In the context of a great deal of debate over the value of streams on new music services, Spotify in particular, I have been working on some back-of-the-napkin (or serviette) estimates of the value of not only listens per listener to purchased tracks, but also spins per listener on major radio broadcasters. This week, I focused on radio broadcasters in the UK, such as the BBC.
Below I try to calculate the effective value of a radio spin *per listener* so that rate can be compared to the rate being observed for the effective value of a music service stream per listener.
First, a quick clarification: Most chatter about radio royalties hinges on the value of a spin, and yet the chatter about music service royalties hinges on the value of a stream. However, this comparison between spins and streams is not usually/always equivalent. Why?
The “spin” value often refers to a radio play experienced by a large audience (sometimes millions of people).
A stream payment usually refers to a play/stream by a music service experienced by a single listener (or at least a single subscriber account).
Therefore, I am trying to convert this spin-to-millions value from Radio to a value per listener, as is the case for music services. Please scroll to the end of this post for an explanation of the per spin/stream per listener comparison in the context of licenses based upon percentages of revenue or blanket fees and advances.
Warning: I end up with a rather small number as the estimate of the value of a UK Radio spin per listener. Fortunately, and importantly, the radio audience in the UK is quite large overall, leading to a total pool of royalty monies that is large enough for most labels, artists, songwriters, and publishers to take notice.
Were the pool of money flowing from music services in the UK, such as Spotify, as large as that flowing from Radio, we might not be having these sorts of discussions. Maybe someday both of these pools will be large. The bigger question than these present rates, therefore, is whether we should and how we might get to that version of someday.
The Short Story:
just the calculated rates and none of the overly numerical banter…
£0.0002992992 <- Estimated effective rate per spin per listener
£0.0005985 £0.0002993 <-Range
at 15 songs per hour
£0.0003741240 <- Estimated effective rate per spin per listener
£0.0007482 £0.0003741 <-Range
at 12 songs per hour
£0.0004988320 <- Estimated effective rate per spin per listener
£0.0001662 to £0.0009976 <-Range
at 9 songs per hour
The estimates above are a function of considering the average music radio listening audience (across moments in the day) to be 5% of the estimated quarterly radio audience as reported by RAJAR. The ranges above are a function of considering the average music radio listening audience (across moments in the day) to be 2.5%, 5%, 10%, and 15% of the estimated quarterly radio audience as reported by RAJAR. For clarity, the smallest assumed listening audience will lead to the highest estimated rate per stream per listener in the ranges.
£0.0005000 to £0.005000 <- Music Services effective rate per stream per listener (estimated)
The Long Story (with the Inputs):
The effective rates paid by radio and music services in the UK are more directly comparable as compared—no pun intended— to those rates paid in the US. Unlike in the US, radio broadcasters in the UK pay royalties for both sets of music rightsholders: (a) those with an interest in the sound recording [aka, the neighbouring rights; the owner(s) of the recording, as well as the featured and performing artist(s)] and (b) those with an interest in the musical work [the publisher(s), lyricist(s), and songwriter(s)]. Music services are paying both sets of rightsholders as well.
I will begin with the total Pounds collected from Radio by the two core performance/performing rights collectives in the UK: PRS for Music and PPL.
I will then break down this total value of collected Pounds per day, per hour, and finally per spin (for the set of music tracks hitting the ears of listeners at any moment in time in the UK across all radio stations).
Since not all radio stations are playing music (predominantly or exclusively), I have chosen to follow the royalty dollars to the radio-listening audience, through the tracks plausibly heard by only this audience.
Finally, I arrive at an effective range of the per spin per listener value through a set of estimates of the average size of only the music radio listening audience in the UK during the day.
The overly numerical banter:
(A) £49,500,000 <- Pounds (2010) collected from Radio by PRS (pdf)
£61,700,000 <- Pounds (2010) collected from Broadcast/Online by PPL
x 70% <- Rough approximation of % of PPL B/O from Radio**
(B) £43,190,000 <- Estimate of Pounds collected for Master Performance
(A) + (B) <- Pounds collected from Radio by PPL and PRS
£92,690,000 <- Estimate of Total Pounds collected from Radio in the UK
/ 365 <- Number of days in the year, resulting in per day payments
/ 24 <- Number of hours in the day, resulting in per hour payments
£10,581.05 <- Pounds collected per hour from UK Music Radio
So, if music royalties were measured like a taxi meter, the meter would rack up royalties at a rate £10,581.05 per hour.
