Last week PRS for Music, the UK performance royalty collection organization, announced revenue for terrestrial broadcasts and internet streaming in the first half of 2009 was down 6 percent from last year.
PRS for Music collects royalties for close to 60,000 songwriters and music publishers.
An official statement blames “phasing of revenues” for lower than expected earnings, but conveniently doesn’t mention the loss of income from YouTube earlier this year. In March, while PRS for Music was renegotiating royalty rates with YouTube, the world’s biggest online video service began blocking access to most music videos for UK viewers.
At one point last year YouTube was reportedly responsible for 40 percent of PRS members’ video plays. It’s hard to imagine that the loss of their royalty payments since March wasn’t a major contributor to the revenue decrease.
In May PRS for Music announced new streaming royalty rates, which took effect at the beginning of this month.
The per stream minimum dropped substantially, which should help smaller webcasters. At the same time the basic rate increased to 10.5 percent of revenue from 8 percent.
Result for: royalty rates
Following last week’s announced agreement between Internet radio services and SoundExchange, Pandora has gotten an almost immediate confidence boost on its future. Even though its founder Tim Westergren has referred to the funding environment for online music start-ups as Toxic, Pandora managed to close a new round of funding headed by Greylock Partners. Reports put the investment figure at around $35 million.
Greylock’s investment was led by Partner David Sze, who is apprehensive about online radio. “I’ve been concerned about the space in general, but as I looked under the covers I realized it’s a great business,” Sze said. “Pandora’s brand is strong and they’re getting to scale.”
Pandora’s success is hinged on royalty rates. The rates announced in 2007 would have made webcasters pay out $0.08 per song through 2014, but would have increased to $0.19 in 2015. Considering Pandora offers a free service, this would have been a very expensive reality for a company that would be paying 70% of its revenue in royalties.
The newer scheme will see webcasters earning more than $1.25 million in revenues pay the greater of 25% of gross revenue or $0.093 per listener, per song, increasing to $0.14 by the year 2015. Due to the new royalties, Pandora will be placing a small charge on its heavy users. A user who listens for more than 40 hours in a month will need to pay a 99c charge to continue listening.
“We realized that with this resolution that when you’re advertising-supported it’s harder to monetize a heavy listener,” Westergren said. “It’s easy to monetize someone who listens for one hour, but harder for someone who listens for two hours or more. Advertisers pay for reach, not depth. This is just asking for a dollar in the tip jar.”
Result for: royalty rates
Apple has threatened to close down its iTunes store if proposed royalty rate increases for digital music sales pass tomorrow.
The Copyright Royalty Board is set to meet tomorrow to vote on whether to increase royalties 66 percent, to 15 cents a track from the current 9. The rise would either have to paid by Apple, the record labels or the consumer.
Apple is completely against the rate hike and has said it will close down the store rather than absorb the hike or raise the price of a track to over 99 cents.
Eddy Cue, the vice president for iTunes, said this to the Board at the Library of Congress.
“If iTS (iTunes Store) were forced to absorb any increase in the mechanical royalty rates, the result would be to significantly increase the likelihood of the store operating at a financial loss - which is no alternative at all.
“Apple has repeatedly made clear that it is in this business to make money, and would most likely not continue to operate iTS if it were no longer possible to do so profitably,” said Mr Cue.
The NMPA (National Music Publishers’ Association) has repeatedly asked for the royalty rate hike ans believes the move will benefit everyone as the market for digital downloads continues to grow.
“I think we established a case for an increase in the royalties,” added David Israelite, president of the NMPA.
“Apple may want to sell songs cheaply to sell iPods. We don’t make a penny on the sale of an iPod.”
Apple says they currently pay 70 percent of total revenue from digital music sales to the record labels which then passes a percentage on to the artists.
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