Thursday, 6 June 2013

Should we be worried about Apple

There's a lot of talk on-line about the imminent launch of "iRadio" or some such name for a new streamed music service from Apple. This follows fast on the heels of Google's "Music All Access" announcement

We've been here before of course - services like Pandora and Rhapsody in the states, and Spotify/last FM/We7 over here in Europe have been operating various forms of streaming music services for some time.

The concern being expressed is the impact of a launch of a streamed music service from someone with the market power of Apple or Google. Then there's the rumour that Amazon will follow suit! That's an awful lot of streamed music services, many of them from big players with lots of knowledge about us and our purchasing/browsing/music consumption habits.

The two issues I see are as follows

Will this plethora of services eat into traditional radio audiences?

Can they make money - and if so will this cannibalise traditional radio revenues?

Dealing with each in turn - I have said repeatedly that I don't believe customised, streamed music delivery is radio. It may, at the margins, take some consumer time away from radio consumption, but I believe it is much more likely to be a substitute for existing music consumption via CD/MP3 players or other devices. Pandora is the most entrenched service in the US, and whilst it claims to be "Radio" it isn't really - read this great analysis from Mark Barber to understand why - but even Pandora is only claiming a tiny fraction of the cume/TSL of traditional radio. Will more and more of these services grow TSL to streamed music - sure, to a degree, but cannibalisation of existing streamed services is more likely.

Of course I could be wrong - but even music intensive radio stations offer far more than a streamed set of tracks. Brand values, companionship, personality, interaction, news/traffic and other utility functions all make the user experience of listening to a radio station completely different in my view. And radio is ubiquitous, and free. The opportunity for listeners to consume streaming audio is also more limited, either because of the lack of proximity to internet access in certain places where radio is available, or just the cost if accessing on a mobile device. Radio has consistently faced challenges from other, newer media, but its ease of access, versatility and variety, information delivery and companionship features have consistently allowed it to co-exist alongside new entrants. I don't believe streaming music is an existential threat to that co-existence.

More critically - can these streaming services make money - and will this impact radio revenues. Well, a little bit of maths is in order here - so bear with me. A radio service listened to by 1,000 people in any particular hour could theoretically charge £2 for a 30" spot at prevailing commercial rates. So assuming 20 spots per hour (10 minutes) it could generate £40 of income for each 1,000 listeners. Or 4p per listener.

Apple is rumoured to have struck a deal with the major labels to pay them 0.16c per track played according to this article in Business Matters. Assuming 13/14 tracks per hour that's a 2c recording rights cost per listener per hour. Now that's just for the recording rights. Publishing rights are likely to double that cost to 4c per listener hour. That's about a 3p cost to Apple for every hour someone consumes their steaming service in UK currency.

So if that's what Apple are paying just for the music rights, and they also have to cover all of the infrastructure/technical costs of their service, run sales teams (as Pandora do I understand) and make a profit, they are going to have to generate a significant premium to the 3p they are already paying out every hour someone might listen to them.

Maybe 10p would cover everything and allow them to make a profit. But that's 2 to 3 times what traditional radio is making for every listener hour. And we are running 20 ad spot loads - could any streaming service interrupt its music for that heavy an ad-load - I doubt it. Maybe 5/6 ads tops I would think. So really they are likely to require spot prices getting on for 10 times more costly in terms of cpt to make their revenues stack up.

Ah, I hear you say - but they've got all this data, so can sell spots at higher value. Possibly - but Radio isn't a classified medium, so ads have to be made - and sold. And that's expensive. I can't see the Google ad model of text ads in search (or as pop ups on screen in you tube) being converted to audio-based streaming services.

Subscription might work, and certainly Pandora and others are trying this. I'm not sure if the labels would want even higher rates if subscriptions are involved, but this might be a way for these services to monetise their audience.

I just can't see the ad-supported business model though. They've got to sell all those ads, every hour, because they are being charged for every stream. And with Apple vs Google vs Amazon vs Pandora etc, the competition for ad revenues for this type of service will become pretty fierce pretty quickly.

Might this lead to massive downward pressure on radio rates. Well actually, the reverse might be the case - certainly these services will have to charge cpts much, much higher than we do - so maybe we'll get dragged up (!) It's worth also pointing out that a very high percentage of our income now comes from campaigns where sponsorship or promotion or brand advocacy is an essential part of the mix. A straight spot only campaign is becoming rarer on radio - and SPI/Brand Advocacy is pretty near impossible on a streamed service. So I think our revenue base can be largely protected - but for sure some advertisers will try streaming services, so we mustn't be complacent.

Will these services be disruptive - yes.

Do they spell the death-knell for radio - I don't think so.


  1. I think these services will continue to compliment traditional radio as they do already. As you said, it's no different to a CD, walkman or iPod before it, it's just that your music lives in the cloud not on your device.

    I still think there's something to be said for people enjoying a shared live experience that radio offers too. For example, I have movies on DVD and Blu-Ray that I'll never really watch, but if they're on TV I will, maybe it's a convenience thing but I do think knowing you're part of a shared experience is something people like.

    The biggest issue for streaming services is the poor data infrastructure we still have in the UK and the limits placed on customers by providers. I only get 750mb a month of 3G data on my iPhone 5 plan, listening to streaming audio will munch that up in a couple of days, not to mention the black-spots and drop outs I get all over town.

    I use Spotify a lot when tied to my PC at home, but the experience doesn't work so well when you leave that environment yet.

  2. The numbers do seem to rule out funding from advertising, and a subscription would put most people off but for Apple there's another option; in-app purchases. Listeners could be prompted to 'press here to carry on listening' with the cost buried away in the EULA.

  3. I think you are right Phil. One day someone may come along with something which will destroy radio broadcasting as we know it - but this isn't it.
    Good radio has a unique combination of properties which are hard to match. The announcement of radio's death has always been premature. In the 1950s it was commercial TV that was the threat, then in the 1960s audio casettes, it was the Sony Walkman and 8-track car stereos in the 1970s, daytime TV in the 1980s, the Internet in the 1990s and mobile digital devices this century. Radio has always re-invented itself to face the challenge.
    What worries me is if the industry continues to contract and become less adventurous we might miss the opportunity this time.

  4. Well you having destroyed Beacon Radio, Radio Wyvern, Mercia and BRMB then you know all about it don't you Phil?

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