New Webcasting Rates (Continued)

The recently published webcasting royalty deal also had some dissenting voices such as Michael Robertson who titled his post "Sadly, Pandora Is Still Going Bankrupt".  Same goes for my former colleagues at Live365, who took me to task for commenting favorably on the rates (being accused of "going corporate" was probably the one that stung the most!).  But we had some good, constructive debate, which I'm going to resurface here:

• I went over my math again and it seems that COGS (soundex + bandwidth) comes closer to $15 - $16 per thousand streamed hours. Songwriting royalties would likely add 5% of revenues to the mix, which, at any rate, makes for a much healthier gross margin.  
• The economics and gross margins of a business typically reflect the value being created by the business and how commoditized it is or not.  So Wal-Mart & grocery stores are low-margin/high-volume businesses whereas services like legal or accounting are the opposite.  High-margin/high-volume businesses are rare but spectacular when they happen - think Google, Apple, MSFT, but typically it's their intellectual property that let them succeed.  I'm not convinced that internet radio should, on its own, be entitled to a high gross margin - essentially it is a distributor of commodity products, in this case the music. 

• At the end of the day, the fundamental question is how much is the content, the intellectual property, worth, and how much should a distributor pay for it.  For on-demand distribution, content owners tend to get 50-75% of revenues, sometimes less, sometimes more depending on the content.  Through this lens, 15-25% for non-on-demand distribution seems about right in terms of compensating the content owner.  Of course, satellite & terrestrial should pay these same rates.  To this my colleagues responded that 8% had been an established rate for satellite & cable music and also to view the historical rates that radio has paid in other parts of the world.  It's a fair point.
• I have become more sympathetic to content owners on the question of risk sharing.  The question the content owner asks herself is why she should be subsidizing companies that can't or won't monetize her content to the fullest extent, or even to an extent that lets them pay market rates for her product.  Instead, many of these licensees purposely don't fully monetize so as to build up an audience and then sell to a larger company, which is a fine strategy btw if you are an entrepreneur.  That said, I have publicly and privately railed against the licensing rigidity that the labels have had, which has effectively resulted in a high, regressive 'tax' that encourages tax avoidance.     

The certainty of new deal has already yielded benefits - apparently, Pandora just raiseda monster new round (maybe they're not going bankrupt after all, Michael). I'm not sure of the timing of it, but I would assume the investors knew about the deal even if it had been done prior to the new rates being announced.   

Finally, it's worth noting who negotiated the deal and that the deal wasn't meant to encompass every profile of webcaster.  There should be a separate deal for aggregators such as Live365, and, more broadly, there needs to be copyright reform to have the same rate-setting standards and thus parity across distribution mediums, including terrestrial radio.