Business Matters: Why Spotify Royalties Are Greater Than Radio Royalties

Business Matters: Why Spotify Royalties Are Greater Than Radio Royalties

Business Matters: Why Spotify Royalties Are Greater Than Radio Royalties

Why Spotify Royalties Are Bigger Than Radio Royalties
-- Because of its large audience, radio is a more valuable revenue stream than on-demand subscription services. But when compared a revenue-per-listen basis, Spotify royalties exceed those paid by terrestrial radio in the U.S. and the U.K. That's the conclusion of David Touve, an Assistant Professor of Business at Washington & Lee University who has long studied the music industry.

Per-listener, a spin on terrestrial radio ranges from $0.000186 to $0.000372 in the U.S. and from £0.000299 to £0.000498 in the U.K. ($0.0004 to $0.0007 at current currency rates), according to Touve's calculations. To arrive at these numbers Touve used publicly available financial and listening data. He incorporated many assumptions and needed to make one educated guess (the annual revenue of SESAC). His estimates cover a range of audience sizes for any given quarter hour as well as songs played per hours by radio stations. Note the U.K. figure includes both copyrights. In the U.S. only music publishers receive performance royalties for terrestrial radio.

Radio royalties may seem relatively large because people tend not to think of them in terms of revenue generated for transmitting a song to an individual listener. A single spin on terrestrial radio is heard by a large audience, and the performance royalties paid by a station is a function of its revenue. In contrast, payouts by on-demand services such as Spotify are reported as a per-play royalty. Thus, radio royalties seem big because many people are listening while on-demand royalties seem small because only one person is listening.

All four of Touve's radio estimates are far lower than what is typically paid out for a single play on Spotify (which splits a pool of revenue based on streaming activity). Take the range of U.S. terrestrial radio royalties of $0.000186 to $0.000372. A typical Spotify payout of 0.3 cents per stream (an estimate based on Billboard sources and media reports) is 16.1 times greater than $0.000186 and 8.1 times greater than $0.000372. In addition, a 0.3-cent per stream royalty is nearly 3 times greater than the statutory royalty paid for a single stream by a non-interactive webcaster.

In other words, on-demand streaming generates more royalties for each time a single person hears a song. The biggest difference between radio and on-demand is the size of the audience. Radio royalties feel bigger because so many people listen to radio. And on-demand royalties feel small because so few people use services like Spotify.

An astute reader may note that a 0.3-cent Spotify payout is typical for the sound recording while U.S. terrestrial radio royalties cover only the composition. So this is a bit like comparing apples to oranges. But one should not easily dismiss the disparity between the estimates for radio and streaming royalties. Even if one adjusted radio royalties to include compensation for the sound recording, they would still lag behind streaming royalties. Indeed, Touve's estimates for U.K. radio royalties include both copyrights and still fall well behind streaming royalties.

Poor perception of streaming services' royalties can be explained, in part, by streaming services' paucity of listeners. As Touve notes, comparing royalties on a per-listen basis can change the perception of on-demand service's royaltyies. "Were the pool of money flowing from music services in the UK, such as Spotify, as large as that flowing from Radio, we might not be having these sorts of discussions," he writes. "Maybe someday both of these pools will be large. The bigger question than these present rates, therefore, is whether we should and how we might get to that version of someday."

The Spirit of Christmas 2011: 6.8 Million iOS & Android Activations
-- Christmas day activations of iOS and Android devices totaled 6.8 million globally, 353 percent higher than the 1.5 million average established from December 1 to 20, according to Flurry. Christmas day 2011 was 140 percent higher than Christmas day 2010. How well do Flurry's numbers match the overall iOS and Android market? As Flurry explains, "more than 140,000 apps [use] Flurry Analytics," so "Flurry detects roughly 100% of all new iOS and Android devices activated each day."

App downloads saw a corresponding increase on Christmas day: iOS and Android app downloads totaled 242 million, up 125 percent from the December average. Flurry expects app downloads to total 1 billion from Christmas to New Year's Day.
( Flurry blog)

Pitchfork's NYC Bias
-- Does New York account for over 25 percent of Pitchfork's list of top 100 tracks because it has the world's best music? Maybe. But as Richard Florida explains at the Atlantic Cities blog, the list is "heavily skewed toward English language acts in the indie, alternative, and hip-hop genres." And New York has a lot of indie, alternative and hip hop artists.

More interesting is the Altantic's ranking of cities according to an artists-per-100,000 residents measure. Because of its small population, Eau Claire, Wisconson, home of Bon Iver, tops the list with 1.24 artists per 100,000 residents. The rest of the top ten are: Copenhagen (0.517); Madison, Wisconson (0.178); San Francisco (0.145); New York (0.145); Vancouver (0.142); Halifax, Novia Scotia (0.134); Columbia, South Carolina (0.130); Providence, Rhode Island (0.123); and Toronto (0.121).
( The Atlantic Cities)