/ 15 <- Number of songs played per hour, resulting in per song payments
£705.40 <- Pounds collected per spin across entire UK Music Radio
Note: That figure—£705.40—is not the value of a spin on a single station, like BBC Radio 1. It is an estimate of the average value of all spins across all music stations in the UK at a moment in time, one station of which would be the BBC’s Radio 1. If, however, I reckoned that BBC Radio 1 were 10% of the listening audience at some point in time, the value of that spin on that single station might be around £70.54.
Some might disagree with the rate of 15 tracks per hour (or about 45 minutes of music). And so I also ran estimates asserting 12 tracks per hour (about 36 minutes of music) and 9 tracks per hour (24 minutes of music).
We need to divide £705.40, however, by the average size of the UK radio audience throughout the day that is listening to music radio to get an estimate of the value of each spin per listener. Essentially, if I could flip a switch and know how many people were listening to music on the radio at any moment, how many people (on average) would I find to be listening?
Unfortunately, such a switch does not exist. And so, now is that uncomfortable time when assumptions, guesstimates, and hopefully well-reasoned estimates are made.
In the UK, RAJAR estimated that during the most recent quarter approximately 47,137,000 people over the age of 15 listened to the radio at some time. This estimate is not the same as an estimate of the average size of the listening audience, however. In particular, it is not that portion of the audience that is listening to music (on the) radio at moments in time.
Below, I will calculate an estimate of the value per spin per listener at three guesstimates of the average size of the music radio listening audience during the day in the UK, given the peak/trough variation in this audience. Please feel free to share your thoughts/insights as to what other inputs I could/should use here.
Added: In the US, Arbitron estimates Hour-by-Hour listening as proportion of its quarterly radio audience. In their 2010 Radio Today report (page 89), these ratings throughout the day range from a high of approximately 17% of quarterly listeners to a low of around 1% of quarterly listeners. The average across the 24-hour period appears to be in the 8-10% range.
47,137,000 <- RAJAR estimate of quarterly radio listening audience, Q3 2011
£705.40 <- Pounds collected per spin if across entire UK Radio audience
/ 2,356,850 <- approximately 5% of the quarterly radio audience
/ 4,713,700 <- approximately 10% of the quarterly radio audience
/ 7,070,550 <- approximately 15% of the quarterly radio audience
Pounds paid per spin per listener for Radio in the UK for various estimates of the average listening audience:
At 15 songs per hour
£0.0002993 <- if the average listening audience is 2,356,850 people
£0.0001496 <- if the average listening audience is 4,713,700 people
£0.0000998 <- if the average listening audience is 7,070,550 people
At 12 songs per hour
£0.0003741 <- if the average listening audience is 2,356,850 people
£0.0001870 <- if the average listening audience is 4,713,700 people
£0.0001247 <- if the average listening audience is 7,070,550 people
At 9 songs per hour
£0.0004988 <- if the average listening audience is 2,356,850 people
£0.0002494 <- if the average listening audience is 4,713,700 people
£0.0001662 <- if the average listening audience is 7,070,550 people
Finally, and importantly, I realize (realise) that Radio stations in the UK do not pay royalties on a per spin (and per listener) basis. Instead, these Radio royalties are calculated by such means as a percentage of revenue, or as a result of a negotiation over a blanket fee.
I also realize (realise) that music services, such as Spotify, are not—by default—paying royalties on a per stream (per listener) basis. Instead, these royalties may be calculated through a number of means, none of which can be openly discussed due to the joys of non-disclosure clauses.
However, the resulting pool of money from Radio can be and has been counted. And various sources have reported online their payments from music services such as Spotify. As a result, nerds like me can try to estimate some effective rate given the size of the pools, the rough number of tracks played, and the number of listeners.
** As far as I could tell, PPL does not breakdown its Broadcast and Online revenue further in its Annual Report. There was not direct comparable for this estimate of the proportion of PPL collections that are derived from UK Radio royalties. I erred on the side of too large a proportion rather than too small. Any guidance on this figure would be appreciated