Bye Bye Music Format Radio - the Beginning of the End

[zman]

The forty hour limit only applies to the free service without the ads. If you do free with ads it is unlimited listening.

 

[Casey]

The average listening per week has been shown to be around 10 to 12 hours a week, so the limit on the free Pandora model is hardly a major barrier.

I think you mean per month. Either way, the 40-hour limit only applies to a small amount of listeners and can be easily bypassed by creating multiple accounts or listening to a device with unlimited usage. The 40 hour limit is no longer very effective and has no place.

Pandora has a continuously growing user base. While not totally replacing radio, they are certainly taking away listeners. Especially in the 18-34 range.

http://textpattern.kurthanson.com/a...rating-among-18-34-year-olds-in-major-markets

 

[davideduardo]

The average listening per week has been shown to be around 10 to 12 hours a week, so the limit on the free Pandora model is hardly a major barrier.

I think you mean per month.

In PPM, the average listening to radio is in the 10 to 12 hour per week range. In the diary, it is about 60% more due to things like rounding.

Either way, the 40-hour limit only applies to a small amount of listeners and can be easily bypassed by creating multiple accounts or listening to a device with unlimited usage. The 40 hour limit is no longer very effective and has no place.

I believe I read that the limit has something to do with royalty netgotiations.

Pandora has a continuously growing user base. While not totally replacing radio, they are certainly taking away listeners. Especially in the 18-34 range.

And 18-49, where today's data shows Pandora beating the #1 stations in LA and NY in those markets.

 

[Casey]

In PPM, the average listening to radio is in the 10 to 12 hour per week range. In the diary, it is about 60% more due to things like rounding.

Ah, I see what you mean. I was thinking of the average listening hours for Pandora, not radio as a whole. Pandora claims their average listening hours per month is in the 13-17 hours per month range.

And 18-49, where today's data shows Pandora beating the #1 stations in LA and NY in those markets.

Pandora is doing quite well. At their current rate, they will probably hit 1 million "average active sessions" by early to mid next-year. Despite fierce competition, Pandora has proven to have a very fast-growing appeal to listeners, and I have little doubt that they will be profitable soon.

 

[TVradioguru]

But as they have grown their library, so has their expenses in music royalites payments. So far Pandora has not grown close to break-even.

 

[Casey]

Very true. Pandora has always taken the conservative route when it comes to making money. But now they have over $200 million in the bank from their IPO and are already rapidly revamping their offerings. They are launching a new html5 website. They are for the first time using some larger video ads, which pay more. They also have a vast potential of advertising for their mobile listeners. Many of their mobile listeners have few to no ads at all. If they increase the amount or in many cases, start, they will have much more income.

They also talk about adding non-music content, therefore not needing royalties.

 

[TVradioguru]

Pandora has always taken the conservative route when it comes to making money.

If you're saying that they haven't made any money yet, yes that's true. Being "conservative" about making money is an interesting way to put they haven't. I guess that means there are millions of failed businesses over the years that have been "conservative" about making money then?

But now they have over $200 million in the bank from their IPO and are already rapidly revamping their offerings.

If it involves music, then they will pay even more royalty fees. That's the main reason they don't make money to date. And based on their current burn rate, that $200M won't last long nor allow them to grow all that much.

They are launching a new html5 website.

Not sure what that has to do with anything. HTML 5 is just a new version of Hypertext Markup Language.

They are for the first time using some larger video ads, which pay more. They also have a vast potential of advertising for their mobile listeners. Many of their mobile listeners have few to no ads at all. If they increase the amount or in many cases, start, they will have much more income.

They also talk about adding non-music content, therefore not needing royalties.

If it's produced by someone other than Pandora, they will pay royalties, music or not. Just as with radio, when they start up with spots, either video or audio, their consumer base will drop. That's just consumer nature.

 

[TheBigA]

They also talk about adding non-music content, therefore not needing royalties.

