Charlie Cook On Air: Streaming Profitability

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• December 7, 2012

Is streaming music ever going to be profitable? For anyone? Recently in Washington DC a group that is purportedly interested in ending discrimination against internet radio met with Congressmen interested in, who knows?

I could not actually find the name of the group that claims to be discriminated against. I guess they can be called, “The Companies Who Continue To Beat Their Heads Against the Wall Thinking That Consumers Are Going to Begin Paying For Things That They Get For Free.” That is kind of a long name for a business card but it best describes the group.

We could also refer to them as the group that hides behind Internet discrimination but whose real purpose is to impose a fee on Broadcast Radio.

I looked up the word discrimination. By the way I looked it up for free on the Internet. Here is what I got from Dictionary.com: Treatment or consideration of, or making a distinction in favor of or against, a person or thing based on the group, class, or category to which that person or thing belongs rather than on individual merit: racial and religious intolerance and discrimination.

With a broad interpretation one could say that treatment is different for Internet streaming, so that they can claim discrimination but maybe that word is used more to inflame than inform. This is not exactly forcing someone to sit in the back of the bus because of their color. This is not exactly failing to hire someone because of their religion or refusing to rent an apartment to a young gay couple. This is more like, “if we use an inflammatory term Congress will have to listen to us.”

But that is not really the subject of this note. The entire meeting was a ruse to get in front of Congress and begin to bash Broadcast Radio. The meeting was supposed to address the Internet Radio Fairness Act, which does not include anything about Broadcast Fees. But in about 2 minutes, the wolf jumped out of the sheep’s clothing.

Okay, back to can anyone ever make money streaming music? Look we hear poor-mouth from the big players. They say the fees are crushing them. Well, of course they are. First, they provide a free version. Who the hell is going to pay for something that is available, with a slight modification, for free?

Second, selling commercials is hard. Broadcast radio could have told them this. Finding and training sales people is not as simple as running an ad and putting someone in a suit. You have to find people who can hear the word “no” one hundred times a day hoping to uncover the one business that thinks buying air is a good idea.

I see where 27 million people built Christmas stations last year on Pandora. Twenty- seven million is a big number. Bigger still when you take a beat and try to think of five people you know who might do this. I know one. Twenty-seven million Christmas stations, a perfect target for, well Target, and Wal-mart and on and on and still Pandora is reporting losses as recently as this week.

Broadcast radio, which already has the most professional staff on the street selling advertising, is not making money online. Most broadcasters never see the light at the end of the road. In order to make money you need to appeal to more people. As broadcasters do this online, their costs escalate past where there will ever be a profit. And by the way, this streaming is provided free to consumers, just like the broadcast side.

A recent study by Vision Critical found that Pandora users spent more time with Broadcast Radio than non-Pandora users. This should follow. We know that there are music lovers and most likely looking for new music. Additionally, radio is free.

Many broadcasters stream because they feel they are expected to. They lose money in the process, or at least do not make money. I wonder really how many broadcast stations are making money at all. Maybe 25% of a cluster?

If Congress were to impose a broadcast royalty, the stream would disappear the next day. There is no way broadcast radio is going to pay a fee on both sides with no guarantee of profit on either.

(The views expressed in this article are those of the author and do not necessarily reflect those of MusicRow.)

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