Business Matters: Inside SoundExchange's 2010 and 2011 Numbers
Business Matters: Inside SoundExchange's 2010 and 2011 Numbers

Pandora Accounts For More Than A Third of SoundExchange's Collections
Pandora accounted for somewhere between 36.7% and 38.6% of SoundExchange's collections for digital performance royalties in 2012. Angus MacDonald, General Counsel at Internet radio company performed the original calculations based on figures in SoundExchange's just-released draft annual report and Pandora's financial statements. I came up with a slightly different calculation using the same sources.

(One important consideration is that the above numbers are not final. SoundExchange's draft annual report is based on pre-audited financial statements and may be revised in the future.)

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Here's MacDonald's math: SoundExchange reported collections from all statutory services of $371.9 million in 2011, according to the draft annual report it released earlier in the week. That marks a 40% increase over the $265.9 million collected in 2010. (As an aside, SoundExchange had expenses of $20.2 million in 2011, which implies an administrative rate of 5.3%.)

Pandora took in revenue of $274.3 million in its fiscal year ended January 31 and paid out 49.7% of its revenues to SoundExchange (the remainder of content acquisition costs were paid out to performance rights organizations). That works out to $136.3 million paid to SoundExchange by Pandora.

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MacDonald calculates Pandora's share of SoundExchange collections as 36.67% ($136.3 million divided by $371.9 million). That estimate is close but is slightly off because SoundExchange uses the calendar year for accounting purposes while Pandora's fiscal year ends January 31.

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My alternate calculation of Pandora's share is 38.6%. I came up with an estimate of $289 million for Pandora's calendar year 2011 revenue based on its growth in quarterly revenue (all I did was take Pandora's fiscal year, subtract an estimate for January 2012 and add an estimate of January 2011). This method for a better comparison of SoundExchange's collections and Pandora's royalties over the exact same time period. This estimate also assumes Pandora paid 49.7% of revenue to SoundExchange.

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In either case, Pandora accounts for well over one-third of SoundExchange's collections in 2011. Being such a large share of SoundExchange's business has implications for the upcoming royalty rate negotiation, writes MacDonald. "With Pandora's ever-growing listening hours and royalty payments, SoundExchange and the labels need a healthy Pandora as much as Pandora needs a reasonable pureplay-like rate for the next royalty term (2016-2020). This is especially true if Sirius XM continues to sign up more direct license deals, thereby bypassing SoundExchange (though Sirius XM's recent antitrust complaint suggests that may be a tough row to hoe)."

Amazon Digital Sales Growth Far Outstrips iTunes
Amazon digital sales grew 29% in the first quarter of 2012 from the fourth quarter of 2011 while iTunes' digital sales grew only 2% over that time period, according to figures released by eDataSource. Digital sales at Amazon include such items as Kindle content, MP3s, streaming videos and Android apps sold at the Amazon Appstore. iTunes digital sales cover music, movies, digital print and apps from the Apple App Store.

You may be asking yourself, "Who is eDataSource?" The company calls itself "a provider of competitive intelligence for digital messaging" that analyzes emails for branding messages. That may sound like an unusual company to track digital sales trends, but CEO Carter Nicholas explains to the company looks at the online purchase confirmations of its panel of over 800,000 consumers. Those emails give it insight into marketing and branding trends - its core business - as well as trends in digital sales from major retailers.

Amazon's large gain in the consecutive quarters could be due in part to holiday sales of its Kindle Fire tablet. Stifel Nicolaus analyst Jordan Rohan estimated Amazon sold 6 million Kindle Fire devices in the fourth quarter, according to a report at CNET. That's well below the 15.43 million iPads Apple shipped in the quarter (shipped is not the same as sold, but they're probably close given high demand). Those Kindle Fire purchases must have gone to new customers for Amazon to achieve such a large gain. New customers mean incremental spending on digital goods. More will be known when Amazon releases first-quarter results, probably at the end of April.

The figures do not reflect iTunes' and Amazon's digital music sales, however. Nicholas says eDataSource cannot break out music sales because it does not yet track at a product level. Nor does the company track Google, which sends confirmation emails, or download services like eMusic, which does not send confirmation emails. And because the email monitoring service has data going back only to the summer, eDataSource cannot yet give year-over-year comparisons. ( eDataSource press release)