No royalties, but instead they'll have salaries. Even with royalties, music is cheaper than live people. That's why OTA radio is replacing live people with music.

 

[GeneSavage]

No transmitter.
No tower.
No tower lights.
No EAS.
No STLs.
No transmitter site air conditioners.
No tubes.
No public file.
No city of license requirements.
No studio staffing requirements.
No broadcast license renewal fees.

 

[TheBigA]

For the time being. The FCC has already considered placing some rules and regulations on internet broadcasters. Enjoy it while you can.

 

[reelyreal]

No transmitter.
No tower.
No tower lights.
No EAS.
No STLs.
No transmitter site air conditioners.
No tubes.
No public file.
No city of license requirements.
No studio staffing requirements.
No broadcast license renewal fees.

Yep, and all they have to do instead is pay 55% of their revenue toward royalties!

We're talking about a company that doesn't plan to turn a profit until just a year or two before they have to renegotiate royalties. Do you think the record companies are going to be happy with the status quo?

The biggest issue of all, however, is bandwidth. Data isn't free. Unlimited data for special users still causes network headaches. Remember when just the iPhone had unlimited data on AT&T? It was a disaster. Smart phone data usage, and music streaming data usage, is too much for the system to handle.

 

[TheBigA]

We're talking about a company that doesn't plan to turn a profit until just a year or two before they have to renegotiate royalties. Do you think the record companies are going to be happy with the status quo?

Sound Exchange has already filed with the CRB for a rate increase. They are claiming two things: Cost of living increase (which the government hasn't granted even to Social Security recipients), and increasing profits by net radio companies like Pandora.

 

[Casey]

If you're saying that they haven't made any money yet, yes that's true. Being "conservative" about making money is an interesting way to put they haven't. I guess that means there are millions of failed businesses over the years that have been "conservative" about making money then?

Compare Pandora to Slacker. Pandora charges less for their paid service, and they have far less advertisements. Slacker has no room to increase the volume of ads, nor raise their subscription costs unless they want to lose listeners. Meanwhile, Pandora does. If it comes down to it, Pandora can make changes to increase their income.

For the time being. The FCC has already considered placing some rules and regulations on internet broadcasters. Enjoy it while you can.

The FCC would be reminded quickly just how little authority they really have over the internet. Internet radio services are very different from one another. Applying regulations would be impractical and nearly impossible when you take into account just what an internet radio station really is.

Sound Exchange has already filed with the CRB for a rate increase. They are claiming two things: Cost of living increase (which the government hasn't granted even to Social Security recipients), and increasing profits by net radio companies like Pandora.

Sound exchange can file all they want, but nothing can happen until 2014-15 at the earliest. At that time the negotiations will be much more fair than they were in 2007 because this time the internet radio giants will actually be big enough to take them on.

 

[tomservo]

No transmitter.
No tower.
No tower lights.
No EAS.
No STLs.
No transmitter site air conditioners.
No tubes.
No public file.
No city of license requirements.
No studio staffing requirements.
No broadcast license renewal fees.

No, instead they have…

Royalties
Licensing
Server farms
A/C for the server farms
Bulk bandwidth purchases
Hardware redundancy costs

I don't know what it costs power a radio station but I'd be willing to bet Pandora's costs are much higher. This isn't a service run off a nerd's basement Linux box at home. It's streaming petabytes of data. Those servers generate as much heat as a full power radio station transmitter site, I bet. Maybe more. If they're like Google, the server farms are distributed across the country (and world if applicable), meaning multiple property costs and upkeep.

The costs of running a giant server farm are NOT cheap. Nor is content acquisition. It wouldn't surprise me in the least if Pandora is paying $10 million a year in power and hardware and another $50 million in content fees.

What radio station costs that much to operate?

 

[TVradioguru]

Sound exchange can file all they want, but nothing can happen until 2014-15 at the earliest. At that time the negotiations will be much more fair than they were in 2007 because this time the internet radio giants will actually be big enough to take them on.

