1. KEYNOTE (SUMMARY) – Phil Riley
UK Radio is in rude health – over 90% of listeners in the UK tune in for over 24 hours a week. Radio as a whole probably shows around a 20% profit margin and around a third of this goes to PPL to be shared up between record labels – not a bad deal when you consider that this amount is guaranteed, i.e. non-variable, year-on-year.
It is understandable, however, that as ways of consuming music shift, the music industry may need to ensure that its income from performance grows at the same time income from mechanical royalties shrinks.
The digital future is undeniably exciting but could also prove confusing – partly because there are several different platforms which each need analysing independently to guarantee a fair pay-off to both record and radio industries.
Platform One, online streaming, is close to representing a win/win situation for both parties:
· If the radio companies derive extra revenue from online streaming they have to pay the rightsholders – this is fair enough and the same as traditional radio.
· The online stream, as of 1st April, can no longer be made available outside the UK – radio companies, by and large, reluctantly accept this clause as they cannot easily monetise non-UK streams for their own benefit anyway.
· Online streams cannot supply metadata which would make it easy to break down the individual tracks – many radio companies think this is a shame as metadata could provide extra value to the radio customer but the risks are undeniable.
Platform Two, consisting of DAB, digital radio and DTV live streaming of pre-existing content, is also largely a win/win situation for radio and record companies alike:
· PPL receive 10% of revenue much the same as with analogue radio, leaving record companies with few complaints.
· This justifies the lack of payment radio companies made to PPL in the early days of digital radio. The radio companies argued that this was acceptable because they were investing so heavily in the development of the digital technology and this argument has won out – with both parties benefiting from the results.
The most interesting and contentious area is non-linear audio broadcasting e.g. podcasting and “listen again” streams. Chrysalis have tested experimental licenses on some specific “listen again” shows and the results look very positive. The problem comes with trying to monetise this third platform and there are three possibilities:
· A subscription service based on an “all-you-can-eat” principle
· Adverts embedded within the broadcast
· Gaining overall sponsorship for each broadcast
These possibilities need to be tested and while this process is in motion the revenues from formats such as podcasts will not be huge. The danger is that rightsholders could be unrealistic while the format is in its infancy and expect larger returns than the incoming revenue streams can yet support.
The UK commercial radio model (i.e. advert-based) only brings in two pence per listener per hour. Based on this economy it makes little sense for labels to start demanding a track-by-track fee. The “best-of” podcasts and listen-again shows are a repeat play and perhaps should therefore be viewed as a secondary income stream on completely different terms to the primary income stream of live (traditionally analogue) radio streams. Alternatively, could these platforms be used to provide first-time exploitation of content? e.g. Heart Radio plays no new music but a downloadable Heart podcast could contain new music which Heart listeners might appreciate, in the vein of what they hear on the main station.
Or is the value of non-linear broadcasting purely promotional – to both radio and record companies. Should podcasts and the like be used primarily to promote the stations’ regular output / the albums from which the music (either in edited or complete form) is taken.
Commercial digital radio stations could even consider removing adverts altogether. If listeners were prepared to pay a subscription fee then this could be worth their while. They could even replace the adverts with newer material that the record companies are keen to promote for free.
Meanwhile models like UBC Media’s are offering downloads over the digital airwaves – the cost of this could be pence rather than pounds. With this in mind the volume of music consumed is sure to increase and, once again this should be a win/win situation, providing more opportunities for promotion and monetisation for radio and record companies alike.
2 . PANEL RESPONSE
Tony Clark: There is general consensus between the record and radio industries that there is much to be gained from the move into digital. The devil, however, is in the detail. We need to devise new licensing models in order to ensure a decent return for both parties.
Everything seemed much easier when music distribution was all about physical product and broadcasting lived in a separate world. Convergence is a much feared word. In this instance it could lead to broadcasting becoming the most significant part of music distribution.
Some of the emerging platforms will work best if they are collectively licensed as it will be more practical for both rightsholders and users but this will require movement from both parties. The record companies need convincing to collectively licence what is effectively a form of distribution, while the radio companies must be convinced to embrace new types of licences. This will involve tough decisions for both.
The larger question for rights owners is whether users will be able to effectively monetise the emerging platforms. While this is uncertain it remains difficult for either of the industries to make any firm decisions.
Paul Sanders: Coming from a background in providing international digital solutions, the focus should be upon finding ways to monetise the complete variety of exciting new things people can do with technology.
As evolving technology blurs the traditional distinction between the broadcasting and distribution cultures there is a need for both camps to widen their views as far as possible and experiment with new techniques to create added value around music.
This process is very important for indie labels as it removes the limitations imposed upon them by the need for physical distribution. Digital broadcasting is a big win for indies allowing more stations with specialist audiences. If digital radio can also allow them to record samples which keep them coming back to the indies for more, then to artificially limit this technology would be a major loss.
