Rockonomics: streaming services pay a lot better than terrestrial radio

David Touve, Assistant Professor of Business Administration at Washington and Lee University, is publishing a series of "investigations" called Rockonomics on his blog. the latest one is focused on how much artists get paid by streaming online radios compared to terrestrial radio. He focused on the UK market (since record labels are not paid for plays on terrestrial radio in the US), and the results are pretty interesting.

According to Touve's calculations and analysis, the per-listener value of a "spin" (a single radio play) in the UK is $0.00012. This amount is 1/36th a typical per-listen value ($0.0042) paid by Spotify, 1/10th the rate ($0.0011) paid by pure-play webcasters such as Pandora in the US and 1/18th the CRB-established webcaster rate ($0.0021) in the US.

These data are peculiar - even if not a surprise. The real challenge, now, is to interpret them and understand the scenario; terrestrial radio surely is losing listeners, who are shifting to streaming services and - given the scale it operates. But, on the other hand, such a disparity in payouts could be a signal of underlying problems.
David Pakman, of Venrock, for instance believes current rates are unsustainable; testifying at the House Subcommittee on Intellectual Property, Competition and the Internet hearing on November 28, he said Venrock is "skeptical" that "profitable, stand-alone digital music companies can be built" with current royalty structures. The high failure rate of digital music companies - which he calls "among the highest of any industry we have evaluated" - is due solely on "the over-burdensome royalty requirements imposed upon digital music licensees by record companies under both voluntary and compulsory rate structures".

Probably, as Billboard's Glenn Peoples concludes, "the more you pay rights owners, the more subscribers and listeners you need. The problem over the years has been that digital music services haven't acquired the proper scale given their cost structures. Spotify pays 36 times as much as a UK terrestrial radio station to the owners of sound recordings for a single play to a single listener. That 36-to-1 ratio is why Spotify needs to operate globally while a radio station can operate locally".