud adoption Global market maturation Global competition Mobile ad growth
  • 26. Q & A