Geoff Taylor: Each of the various forms of radio mentioned and more may require different licensing models and when devising these models we have to ask what is radio, in the traditional sense, and what is not. Simulcast, for example. Should it be licensed on the same basis as traditional radio, or, once the ads are taken off, is receiving this music content the same as purchasing the individual tracks from iTunes? At what point does it stop being radio?
So far Simulcast and DAB models seem to be working. Ongoing experiments, such as UBC Media selling downloads direct to digital radio sets, are extremely positive. The process with podcasts has been slightly slower, but this is an inevitable outcome of the format’s variety – some podcasts are all talk, some have pre-defined constituent tracks which may well require a form of DRM. Overall, the progress made so far is encouraging
Paul Brown: When broadcast becomes part of the distribution chain it is no longer broadcast in the traditional sense and needs a new form of licence. As the specific definitions and likely uses of new technology are being ironed out it is important for the record industry to bear in mind that you cannot start at a price which kills the learning process before it starts. There is an opportunity for both sides to take risks, start a dialogue, establish a system to work in the short-term and then re-assess.
Simon Cole: The 50 year relationship between the UK record and radio industries has been enormously successful and now we are seeing a significant development in this relationship. We used to tell the consumers what they could have – certain formats and certain types of station – now technology has reversed this process and we have far more opportunities, with the consumer giving us multiple options to sell them music.
A gap used to exist between the customer’s ability to preview and purchase music. Now technology has brought these two processes together – UBC’s prototype model allows listeners to press a button to download the track they have just heard direct to the hard-drive on both their radio and personal computer.
Obviously, when broadcasters become the primary retailers of music they have to accept a different royalty structure. What the record companies need to appreciate also, however, is the cost of innovation. If they are patient for returns while emerging technologies establish themselves then this will eventually lead to a model which delivers massive profits to all involved.
Phil Riley: We need to be clear which radio platforms are going to work on the old business model and which require a completely new approach. “Listen Again” radio streams, for example, which are transient and only stay up on the relevant websites for seven days. Radio stations are not going to invest in new approaches like this if they have to pay extra. Demanding they do so does a disservice to both the record industry, robbing them of a valuable niche market, and the radio industry, who might be able to start these new platforms on a small scale, build them up, entice sponsorship and then pay the record labels an appropriate royalty.
A similar scenario exists with podcasting – the record industry has to be careful not to shoot itself in the foot. If they make it too pricey to use music in podcasts then the radio stations will simply cut out all the music content, entice a sponsor and get paid anyway. But losing the music entirely would be a tragic mistake for both sides.
Both “Listen Again” and standard podcasts can work on an old model, paying record companies a royalty based on income from sponsorship. When podcasts use music as their unique selling point, however, then this will require an entirely new model. But in order to devise this model the industries’ mind-sets must match the likely revenue available.
MCPS makes 8p per online download but a broadcaster will never generate this much. On the other hand, the UBC model gets back to old-fashioned distribution and therefore needs to pay accordingly. Old broadcasting models can still be applied to broadcasting but new models need to be devised for completely new developments. Nevertheless, old distributor-share models can also still be applied when these developments really amount to creating a new distributor of core product.
Simon Cole: The important distinction is between preview and purchase. There is one royalty due to record companies when the consumer previews a track and a larger revenue share due to them when a customer purchases that track.
Tony Clark: But we cannot easily divide emerging technologies/delivery systems into old and new models or listening and purchasing. Young people no longer necessarily think about owning recordings. There is a much wider spectrum of consumption in music today with no black and white distinctions between listening to and owning music. We therefore cannot rely on simplistic licensing models.
Phil Riley: The problem remains: the radio industry is stuck with the old model in terms of generating revenue in the first place – reliant on either adverts or sponsorship. As long as this remains true then they cannot support a range of new models at the licensing stage.
3. QUESTIONS FORM THE FLOOR
“If a radio station broadcasts via the internet, without simulcast or “listen again”, why must they pay PPL a far higher rate than those broadcasting via analogue, DAB, Freeview or Sky TV?”
Tony Clark: A major difference with internet stations and webcasting is that these fields at the moment lack the same regulatory controls as traditional radio. It is a totally different regime and the way it is licensed is still evolving. While the rates differ here in the UK, the gap is even wider in the US where FM/AM stations don’t pay any performance royalties at all. The regime at the moment works for a great number of internet radio stations but unfortunately not for all – yet.
“Is there any chance that the satellite radio model, so popular in the US, could take off over here?”
Phil Riley: Satellite radio could not work over here because the European radio market is not as homogenous as the US, not least because of the language barriers, and therefore the economics are completely transformed – you can no longer depend on that niche satellite audience, massive in number because spread over a huge area. It was also the commercial load on standard radio which drove US consumers to satellite radio. In the UK the BBC acts as a constraint on the commercial sector, an ad-free yardstick by which customers measure the frequency of adverts they are prepared to accept.