Really! And how do you know negotiations will be fair? I submit that Sound Exchange holds the cards. Any "negotiations" as you put it, will be always in the advantage of SE.

You need to polish up that crystal ball. (Now with HTML 5 for clearer prognostications)

 

[Casey]

Sound exchange can file all they want, but nothing can happen until 2014-15 at the earliest. At that time the negotiations will be much more fair than they were in 2007 because this time the internet radio giants will actually be big enough to take them on.

Really! And how do you know negotiations will be fair? I submit that Sound Exchange holds the cards. Any "negotiations" as you put it, will be always in the advantage of SE.

You need to polish up that crystal ball. (Now with HTML 5 for clearer prognostications)

No one thought they would be able to negotiate the last time, yet the "Pure Play" licensing agreement was formed. Don't underestimate Pandora's power to negotiate now that they are one of the top 4 most valuable companies in radio.

If they for whatever reason cannot negotiate a good rate, they can always go directly to the record companies and get a license for the majority of their content that way. Slacker has already done a form of this and it seems to be working out quite well.

 

[WPPCProductions]

Performance tax will kill it.

 

[TVradioguru]

All I can say is for those listening to Slacker or Pandora enjoy it while you can.

Between increased royalties, taxes, and growing bandwidth charges on the supply-side pushing them to become subscription and carrier of spots, combined with increasing bandwidth charges from cell carriers on the consumer side the luster, as with satellite radio, will be off soon. In fact, one could easily predict that listening to Internet-based radio-like services will be more expensive than subscription satellite radio. And we know how that went.

The free alternative of radio, will always bring in the masses and be the best choice for targeted, regional or local advertisers.

 

[Casey]

You may be right about growing royalty rates, but certainly not bandwidth. Bandwidth costs for commercial industries are dropping, not rising. The cost per Gbit has never been lower. Even if commercial bandwidth costs were to soar, they could simply produce a product like Spotify has using a P2P system to help off-load part of the burden. Abandoning MP3 for OGG and ACC+ has also helped lower costs.

Consumer bandwidth costs are more of a mix, both rising and falling. However, internet radio listening consumes very little bandwidth in comparison to many more common activities we do on a daily basis, so I don't think it will make much of a difference. Besides, Slacker has caching, making mobile bandwidth completely irrelevant.

Slacker strongly depends on subscription fees. But is $4 more than Satellite radio? Something tells me not quite, and Slacker is already profitable.

 

[tomservo]

Broadband may be cheap, but mobile broadband is where the future lies and it's only getting scarcer.

To wit, T-Mobile just announced their "unlimited broadband" scheme, where you do get unlimited internet access. Only the first 5 or so GB is at 3G speeds, the rest is throttled to EDGE (<2.5 Kb/s in my area, slower in a lot of places.) Then AT&T and Verizon both have soft caps that also throttle speed, that leaves Sprint as the lone (national) holdout for truly unlimited 3G service, and even they are believed to be nearing the end of that allowance due to costs.

It's true that mobile audio streaming isn't a huge chunk of bandwidth compared to streaming video or uploading tons of stuff, but compared to people's AVERAGE use (almost no video, mostly Facebooking and tweeting) it's a big chunk of data.

I can offset my data usage tremendously by using wifi at home but on the go that's not an option. Between uploading photos to Facebook and Foursquare, and using my Dropbox, streaming a few YouTube videos each month (a pain even on CDMA 3G), I've come close enough to my cap* that I've already had to cut back my streaming of actual real radio stations through TuneIn Radio. Remember, the bandwidth caps are not just downloads, but uploads too. Anyone who is an active over-sharer like me really gets pinched. My 4th of July fireworks video last month was over a gig by itself. I smartly waited until I got home on wifi to upload it, or it would have eaten up a lot of data.

* - my carrier does not specifically offer unlimited data, but does not advertise a strict cap, either. Speculation is they soft throttle at 5 GB.