Paul Brown: Another reason satellite works in the US is because they have previously lacked any form of national radio – Sirius and XM fulfil that need by providing US-wide news and sports coverage.
Simon Cole: Nevertheless, the satellite radio phenomenon proves that there are radio listeners out there who are prepared to pay subscription fees for content.
Phil Riley: All commercial stations have the technological capability to remove their adverts and perhaps create a subscription version of their regular radio broadcasts – a premium version of their existing output. This is yet another example of how new technology is breeding new possibilities which need ironing out with the rightsholders.
The new licensing regime for internet radio stations (1st April 2006) sees UK broadcasters paying set fees to stream content and restricts those streams to the UK alone. But what action is being taken to diminish the unfair advantage to foreign internet broadcasters who continue to stream in the UK for free?
Tony Clark: Those streaming content into the UK should always have been paying to do so, that remains unchanged. Policing this is very difficult. However, PPL are in ongoing discussions with the major international radio players to rectify the situation, working from the biggest and easiest to monitor and moving down.
Geoff Taylor: Part of the problem is that streaming is all multi-territory unless the ISPs cooperate to restrict what gets through. The IFPI are doing their part to address the problem by making it easier for UK internet stations to get international licences which exert a tariff based on the specific countries they wish to stream to. We have an obligation to make these licences easy to acquire and then to commit ourselves to policing their use.
“How is the role of radio affected by Music-On-Demand services such as Rhapsody that emphasise access to music over permanent ownership?“
Geoff Taylor: For £10 a month Rhapsody gives customers instant access to an immense catalogue of music meaning they will try things which they wouldn’t normally feel inclined to purchase. In order for this and other subscription services to take off it will require an education process to show consumers what is available. Once this is achieved then mass take-up could change consumer attitudes forever – why do you need to own individual pieces of music when you have instant access to any music you want?
Paul Sanders: This move towards constant comprehensive access rather than selective ownership of music is pivotal and matches the experience consumers have become used to via illegal filesharing platforms.
Simon Cole: An increasing variety of business models means consumers have a variety of choice in terms of how they purchase music – the same has been happening in television with the development of Freeview, Sky and Sky + UBC are developing their download-over-the-radio model in order to bring the radio industry into this process and ensure radio can still appeal to the iPod generation.
Phil Riley: Advancing technology increasingly allows the music-intensive fan – the type of fan who used to buy several CDs a week – to embrace more and more music. While Rhapsody and Napster-To-Go may be perfect for this type of fan, traditional broadcast will continue to appeal to those who want more spoken word content – there is a suitable market for all models.
“How can the radio industry curb the ongoing threat of those who digitally rip music from radio streams?”
Geoff Taylor: As long as illegal P2P is thriving then it is tempting to view the digital radio rippers as a secondary concern but the IFPI are acting now because both the radio and record industry are in broad agreement – ripping is to everyone’s disadvantage. When a stream is ripped it is not radio anymore. It is illegal ownership.
Paul Brown: There is an agreement between the BPI and IFPI that broadcasters should not make it easy to rip music from a digital radio stream. This involves not revealing in advance or via electronic tagging what tracks will be in the stream or the track order. Nevertheless, digital radio’s existing DRM capabilities mean that it remains very difficult to copy-protect full track broadcasts. That is why podcasts at present should perhaps be limited to containing musical snippets.
Simon Cole: Technology and radio companies should be working with the IFPI et al. to ensure that ripping of music is made as difficult as possible. We are also hoping to aid this process by providing a comparable legal alternative.
Paul Sanders: It is a fantasyland to pretend the rippers simply do not exist. It is a fact of life that you can record and reproduce anything which we can hear. In order to effectively combat piracy the record companies need to enable radio stations to add extra quality to their broadcasts via a process of flexible licensing.
For example, a talk-based podcast needs a different licence to a podcast consisting of whole music tracks. The record industry needs to be pragmatic when devising a range of licences and be prepared to go back later and revise their approach – they cannot simply control and dictate what broadcasters are allowed to do.
Phil Riley: There is a valid argument, however, that the value leakage to record companies from an unregulated radio market reaches a stage where record companies are justified in demanding that the radio industry take measures to control this leakage if they wish to continue using the labels’ musical content.
When assessing how worthwhile it is to support any radio development it is important to balance the added value to the consumer against the value taken away from the rightsholders. For example, Heart radio listeners would no doubt welcome a list of upcoming songs. While this might be advantageous to the broadcaster in terms of appealing to customers, this would be outweighed by the loss in terms of alienating record company partners by better facilitating piracy.
Paul Sanders: The independent label view is far different. Most would probably welcome radio stations providing a list of upcoming content, feeling that the risk of ripping and piracy would be outweighed by the benefit of having their music flagged up to potential fans and future customers. Every time a licence limits the possibilities to deliver music then it leaks potential revenue for indie labels.